As per the latest data released by the National Statistics and Smt. Nirmala Sitharamanji’s submissions in the Lok Sabha, it appears that the Indian economy is currently riding through a storm. However, as Amit Bhai Shah ji recently said: “The Indian economy and markets will emerge stronger because of the decisive, bold leadership that India is currently under. This is a crucial time. Industries must commit themselves to growth. Share your problems with our finance and commerce ministers. We will make sure they are solved.”
Given this positive reassurance, I am confident that we will be able to tide over this period. What is interesting is that several interesting suggestions have come up from all sections of society to improve the economy. Based on my readings, I have collated the key ideas proposed:
More Money in the Hands
Some are of the opinion that the common man needs to start purchases and consumptions. In order to attract them to do so, the Government can consider a reduction in income taxes and reduce the tax burden. An increase in the disposable income of individuals will have a multiplier effect on the aggregate demand of the economy. According to former chief statistician Pronab Sen, the government should shift its focus to smaller core sector activities that can help in turning around the economy. The lack of demand from consumers has been one of the chief factors behind the slowdown of the economy. He believes that a greater emphasis is required to boost liquidity in the market to create more demand. This will, in turn, generate more investments from India Inc.
Reform and the Economy will perform
Flexible laws have to be introduced that make it attractive for companies to consider investing in India. The MSME sector can also be given tax reliefs for GST. There have also been suggestions to simplify the GST regime and introduce a new direct tax code. If India has to compete with markets like China that provide a plethora of incentives to lure in investments, we must set up a level playing field by reforming the stringent laws. I believe that continued efforts in improving the ease of doing business in India will go a long way in improving the potential of the economy.
There is a need to bring in big-ticket reforms to accelerate the growth of the economy. Reforms suggested include privatization of the state-owned banks and disinvestment of public sector companies that are ailing. Other suggestions from the market include the need for the government to create a more favorable environment for the business so that more global firms are incentivized. The focus needs to be on increasing access to capital, building a skilled workforce and the capacity to conduct cutting edge R&D. These factors will definitely help to boost economic growth, create more jobs, and contribute towards a better business environment. The government must show full commitment to improving the conditions of doing business in India so that it can create an environment that bolsters the development of the industries and job creation.
Integrate to Prosper and Thrive
India must develop its trade relations with the ASEAN countries. The recently concluded ASEAN summit in November 2019 throws light on the fact that the ASEAN business community recognizes the immense business potential of the Indian market. The summit has paved the way for investments by identifying the various sector-specific opportunities and also highlighted the role of India in order to drive the growth. Improving trade and investment relations with the ASEAN region will definitely prove beneficial for the economy.
Specific reforms for the sectors were de-growth has been observed
Automobile, NBFC, metal, and the real estate sector has witnessed major impediments in growth. As far as the auto sector is concerned which is very critical sector, I feel that while definitely a detail dialogue with the industry is required but largely some relief to the manufacturers should be extended immediately through the following:
- Immediate GST relief for the two-wheeler industry and for entry level cars. I say this because several tax hoarders are taking advantage of the high GST through bill purchasing/ selling. This has resulted in the creation of a black market and the government is losing the tax revenues.
- Ease of financing at various levels of all passengers, dealers and manufacturers. Unless an ease of capital is introduced,the sector is bound to struggle.
- Introducing a scrapage policy
In relation to the NBFCs, it is important to address the availability of funding across the economy. The existing spreads between AAA + PSU companies and other private sector companies in manufacturing or NBFC sector is the highest ever. PSUs and AAA can borrow around 7 to 7.5 percent today whereas NBFCs will be around 9.5 percent. In my opinion, this is unsustainable. Many companies who are saddled with higher borrowing cost have made peace with themselves and are saying it’s going to be a consolidation year and are not thinking of growth at all. This obviously will reflect in growth numbers.
Banks have also taken the high ground and maybe stock market pressures (analysts etc) are forcing them to show that they lend to top notch corporates. So if all lenders like banks And MFs are going to think conservative – a large section of the economy will be deprived of funds
This risk aversion is spreading fast as we can see that one third of mutual funds are in liquid, ultra short debt and arbitrage. This means even investors prefer to remain to invest in only safe funds. So I am wondering if this can be addressed by reducing SLR limits for banks which will kick-start the lending. Perhaps, it is time for the bad banks to focus on buying out collateral like land parcels – and helping the real estate sector. We are well aware of that the real sector is in dire straits and needs immediate attention. It is also a sector that can create jobs in the economy. Many lenders and borrowers are keen to take risks and solve issues and move on. I feel that a land bank corpus can easily be the catalyst and the government has the holding power to hold these land banks for years.
Conclusion
The latest report of the Organisation for Economic Co-operation and Development for the Indian economy also has a ray of hope. As per the report, private investments will increase with an increment in capacity utilization and declination of the cost of borrowing for the corporate sector. The report further notes that the income support scheme introduced by Modiji that is aimed at helping the farmers and good monsoon season next year will significantly aid the private consumption. Measures introduced by the government to combat the slowdown such as a reduction in the corporate tax rates will also help. Recently, Sitharaman ji also announced that the government will invest Rs 100 Lakh crore (USD 1.39 trillion) in a series of infrastructure projects over the next five years which will boost the economy. These are extremely positive signs
The time before the next fiscal budget is crucial. I am sure that Modi ji and Sitharaman ji will take into account the various suggestions and inputs from the economists, India Inc., and the civil society. I am certain that India will be able to realize Modiji’s dream of being a USD 5 trillion economy because Modi hai to mumkin hai (If Modi ji is there, it is definitely possible).
