By Gopal Krishna Agarwal,
National Spokesperson of BJP,
The recent
rate cut by the RBI is expected to provide significant support to the Indian
econory The RBl and the central government have now decided to work together to ensure that the
cumulative rate cut of 125 basis points is transmitted across the board.
India is moving
to a low interest rate regime. Now is the right time for the government to
capitalize on the rate cut and move quickly on other administrative and
legislative reforms. The Indian economic model is very different from the
Chinese one Unlike the export-driven Chinese economy. India is domestic
demand-driven and there is no excess capacity of the kind now being witnessed
across China.
One reason for
the low rate of investment in India is the lack of demand.
This
should recede as soon as demand picks up. The lack of good and efficient
physical infrastructure provides the government with an opportunity to ramp up public
expenditure in sectors that would naturally be crowded with private investment.
Taking cue From this, the government had planned large scale investments in
infrastructure. These are in addition to the mega investment plans unfurled by
Prime Minister Narendra Modi like Digital India', Make in India', Start Up India',
smart cities, power sector reforms and coal block auctions.
The
manufacturing sector is competitive and is not subsidy dependent like the
Chinese counterpart. The trickle of investments from abroad under schemes like
Make in India' should soon turn into deluge once the various steps being taken
by the government kick into action. The panic driven flight of global financial
capital will hopefully reverse in the near future as India provides the best
risk adjusted returns on Investment to this capital.
Because of this government's over-emphasis on the goods and services tax and Land Acquisition Bill, many in the corporate sector seem to be losing sight of the multiple steps being taken by the Centre. The government is seeking to establish an overarching framework under which citizens entrepreneurial potential can flourish.
"This
is what minimum government. maximum governance' is all about.
The business
sector can be excused for its impatience. With the lack of major reform during the previous regime and 17
months of the Modi government down the line, India Inc is desperate For
action. It is seeking palliatives while the government is committed to
structural change. A good example of this is the issue of land acquisition.
After strong opposition
by various political parties, the government has decided to allow state
governments to have their own land acquisition laws.
This, at once,
converts a potentially political showdown into a great opportunity for the
states to come with their own laws. A healthy competition between states will
ensure that the policy is attractive to industry while state-level politics is
expected to ensure a fair deal to the farmers. An issue that has also attracted
major attention is that how India should focus on the gross value added (GVA)
in these times of tax collection and falling subsidies. The GVA has increased
from 6.1% to 7.1% of GDP showing that the economy is gathering momentum, rather
than being stagnant.
The picture,
however, is not rosy. The banking sector, for instance, has emerged as a weak
link in the current narrative. The public sector banks (PSBs) are saddled with
massive non performing assets (NPAs) and restructured loans of doubtful
quality. This is coming in the way of credit flow.
The government
has taken a number of steps to restore vitality to the PSBs, including
restructuring capital and professionalizing the bank management. Steps like
putting the focus on micro, small and medium enterprises (MSME) sector finance
through Mudra Bank and new initiatives of payment banks will bear fruit in the
near future. A free-float currency also provides the RBI with more headroom to
take steps to manage capital flows.
In the debt
market RRI policy has allowed government to borrow 1.2lakh crore inter
nationally over the next five years, giving ample opportunity to the government
to take up mega investment plans, generating the much needed demand push to the
economy. Even the private sector has
been per mitted to go for cheaper external commercial borrowings (ECBs).
The economy is
gathering momentum and its underlying fundamentals remain strong. India has a
government at the Centre that is committed not only to maintain this momentum
but to also take steps to further accelerate the growth rate. Opportunities await.