India
is back in the spotlight and all for the good reasons. It is not just fervent
hope but an assertion grounded in reality. The government has taken number of
steps to put the growth story back on track and the effects are for everyone to
see. India’s GDP forecast for 2015 has been revised up significantly from 6.4%
to 7.5% by International Monetary Fund (IMF), and China’s growth forecast was
revised down from 7.1% in October to just 6.8%, it means that for the first
time since 1999 India is projected to grow faster than China. It means that
India is going to be the fastest growing major economy in the world in this year.
IMF also expects India to continuously grow faster than China until 2020.
According to a new data from IMF India is poised to surpass Russia this year in
size and nearly equal Brazil’s in 2016.
Raising
India’s credit rating by Moody’s is a further confirmation of the right steps
being taken by the government. Moody‘s ratings,
revised India’s sovereign rating outlook to “positive” from “stable”. It
expects that the actions by the policymakers will enhance the country’s
economic strength in the medium term. There
is a precursor to a rating upgrade by Moody and other Credit Rating Agencies.
This will reduce the cost of external borrowing for Indian business. It would
also increase Foreign Portfolio Investment (FPI) in the Indian Capital Market.
For an economy that is short of capital, this is a major positive development.
Labour,
Capital and Natural Resources are the three main factors that help economic
growth. We have abundant labour and natural resources but are short of Capital.
If the economic outlook for the country improves, we will be able to attract
international investments. Developed country’s main strategy has been to
attract resources all across the world. Some recent development shows that we
are moving in this direction.
The
statements by IMF and Moody, point towards strong economic outlook for India in
near future. PM Narender Modi’s foreign policy has just achieved this
impossible in a short span of time. The IMF lauded the economic policies of
Narendra Modi’s Government.
The
reason for India’s economic resurgence is a decisive government under a strong
leadership. The sense of despondency and despair has been replaced by a can-do
belief and by a renewed hope for a better future. For the first time in the
last 30 years a political party was voted to power with complete majority in
the Lok Sabha. It was a positive vote for a change by a young and restless
population that was not willing to let its leaders squander opportunities. "The
conditions are ripe for India to reap the demographic dividend and become a key
engine for global growth," Christine Lagarde (Managing Director IMF), said
at an event organized at a women's college in New Delhi.
According to World Bank in its
twice-yearly South Asia Economic Focus report, India’s expected growth
acceleration is "driven by business-oriented reforms and improved investor
sentiment" and that growth could reach 8 per cent in fiscal year 2017-18.
The role of Government cannot be overemphasized.
Factors like young population, high savings and investment rates were very much
present under the previous regime as well and yet the economy was faltering due
to weak political leadership.
The
break from the past was quite visible right after the elections. Though the new
government took number of measures to put economy back on track, it is the
large vision for the country and the confidence in its executional abilities
that is inspiring confidence and optimism in the economy. The attitude of
Government towards big business has been of a participatory nature for economic
regeneration. Earlier investments had crippled due to lack of certainty and
transparency. The government is trying to restore the confidence of the
corporate sector. The complaint, if any, has been on the ‘slow speed’ of the
reform measures.
With
a firm realization that no piecemeal approach is going to work, the government
is taking steps to address the structural problems of the economy and is not
hesitating from either taking politically tough decisions or truncating its own
powers and privileges in the larger national interest. The courage to take
tough decisions comes from the conviction that national interest must prevail
over fights based on narrow political considerations. Nothing but this explains
the government’s resolve to amend the Land Acquisition Act. The
government has also relaxed foreign investments in sectors such as Defence,
Insurance, E-commerce and Railways and is focusing on ease of doing business.
The investor-friendly Narendra Modi
government, which came to power in May 2014, promising faster growth, more jobs
and quick clearances, has taken measures to fast-track clearances for projects,
boosts infrastructure investment and remove policy uncertainty in mining and
coal sectors. The target of Modi government is to increase the contribution of
manufacturing sector to GDP from the present level.
The
paradigmatic shift in approach is to address focused growth issues and propel
economic growth. To flag major initiatives of the government to achieve above
objectives are:
a. Make
in India:
Accepting the fact that agriculture alone cannot provide gainful employment to
the vast population, currently dependent on it and to pull people out of
poverty, the government has made ‘Make in India’ one of its credo and has taken
number of steps to boost manufacturing sector including reforming labour laws,
availability of capital and skilled manpower. It is hoped that a host of
measures being taken by the government will make India a preferred destination
for setting up manufacturing base.
b. Mudra
Bank (Micro Units Development Refinance Agency): Prime Minister Narendra Modi
launched Mudra Bank
which will benefit small and micro entrepreneurs and will also act as a
regulator for 'Micro-Finance Institutions (MFIs). The roles envisaged for
MUDRA include refinancing, their accreditation and rating requirements.
c. Ease
of Doing Business:
The government is committed to ensure that starting, running and winding up of
an enterprise does not continue to be a regulatory nightmare and entrepreneurs
are not harassed due to burden of unnecessary regulatory compliances.
d. Goods
and Services Tax (GST):
The government has already placed the Final Bill in the Parliament, which will
be most probably passed in this session. Once implemented, it will create a
common national market and also boost tax buoyancy. This will result in
increase of about two percent in our GDP.
e. Increase
in FDI Limits:
Foreign investment limit in Defense and Insurance sector has been increased to
49%. It is expected that the limits would be liberalized for other sectors as
well.
f.
Reinvigoration of the Federal
Structure:
·
14th Finance
Commission:
Under the present arrangement the state governments have the responsibility for
most of the developmental work and maintain the requisite state apparatus but
are dependent on the Centre for financial resources. The government by
accepting the recommendation of the 14th Finance Commission has
ensured that States’ share in central taxes has increased to an unprecedented
42%. The States also get more freedom to determine the expenditure and to
tailor them according to local needs. This will help them getting out of the
central sponsored straight jacketed fixed schemes.
·
Niti Aayog: The motive behind dismantling
the Planning Commission and replacing it with Niti Aayog is to make the
developmental process more participative. It is expected that Niti Aayog will
emerge as an institution to formalize the sharing of best practices of states.
With increased financial allocation to the State governments, it is a must that
their institutional capacity is enhanced to properly spend this money.
g. Land
Acquisition Amendment Bill:
Armed with feedbacks from various state governments and other stake-holders on
the impracticability of certain provisions of the Land Acquisition Act of 2013,
the government has placed an Amendment Bill 2015, making certain changes in the
Act and will get the bill passed by the Parliament.
h. Transparency
in resource allocation:
Successful allocation of spectrum and coalmines through auction has shown the
way for the future. The robustness of the process also gives confidence to the
corporate sector that the allocation would withstand challenge in the Court of
Law. This process is expected to be followed in the future as, and has led to
huge increment to the exchequer.
i.
Strong
measures including a new Bill, are being implemented to check and control Black
Money generation in the economy and it’s parking in Tax Havens.
j.
Farmers
are the backbone of Indian economy. With more than 60% of our population
dependant on agriculture and contributing only about 15 percent to GDP, there
is an ever increasing problem of disguised and under employment. We need major
boost for this sector. New focus is being given to development of rural
infrastructure, establishment of cottage and village industries,
electrification and provision of irrigation facilities in rural areas etc.
k. Setting
up of 100 Smart Cities:
It is expected to bring in huge foreign investment and technology and make our
cities better in terms of physical and social infrastructure, sustainable
environment and geographical development across the Nation. This will also
prevent urban migration and over crowding of urban clusters.
l.
Pradhan Mantri Jan Dhan Yojana (PMJDY): The Jan Dhan Yojana of the government was
started for comprehensive financial inclusion with the goal of opening a bank
account for every household in India. Apart from financial inclusion, this
scheme is also expected to check the leakages in the subsidy and will make it
more targeted for the poor. With the linking of health and accidental
insurance, it has also become an instrument for social security. More then 13
crore bank accounts have been opened in a short span and its success has been
recognized internationally.
As
must be expected, or even desired, there are some risks to this success story
as well. The government lacks majority in the upper house of the Parliament and
therefore major legislative reforms cannot be passed without the support of the
opposition parties. While it has been the effort of the government to forge
consensus even in the lower house (Lok Sabha) where it enjoys a comfortable
majority, major legislative interventions can become hostage to narrow partisan
considerations. Secondly the government has also been fortunate to have low oil
prices giving it some space for fiscal maneuvering.
Moody’s
has well grasped what the government is trying to achieve. In its recent
statement it has said that, India’s policymakers are establishing a framework
that will most likely allow India’s growth to continue to outperform that of
its peers over medium term and improve India’s macro-economic, infrastructure
and institutional profile. The effort of the government is to create an
ecosystem of institutions, systems and processes that will ensure that the
economy continues to grow rapidly with the government playing a supportive role
in the background.
Finance
Minister’s statement at America aptly sums up the strong fiscal numbers, when
he says that the inflation is down to 5 percent, fiscal deficit to 3.9 percent,
current account deficit to around one percent and GDP poised to grow around 7.5
percent, India is in for major leap on economic front. And as economists will
agree with me, that strong economic growth is the answer to many of our
Socio-economic problems, we are all in for good times ahead.
Gopal
Krishna Agarwal
Member
of National Executive BJP and Economics Policy Formulation Group
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