Wednesday 22 June 2016
BJP Welcomes New FDI Policy of the Modi Government
Wednesday 15 June 2016
Laying Foundation For a Better tomorrow
By Gopal Krishna
Agarwal,
National
Spokesperson on economic Affairs, BJP
Prime Minister
Narendra Modi's recent trip to America has elevated Indo-US ties to new
heights, especially economic partnership. The confidence exhibited at the
India-US business conclave earlier this week is a case in point.
His government
has recently completed two years in office. Going by the reports of various
international think tanks land international institutions, the Modi government
has set India on the fast track to growth by introducing a raft of measures to
boost the economy.
Recent data
from the Central Statistical Organisation (CSO) points towards the fact that
the Centre's focused approach over the last two years is bearing great results.
Some people have expressed their reservations on these economic growth figures.
But apart from a few well-reasoned arguments, most of the criticism is
politically motivated. It should be borne in mind that the GDP now is being
calculated using the globally accepted Gross Value Added (GVA) method.
With the
growth rate nearing 8 percent in the last quarter of 2015-16, there is no doubt
that the economy, which was left in complete shambles by the previous UPA
government, is on the fast track to recovery. All fiscal parameters are on
target, whether it is revenue collection or expenditure or fiscal deficit at
3.9 percent of GDP.
Per capita
income has also risen to Rs 93,293 from Rs 86,879 last year. Experts believe
that the economy could grow in the range of 8-8.2 percent in 2016-17. This
would be backed by agriculture sector growth surpassing the 3-4 percent mark
depending on the monsoon.
All these
achievements are the result of the Modi government's tireless efforts. Flagship
initiatives like UDAY, PAHAL, and renegotiating Mauritius tax treaty, the
revival of held up projects in roads and rural infrastructure, are showing
extremely encouraging results.
These
initiatives have created the requisite infrastructure and demand in the economy
to attract domestic and foreign investment. Corruption-less and transparent
governance in the last two years has added more than Rs 4 lakh crore to the
government treasury on account of spectrum allocation, coal block, and mineral
auctions, etc.
1 would like
to highlight some of the key areas of focus for the government. The first focus
is towards dealing with corruption and crony capitalism. Over the past 20
years, the world has been reeling under the thumb of crony capitalists. To the
uninitiated, crony capitalism is a nexus between businessmen, obliging
bureaucrats, and politicians. It undermines the state, distorts resource
allocation and is against the spirit of equal entrepreneurship opportunities.
Through a fair
judicial system, efficient regulation and transparency in political funding,
one can bring positive results over a long period of time. Immediate steps to
tackle this menace include the careful and transparent process of transfer of
government resources into private hands, management of state-owned banks,
especially their debts and NPAs, control of parking and stashing of illegal
money abroad.
On this count
government has been very focused and successful in its approach. In its recent
edition, The Economist stated: "Encouragingly, India seems to be cleaning
up its act. In 2008 crony wealth reached 18 percent of GDP, putting it on a par
with Russia.
Today it
stands at 3 percent, a level similar to Australia. A slump in commodity prices
has obliterated the balance sheets of its wild west mining tycoons. The
government has got tough on graft, and the central bank has prodded state-owned
lenders to stop giving sweetheart deals to Moghuls. The pinups of Indian
capitalism are no longer the pampered scions of its business dynasties."
A point of
caution is that we have to be very careful with the public-private partnership model. Under
this system, crony capitalists have devised a mechanism of transferring government
resources in a nontransparent manner. A case in point is the DND project in
Noida.
The second
important issue is the management of overall debt. The world has been witness
to China's financial problems and its debt bust. The Chinese Debt/GDP ratio has
increased to 260 percent from 150 percent in a decade. The latest issue of
Economist says that its problem loans have doubled in two years.
Hungry for
profits in a slowing economy, plenty of Chinese banks have miscategorised risky
loans as investments to dodge scrutiny and lessen capital requirements,
according to The Economist. "These shadow loans were worth roughly 16
percent of standard loans in mid-2015, up from just 4 percent in 2012."
There are many
lessons India could learn from China. The Modi government has learned them
well. Instead of pushing the problem under the carpet, the Modi government has
tackled it head on. The ongoing clean-up of bank balance sheets will help spur
economic growth and improve the lenders' profitability. "Prompt actions
are being taken on willful defaulters," said Jayant Sinha, Minister of
State for Finance.
"One of
the key considerations in a situation like this, the banks should be empowered
and consequently protected so that they can bring about prudent settlements,"
said Union Finance Minister Arun Jaitley. "The overall operational profit
of public sector banks last year was quite significant. It was in excess of Rs
1.4 lakh crore. It is on account of provisioning that the overall the PSBs
declared a net loss of Rs 18,000 crore
The government
has already enacted the Bankruptcy and Insolvency Code. Another set of
amendments to the debt recovery legislation and securitization legislation are
before Parliament. The government is also considering setting up of Stressed Asset
Management Funds.
The focused
approach is not limited to empowering and supporting banks to deal with NPA
menace, but the government agrees that the bad loan situation has also arisen
on account of certain sectoral stresses like held up road construction, blocked
environmental clearances, and dumping, among others.
The government
is doing everything to restart held up projects, clearances, anti-dumping
measures and do away with policy paralysis. The government has gone even
further ahead and implemented the recommendations of the Nayak Committee Report
like the setting up of a Bank Board Bureau.
The third
important initiative is the ease of doing business. These initiatives have
helped in catalysing private investments. Some of the initiatives include easy
exit policy for genuine investors, repealing of about 1000 redundant laws and
more to come, faster and transparent project clearance policy and better
dispute resolution mechanism in the tax department where thousands of crores of
individual and government resources are blocked.
There has been
a reduction in the cost of collection of direct taxes from 1.36 percent in the
year
2001-2 to 0.59
percent in 2014-15. The government has also initiated premature retirement and
the removal of inefficient and corrupt employees from various departments. And
finally, targeted and focused approach to ending corruption and black money,
giving one-time compliance window to declare illegal foreign and domestic
assets.
Some areas,
which require flagging for the future, are labor reforms, disinvestment
reforms, especially for loss-making PSUs, lowering of interest rates as
demanded by business community with inflation, particularly of food items
looming large, and land acquisition issues and above all the passage of the
Goods and Services Tax Bill.
Narendra
Modi's philosophy of economic development is growth through empowerment. The
government has not only been successful in generating resources for the benefit
of the weaker sections but also spending this money to reach the target
beneficiaries in a transparent manner.
With the use
of JAM and direct benefit transfer (DBT), the government has plugged leakages
and created additional revenue for social security. The government has given
them social security and also generated widespread demand to boost the economy.
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The resources
at the command of the government are being utilized to build rural
infrastructures like toilets in rural areas, electricity to each and every
household, housing for by 2022, irrigation and rural roads.
Employment
opportunities for the weaker sections are being enlarged through Skill India,
Startup India Stand-up India and by easy access to loans under MUDRA Bank. The
real game changer in the near future will be the doubling of farmers' income
through reduced cost, better national market access facilities, risk mitigation
through user-friendly crop insurance cover, soil health card, efficient
irrigation like drip irrigation, neem coated urea and digitization and reforms
of land records, etc.
Truly this
government is focusing on the development of all sections of the society across
cast, creed, religion and geography. As a result of this focused approach, India
has become one of the fastest-growing major economies in the world and has been
able to attract largest Foreign Direct investment (FDI). We are sure that the
government will not sit on its laurels.
There is much
more in store.