New Government - New Expectations


By

Dr. K. Murugadoss
Asst. Professor and Head
Department of Commerce
Periyar Govt. Arts College
Cuddalore

P. Lourdu Christiana
Research Scholar
Periyar Govt. Arts College
Cuddalore

B. Savithiri
Research Scholar
Periyar Govt. Arts College
Cuddalore
 


Introduction

A report by Deutsche Bank says that about Rs. 6.3trillion (USD104bn) worth of projects are in a stalled stage at this moment (60% of which can be attributed to the private sector), with sectors such as steel (18.9%), petroleum products (28%), mining (9.7%), electricity (9.0%), construction/real estate (particularly commercial real estate, 10.9%) and transport services (12.7%) being the worst affected.The expectation level is soaring by the day among different segments of the economy- stock markets, industry, trade, multilateral institutions and foreign investors. Heads of the diplomatic missions are also pinning their excessive hopes on the next government as they would like to reinforce their economic ties with India.It is a norm to expect the moon from the new government. India's runaway stock markets are scaling new highs daily on the expectations from the new government.  As the juggernaut of the new government starts rolling, expectations from various sectors also are buoyant with many expecting urgent reforms in various sectors. The important point of view is that the government should take a holistic approach while deciding its policy.

Expectations from Indian coporates

The Associated Chamber of Commerce and Industry of India (ASSOCHAM) recently surveyed nearly 450 CEOs engaged in different sectors such as manufacturing, finance, real estates, banking and IT. The survey was conducted in Delhi, Mumbai, Bangalore, Ahmadabad, Cochin, Kolkata, Hyderabad, Chandigarh, and Dehradun covering all the large, medium and small enterprises.Though they retained their optimism about India receiving a decisive, strong and stable government, as many as 67 per cent of the corporate heads agreed the expectations are excessive, at least on the delivery front.

The run-up in the stock markets in the last few months is another pointer to a huge level of expectations. The survey shows that at least in the last 20 years, there was never such level of expectations from a new government, ASSOCHAM Secretary General Mr. D S Rawat said.The survey showed that the expectation level was spread across major sectors of the industry in particular but the maximum optimism was seen among those engaged in financial services, banking, real estate and consumer goods.

Inflation Top priority

As many as 54 per cent of the respondents in the survey said though issues like inflation and revival of economic growth will take long, they still expect some major morale-boosting announcements from the new regime in New Delhi in terms of reforms that will promise ease of doing business, unclogging of infrastructure projects stuck for environmental clearances.

The consumer inflation which has become more of a benchmark for the RBI , has remained excessively high for a number of food items of common-man, who is also expecting some big time steps from the new government. For the common-man, the inflation stays one of the most important issues at the ballot boxes.No sooner the new government takes office; the most important economic indicator requiring immediate action will be inflation. If it rides on a popularity chart, as is expected, attending to this issue would become of paramount importance, the ASSOCHAM paper said.

Policy to be predictable

Over the recent years, the industry has suffered a lot due to the so called "policy logjam". There is clearly a strong need for the new Union government to improve inter-ministerial coordination and bureaucratic administration which has been below themark in recent years. Also there has to be greater consistency in policy making. Unfortunately, due to the various scams in the recent years as well as some announcements on retrospectiveamendments to tax laws has all led to perception of inconsistency. It is very important for government policies to be consistent and predictable.

Providing a boost to manufacturing

India's manufacturing growth has been stagnant or negative in the last two years. As the economy needs to generate around 12 million jobs annually to cater to the workforce, agrowing manufacturing sector with increased share of GDP is essential.There are three key areas which should be looked into:

Execution of the new manufacturing policy (NMP) which addresses issues such as regionaldisparity in industrial growth and inflexibility of labour rules, and it is also proposes addincentives like exemption in capital gains tax and other targets to enhance the manufacturingsector and to create additional jobs.

Creating new industrial corridors and improving infrastructure around access to portsand airports

Making land available at affordable rates for industry over the long term and making it transparent for all stakeholders. Expediting each of the above would be critical to the success of the manufacturing sector. Government policy can play a pivotal role in managing India'sproblems. A good example in recent times was the increase in the import duties on gold. This move brought down gold imports due to which India's current account deficit reacheda sustainable level. A concerted effort by the government would go a long way in reviving investments and help India reach is growth potential.

Expediting project approvals

While seeking project approvals, businesses have to deal with multiple agencies at the central and state level, which often give conflicting decisions. This is the primary reason for stalled projects and decline in new investments. The new governments need to step in and de-clog stalled projects. The cabinet committee on investment was set up to accelerate the pace of approvals, it is necessary to continue and speed up. A single window through approachfor all required clearances is desirable. These measures would go a long way in reviving capex.

Revenue

Goods and Services Tax (GST):
A move forward to closure on this bill would be a big boost to the economy. GST aims at simplifying India's indirect tax structure and make India into a single pan India market. This will give a significant boost to productivity and logistics industry. Estimates suggest that this measure alone could boost India's GDP by 2-3%. The GST is however stuck due to differences between the centre and the state governments. The differences as we understand are largely procedural in nature and the central government needs to give some concessions and flexibility to state governments which otherwise lose their revenue flexibility.

Power sector

We need to improve the coal availability in India and reduce dependence on imported coal. India has abundant coal reserves but not utilized properly. Coal production volume has slowed sharply for both Coal India and the private coal miners. We need to restart the process of greater private sector involvement /PPP models. Greater clarity will emerge post the investigations and ongoing litigation on the coal block auctions. The new government should work towards quick closure on the same and move on to the next level of formalizing a new policy on coal blocks. Creation of a coal regulator could be a wise step in this direction to accelerate the process.

Roads & Transportation

About 8,000kms of highways have been awarded for almost two years now but work in progress has been quite slow on most of these projects. Some have been wrongly/ aggressively bid/some faced bottlenecks in execution- land &environment approvals/ lack of financial closure. Various other transportation projects (metros, railways, ports) areon the drawing board for a number of years. Devising a strict timeline to take a decision whether the projects are feasible or not/weed out the infeasible ones and expedite work on the ones found feasible are some of the early steps the new government can take. A possible solution for the aggressively bid projects in the roads sector is to either cancel all such existing contracts and ask for fresh bids or maybe a rule based relief package for the entire industry which is somewhatrevenue neutral to the government.

FDI

Besides job creation in a human intensive industry - FDI inflows would also help contain the current account deficit and keep the currency stable in an uncertain environment for emerging market currencies.

The long-awaited insurance Bill has been pending in the Parliament for many years. Foreign insurers have patiently awaited the outcome of our democratic process of building politicalconsensus. Time is now running out. There seems to be a growing apprehension among them of a political impasse continuing in 2014 and beyond. India needs long-term foreign and domestic capital to invest in our insurance industry. It is critical to protect human life, our productive assets and be a key resource for the country's infrastructure. Moreover, the FDI cap of 26% in India is amongst the lowest in the world. In Asia too most other countries like China, Malaysia, and Philippines have higher limits. If we do not seize the opportunity to encourage more capital, our long-term growth will be derailed.

Agriculture Push

Turning agriculture into an organized business with the farmer as the entrepreneur should be thekey. Strengthening is needed at all the levels of the supply chain inputs delivery, credit, irrigation facility, farmers diversifying, procurement, minimizing postharvest loses, cold storage chains, better processing and marketing techniques, efficient storage and competitive retailing.

Labour

Inflexible labour laws need an overhaul if India is to create the tens of millions of new jobs itneeds to become a low-cost manufacturing centre. Companies are hiring more contract workers to circumvent these stringent laws, leading to pay disparities and a lack of job security for the unorganized workforce. The challenge will be to set measures acceptable to employers, workers and trade unions.

Financial Inclusion

Financial inclusion emerged as a catchphrase around the time inclusive growth became the national mantra. Buoyed by the consensus that growth must be inclusive, we went after more causes with "inclusion" tagged to it. Financial inclusion, in this sense, was ripe for the picking. But now that the luster around inclusive growth has dimmed somewhat, it's time financialinclusion came under the scanner too. Financial inclusion is the delivery of financial services at affordable prices to the poorest sections of society. While India's banking sector has done wellof late, a sizeable section continues to be excluded from even basic banking services. India is home to the second largest financially-excluded population after China with an estimated135 million such households (or two thirds of the population). Predictably, rural India fares dismally.

Conclusion

The list is endless. The task before the new government is enormous. By 2020, the median age will be 29, making India the youngest nation in the world. The kinds of demands a young population can place on policy makers are enormous. Unlike the more patient and older predecessors, the young will be impatient and demand better opportunities to further their interests. The demands they place are fair and it is incumbent on the government that comes to power to help this generation realize and unleash their potential.

What is expected from the new government is to take a few administrative actions which have demonstrative effect. A few small steps in right direction will build a positive sentiment. Some morale boosting announcements from the newregime, strengthening the optimism already generated would, of course, be welcome.

Source

1. Deccan Chronicle
2. Economic Times
3. Experts opinions from CII, ASSOCHAM and FICCI
4. RBI Monthly Bulletins
5. Business Standard .com
6. NDTV Profit.com
7. Business Today
8. Stock market review.com
9. ASSOCHAM Survey / Press Releases
10. Economic Times. India times.com
 


Dr. K. Murugadoss
Asst. Professor and Head
Department of Commerce
Periyar Govt. Arts College
Cuddalore

P. Lourdu Christiana
Research Scholar
Periyar Govt. Arts College
Cuddalore

B. Savithiri
Research Scholar
Periyar Govt. Arts College
Cuddalore
 

Source: E-mail September 29, 2015

          

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