Indian Economy – Options for accelerating the Economic Growth
The Indian Economy did very well immediately after
the Crisis. The performance in the following year s was better than the
expectations. After the growth of 9.3% in F 11, the Growth was down to 6.2% in
F 12 and 5% in F13.The underperformance
of the Economy continues. In F 14, the growth is likely to be in the range of
6% and
Even till the middle of F11, the potential
for the Economic growth was at 10% and it appeared that India would be able to
achieve the potential. The developments
in the Global economy and developments in many aspects in the Indian Economy
had resulted in deceleration of growth and brought down the potential for
growth to 8% today.
Lot of new initiatives were identified by the
government to revive the higher growth and action plans are in place and
implementations are being addressed. To implement the action plans every
segment in the society has to become a partner to the Government. Addressing the
crisis requires co-operation of all. The
slowing economy has affected all segments in the society and everybody is keen that
India’s economic growth gains momentum. The support for Government Initiatives has
to come from all political parties, Judiciary, the regulators , the media and
all other segments of the Society.
Agriculture. The growth in agriculture in the last many years was sub
par and much below the growth in Industry and services. Year on Year the share
of agriculture in the economy is going down. Considering the low productivity
of crops in India, the potential for growth in agriculture is more than 6% p.a.
Since the prices of agricultural commodities in the open market have become
very attractive , by enabling the farmers to realise the high prices, the agriculture
growth could be accelerated and the government subsidy to fertilizer could be reduced substantially.
Apart from inflationary pressure, in recent times, the
depreciating rupee has emerged as a major concern. Current account deficit has become one of the
major concerns in maintaining the macro economic stability. Some of the following measures could be
considered for addressing the pressing issues in the economy today.
Measures to correct the Current
Account Deficit
·
The
current account deficit is mainly due to high imports of oil and Gold and very
high value of non essential and consumer products from other countries. Many of
the products imported are available in India and only action plans to be
identified to make them available to the required customer segments .
·
To
address the current account deficit the following measures could be adopted.
·
Identify
the trade gap with every country with India has
trade.
·
Discuss
with these countries to increase the imports
from India.
·
Request
all the Diplomats from India to aggressively promote the Indian product imports
in the country of their residence.
·
Many
of the products imported from few coutnries , are giving competition to the
Indian suppliers and sme’s in India. Many of the consumer related products
which are imported could be reduced
substantially.
·
Set
the quantitative limit for imports of Gold on a monthly basis. Create a
campaign for discouraging the purchase of gold for non productive purposes . Identify action plans for using the
unproductive gold in the economic system to meet the demand.
·
Create
a nation wide campaign for reduction of fuel use. Encourage people to use
public transport. Target a five per cent reduction in use of fuel across
industries , homes and offices.
·
Create
innovative schemes for investments by NRI’s. Offer sovereign guarantee for
these products with reasonable rates of return.
·
Attract
more FDI through clearly specifying the policies for FDI in India in each
sector
·
Identify
the imported products, which will not be productive in the immediate term.
·
Explore
the scope for rupee trade with countries wherever the imports far exceed
exports.( Rupee trade would help to reduce the dollar imbalance ).
Measures to revive industrial growth
·
Projects
above Rs.1000 cr of capex which are stuck due to regulatory and environment
hurdles could be cleared by convening the CCI very frequently.
·
The
infrastructure projects which are on and stuck due to various issues relating
to regulation and environment could be cleared on an urgent basis.
·
The
credit flow from banking system to industries had seen a decline. Banks stopped
lending to many of the industrial sectors. This was also due to projects in many
sectors not bankable today. The sectors which had become unattractive today can
be made attractive again by introducing new investor friendly regulations .
·
Mining
is a key sector for industrial growth and it has seen a big decline in volumes
and there is an immediate need to target a growth of at least 15% in mining in
the immediate term and target a growth of 10% year on year in the coming years.
·
Many
of the power projects were stuck due to unavailability of competitive coal.
Through the proposed MDO model, the output of coal India could be increased by
at least 10% year on year and the government can appoint the best MDO operators
in the world to increase the output of coal.
·
Automobile
industry is one of the key industries in India and it has seen a big decline in
demand. Many sme’s and workers’ fortunes are dependent on this industry. The
credit flow to this sector including SME’s could be increased and tax
incentives could be considered for the short term.
·
The
manufacturing council has come out with lot of recommendations for increasing
the manufacturing activities and increasing the manufacturing competitiveness
of India. The suggestions could be prioritised and take up for implementation
without any loss of time.
·
Interest
rates. Since there is very little activity on new projects and the inflation
has gone up ,many of the industries in India had become unviable. There is a
need to reduce the interest rates which will benefit the government, companies
as well as individuals.
·
The
affordability of interest rates will make the projects more viable and rekindle
the consumer boom witnessed in the industry.
·
Land
has become very unaffordable for new projects and thel government has to work
very closely with each state government to make the land available at
affordable rates. Single widow clearance
including environmental clearance for projects could be created and the large projects can be
show cased to the foreign investors ( already for Steel sector similar
structure is being created ).
Depreciation of the Rupee and its
impact on trade and industry
·
Most
of the companies left their exposures uncovered expecting that the rupee would
move towards Rs.50. The analysts also expected the rupee levels to remain
strong.
·
The
announcement from the US fed that there would be early withdrawal of stimulus
created panic among the investors and they had started withdrawing investments
from emerging markets.
·
This
has affected the financial performance of many of the Indian corporates in
quarter one and despite good operational performance , the companies had to
report poor performance. Many of the corporates are sitting on a large
unrealised loss on account of sharp rupee depreciation. Appreciation from the
present levels would reduce the burden on the corporates. This is also likely
to reduce the NPA’s in the banking system.
·
Going
forward, the currency could be managed by a narrow band and the frequent communication
by the government on new measures to achieve a stable rupee will go a long way
in bringing a stability to the exchange rate.
·
Make
the country more attractive for NRI investments, FII inflow and FDI investments
through investor friendly measures.
·
By
reducing the current account deficit through various measures mentioned above,
it would be possible to manage the currency within a narrow band.
Development of industrial corridors
The proposed Delhi - Mumbai Industrial Corridor (DMIC), the
Chennai-Bangalore Industrial Corridor (CBIC), and the Amritsar-Delhi-Kolkata
Industrial Corridor (ADKIC) by the government will give a big boost to the economy.
·
These
projects will create many large industrial zones and new cities . This will
create demand for more than 300
industries.
·
Since
these projects are very large, there is a need to raise resources from abroad.
·
Already
Japan is involved in a big way in DMIC. UK and Japan had shown interest in
CBIC. World bank has promised to assist in ADKIC.
·
Considering
the large size of the projects, there is immense scope for other countries to
get involved in these projects.
·
All
the countries with large forex reserves and sovereign wealth funds can
participate in these projects and we can
invite them to participate in these projects.
·
Indian
companies can play a major role in partnering these projects and management of
these projects.
·
The
government can create many sub projects with smaller size with attractive
returns.
·
On
the similar lines, now discussions are being held about Chennai – Mangalore
corridor, etc.
·
This
is the best way to develop the industries. This is the model China followed. For
creation of large cities, China had shown interest. Since they are running a huge surplus with India, the scope for
retaining the export proceeds within India to deploy them within India could be
discussed with China.
Skill development
·
Despite
there is unemployment, in many cases,
there is a shortage of skills.For .E.g. Drivers to drive Trucks and buses.
There is a skills mismatch in many professions today. On one side there is a
shortage of labour and at the same time, there is an high level of
unemployment.
·
Further
many professions are unattractive today and dying.
·
The
government has already drawn up a plan for developing skills in the Economy and
detailed reports of skill development were prepared for more than 20
industries.
·
Each
state has created a skills development council and each state is working on
this concept.
·
Industry
wise skill development councils were created and they have started functioning.
·
PPP
model has been created and corporates
are working very closely with the government to make the initiatives very
successful. Corproates are very happy to co operate with the government on
these initiatives.
·
These
programmes can also be synchronised with programmes for unemployed in rural and
urban areas. Since the following projects are being taking on a large scale
there is a need for a large number of workers with competitive costs.
