Various macro data released in the current fiscal reflect early signs of economic revival. The index of industrial production (IIP) reported a growth of 4.7% in May 2014, which was the highest in about 19 months. Though the increase in IIP comes over a negative base but the sectoral numbers point towards growth becoming broad-based. This upturn is further confirmed by a pick up in non-oil imports in June 2014. Exports have recorded double-digit growth in May and June 2014. The advanced countries are gradually recuperating and this clearly bodes well for Indias external sector. In addition, inflation rateboth producer and retail pricesalso reported softening on the back of lower food and fuel prices. Truant monsoon, which had been much of a concern this year, seems to be gaining some momentum. We can expect prices to remain range-bound this year. These initial green shoots of a turnaround are encouraging but will have to be nurtured, going ahead.
The governments first Railway and Union Budgets have articulated the direction and roadmap for accelerating productive investments and generating employment. The government has displayed its commitment towards improving policy environment for business and addressing the existing bottlenecks. The thrust on infrastructure, domestic manufacturing and agriculture should enable sustainable high growth over the next few years. There is a renewed optimism in investor sentiment, which is corroborated by some of the surveys conducted by Ficci. As per Ficcis recent CEOs Poll, around 50% of the participants indicated an increase in investments encouraged by the policy direction and growth-oriented measures announced in the Budget.
Ficcis latest Economic Outlook Survey puts across a GDP growth estimate of 5.3% for 2014-15. This is towards the lower end of the assessment of 5.4-5.9% GDP growth made in the Economic Survey. We can certainly make growth touch the better end of this range, provided the government sticks to its policy agenda in a time-bound manner.
In addition, some areas need immediate action. One, quick resolution of food inflation requires focused attention. Unless food inflation is brought under control, all development plans will fail to materialise. Measures taken by the government to address this issue need to be supplemented by a resolute and coordinated action backed with hard data. Ficci has suggested the creation of a Food Inflation & Response Strategy Team (FIRST) at the Prime Ministers Office (PMO) level, which will be an e-enabled, empowered coordination framework to address food inflation through integrated data management and logistical strategies.
Two, India has made good progress in product liberalisation and now the focus should shift towards liberalisation of factor markets. The issues related to existing labour laws and recently enacted land acquisition law need to be resolved at the earliest to facilitate and accelerate industrial development. The laws need to be revisited and made practical and equitable, giving due consideration to the present conditions and long-term socio-economic requirements. The recent move by the Rajasthan government to bring flexibility in its labour laws by reducing exit barriers for firms is a welcome step. Going forward, states must be given flexibility to amend/implement laws on critical subjects like labour, land and environment.
Three, further reforms in the financial sector are required to ensure diversified and affordable long-term capital resources for the domestic industry. A proactive approach is needed to resolve the grappling issue of rising NPAs. For this, Ficci has suggested a government-sponsored specialised entity called the National Asset Management Company (NAMCO) that will take over large-scale stressed assets (especially in infrastructure) of Indian banks and apply specialised resolution and management skills for recovery or rehabilitation of these assets.
Four, Ficci has also suggested introducing a rebated income tax for small start-up businesses called START (STArtup Rebated Tax) to encourage small start-ups and boost job creation. Similar schemes running in countries like Singapore and China have been effective in stimulating growth of MSMEs which play an important role in overall economic growth.
Five, though the finance minister did not spell out the time-line for GST in the Budget, he did announce initiating legislative action in the course of current year. We do hope that the government will effectively engage with the states and ensure early implementation of GST (in 2015). This would be a real game-changer, with the potential of increasing GDP growth by almost two percentage points.
Six, another long-awaited reform is in the area of judicial infrastructure that is currently plagued with enormous deficiencies. The recommendations of the Law Commissions recent report on Manpower Planning in Judiciary should be examined and implemented to ensure a responsive and speedy judicial system, essential to support the agenda of socio-economic development.
Indias growth story will get an added vigour if the government can demonstrate ground implementation of its plans over the next 6-12 months. The government should optimally utilise the strength of its mandate to initiate the long-pending reforms necessary for a well-functioning market economy. These would help in reaping growth and job dividends in the long run.
The author is president, the Federation of Indian Chambers of Commerce and Industry (Ficci)