1. Powering India’s growth in 2018

Powering India’s growth in 2018

India needs Banking, Rural & Agriculture, Housing & infra, and MSME-led Acceleration, or Brahma, for growth.

By: | New Delhi | Published: December 28, 2017 1:59 AM
GST, demonetisation, bank recapitalisation, economy, indian economy India stands at an inflection point characterised by confidence and conviction on the back of reforms like GST, demonetisation and bank recapitalisation.

“Vedamaynaya vidmahe, hiranya garbhaya dheemahi, tanno brahma prachodayat.”

Brahma, in Sanskrit, connotes infinite expansion and growth, and carries a special significance in Hindu cosmology and Indian philosophy as the ‘creator of the universe’. Creation requires both a big bang approach as well as the tenacity of consistent efforts to sustain it.

India stands at an inflection point characterised by confidence and conviction on the back of reforms like GST, demonetisation and bank recapitalisation. Going forward, the Union Budget FY19 needs a major thrust akin to the force of Brahma for the transformation that India is capable of witnessing.

The Brahma (Banking, Rural & Agriculture, Housing & infrastructure, and MSMEs-led Acceleration) approach is an opportunity to rev up India’s economic engine. It can not only propel India to reach 8-9% GDP growth rate, but also result in job creation for 10-12 million youth every year, ensuring ‘income and livelihood security’ for all.

B: Banking

Fortifying the National Company Law Tribunal (NCLT) structure: RBI has formed an Internal Advisory Committee for cases that may be considered under the Insolvency & Bankruptcy Code (IBC)—companies with fund and non-fund based outstanding amount greater than `5,000 crore, with 60% or more classified as non-performing by banks as of March 31, 2016. While this move was a master stroke in pre-empting bad loan situation, it could act as a catalyser of the economy by applying key modifications such as consideration of performance improvement of underlying industries over the past 18 months also as one of the objective criteria to consider case referencing. This will ease reviving companies’ stress and lead to containment of higher losses for banks.

Enhancing effectiveness of NCLT under IBC: Considering the significant escalation in cases filed especially from January to June 2017, it is imperative to increase bench strength with professionals having requisite skills, prioritise case hearing basis systemic importance, and appoint IRP status to ‘partnership companies’ that would bring underlying competencies through partners.

Bank financing for domestic M&As: To accelerate NPA resolution, the government must allow bank financing for domestic M&As of relatively weak companies with good underlying assets which have become NPAs for various internal and external factors. Current RBI guidelines preclude such financing, except in the infra sector. Also, given their significant social and economic value, capital market exposure must be precluded.

Deferment of IndAS implementation: First-time adoption of IFRS will result in $25 billion adjustment in net worth of banks. Given the impact of adoption, potential disruption and lack of comprehensive regulatory guidelines, IndAS must be deferred till April 1, 2020, from April 1, 2018, deadline.

RA: Rural & Agriculture

Ensuring ‘income and livelihood security’ for all: At this growth juncture, it is essential to qualify loans to agriculture infrastructure including food processing units as priority sector lending (PSL) sans upper cap. This move will reduce cost of funds by 1-2% per annum and help steer economic growth.

Loans extended to food processors for procuring raw material from farmer producer organisations (FPOs) must be qualified as PSL ‘small & marginal farmer’. This will reduce cost of funds by 2-3% per annum.

Integrated marketing for fresh produce handling & processing infra complexes: Allocation of `1,000 crore for top-50 consumption centres through PPP can lower logistics/handling costs by 2-3% per annum.

H: Housing & infrastructure

Catalysing investment & urban development: Municipal bond market must be deepened by encouraging ULBs to issue municipal bonds by providing interest subvention (2-3%). Project funding for affordable housing must be excluded from commercial real estate exposure along with syncing RBI PSL provisions with policies designed for affordable housing construction funding. It is vital to provide infra status to shipping for it to avail tax benefits and reduce borrowing costs. Also, the government needs to increase access to low-cost dollar funding to ports, shipping and logistics sectors by allowing refinance of rupee term loan facilities by ECBs and lowering credit rating threshold for refinance of ECBs to ‘A’ from ‘AAA’.

M: MSMEs

Engines for export & job creation: Considering successful GST roll-out, CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) must include all MSME units holding PAN details, and the guarantee cover for loans to MSME must be increased from 50-75% under various schemes to 85%, to encourage lending. This will lead to large-scale job creation. Since about 90% of MSMEs are partnerships or proprietorships, it’s time we create a centralised portal or repository for them, like the Registrar of Companies. This will improve transparency of MSME financial data, real-time assessment and reduce decision-making time.

A: Acceleration

Accelerating growth: The economic energy in India’s policy architects is palpable. It took the country three decades to increase the size of its economy by 10x to the current $2.3 trillion. Armed with Brahma and a strong developmental agenda at the helm, I am confident policies effected in 2018-19 will propel the government’s transformational agenda of 9%-plus growth and help steer the economy onto a higher, sustainable and inclusive growth path.

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