Any developing nation like India can’t grow at a desired rate in absence of the matching investment rate (GFCF). For this, the easement of bank credits and the easement of business and taxation laws are crucial which motivates entrepreneurs. The growth must be consistent, for which, exports must grow at double digit.
Investment and export-led demand is the right choice over consumption-led demand. Therefore, the policy announcements and the resource allocations in budget should proceed in that direction.
In 2021-22, the real GDP might land around Rs.147 trillion as against Rs.146 trillion in 2019-20. Currently, the macro parameters such as, investment rate (GFCF), high inflation (wholesale), rising trade deficit, falling Bank Credit and savings rate and the overall stress in MSME Sector are not favourable. Hence, the growth estimate for 2022-23 by various agencies, as 7.0 to 8.5%, is somewhat optimistic. Prior to pandemic, the economy was in downhill and the GDP growth was barely 4% during 2019-20.
Now, the investment rate has plunged from 38.1% in 2007-08 to below 30% of nominal GDP; that must be jacked to 35%. Overall financial resources of the nation must be allocated in a planned manner so that; the “incremental capital output ratio” (ICOR) is attained above 4.0. That will facilitate the GDP to grow @ 7.0-8.5%.The investment in the MSME sector provides highest ICOR; that must be incentivised in a structured manner.
Out of total investment, the infrastructure investment should be about 12.0-15% of nominal GDP. Highly viable infra projects may be auctioned. Normal and semi viable projects should be implemented through SPVs in which, the States, PSUs and Private sector may be included as shareholders. In semi viable projects, additional budgetary grants may be given to SPV towards viability gap funding (VGF). About 65% cost may be funded through debt route, preferably through bonds with a sovereign guarantee. Unviable projects may be deferred for 2 years or may be funded from the dis-investment and auction proceeds. By this, the budgetary resources can be leveraged 4-5 times and thus; the infra spending target can be easily met. The spending must reduce the cost of logistics and energy and develop the human capital and thus improve overall efficiency of economy and the global competitiveness.
Financial sector reforms are most crucial for pushing private investment. The business risks arising from the stricter NPA norms and insolvency laws must be revisited. As an alternative funding, the corporate bond market must be boosted through tax incentives or sovereign guarantee, particularly for the capital intensive projects. Huge potential of bond market in India must be tapped; that will ease the burden on banks and also compensate deficit of domestic savings.
Bank credits to MSME sector must be boosted by a structured credit guarantee scheme and re-instating the restructuring of loan in deserving cases. Banks should increase capital adequacy ratio for sharing business risks and implement “self-insurance mechanism”, We must acknowledge that; in a developing economy, the risk of bad loans is inevitable. That must be shared by the borrowers, banks and Government in a structured manner. Too much hype of NPA norms and the mistrust on the bankers and entrepreneurs shall be counter-productive.
Currently, the business and taxation laws are not so encouraging for the business expansion. Quite often, business failures are equated with the crime. Even the delay or non-compliancesis causing criminal prosecution. India must surmount the past legacy of Colonial laws and the syndrome of excess and tough regulation. Criminal prosecution must be a last option with a prior approval from the higher authority. Existence of criminal intent must be an essential criterion before initiating criminal proceedings.
Several studies have concluded that the business laws and regulations must prevail, but those must be simple and compliable by the majority and those must result in to development outcome. Legislature intent must be disclosed in the Preamble of each law. Facilitation must co-exist along with the regulation. By this, the abidance of law shall progress and the respect of law and institution shall succeed.
Most of the business laws and regulations are framed keeping the large corporate in view. For medium enterprises, those are indeed difficult for full compliance. Indian Companies Act, 2013, the environmental regulations and land acquisition Acts are few such examples. Such list is too long and it is expanding every year.
Likewise, several archaic regulations in other sectors have converted India as a high cost economy; that needs revamping. The economic efficiency of India must be improved for achieving the prosperity of nation. An administrative circular for removing these impediments will send a positive message among the job providers for joining the team.
Over a period of time, India is witnessing such a situation, in which, every regulator and taxmen is looking for more powers for punishing the business firms. Facilitation jobs are rarely preferred. While delegating regulatory powers, additional responsibility of facilitating the business may also be entrusted. Empowerment without accountability is never good for the developing Nation.
Any productive asset, irrespective of the management control under the private or public sector, generates jobs, public income (GDP) and government income (tax). Those must be treated as a national asset and protected in the public interest. Such message should travel down below the line up to district level. All such bold reforms shall boost morale and fighting spirit among the entrepreneurs, and thereafter, the economic crisis will be a trivial issue. Rather, India will rebound with a greater thrust.
(By R P Gupta, Author, Turn Around India, Jan Andolan & Turn Around India-2020)
Disclaimer: The views are personal