The Indian economy is an interplay of various sectors and secular growth can be ensured only by taking all the sectors upwards together and not in silos.
- Pawan Agarwal
The Indian economy is an interplay of various sectors and secular growth can be ensured only by taking all the sectors upwards together and not in silos. Ensuring a policy framework that will formulate measures to enhance the ‘ease of doing business’ on a sectoral basis can be a solution to arresting the economic slowdown.
On a year-to-date basis, the Sensex has gone up by 15% so far. But this has not been a linear one-sided growth for the Index. After having gone up from 34,981 in November 2018 to 40,267 in June 2019 the index slipped to 36,093 in September 2019 before closing at 40,360 as of this week. While this volatility creates a lot of discomfort among investors, especially the retail class, the bigger question to ask is what has prompted this kind of volatility in the markets and more importantly what is the solution to quelling it.
While the former has a much simpler explanation in the clamour of an economic slowdown, the latter is a complicated one to answer. In fact, the whole noise about the slowdown that is currently hurting the economy and in turn naturally impacting the markets is growing so loud that tiny voices propagating solutions to tackle this slowdown are dying without being heard.
Last month, Amitabh Kant, chief of NitiAyog, unveiled an interesting report titled “An Integrated Value Chain Approach to Ease of Doing Business: A Case Study of Sugar, Alcohol Beverages, and Tourism Sectors”. Put together by policy think-tank Pahle India Foundation, the report is interesting on many accounts.
Firstly, it makes some unique observations and suggestions for the three industry sectors – Sugar, Alco-beverage, and Tourism – which have been included as case studies. It suggests that had the policy reforms that are currently being implemented under the Department for Promotion of Industry and Internal Trade’s (DPIIT) Business Reforms Action Plan (BRAP) framework, considered the close interlinkages of industry sectors and the effect on the entire value chain, these reforms would have made more discernible impact on the GDP of states and UTs – something that we are grappling with today.
The study recommends that, in place of this generic method followed by DIPP, policy reforms should take on a sectoral approach after conducting sector-specific studies to understand the inter-linkages and impact on the value chain.
Every state has few sectors that are a greater contributor to its economy than the others. For some, agriculture could be more important than services. But if these sectors are viewed in light of their interplays with other sectors, then the impact of even small reforms in one of the sectors can be felt across the entire value chain.
This is so true of the Indian economic framework. And it could not be more relevant to the equity markets which always have a sectoral outlook in determining the overall strength of the economy. Finding out the linkages in various sectors and weaving reforms around those that are interconnected will not only ensure a seamless approach to the process but also enhance the overall impact that such reforms can have.
Creating Ease of Doing Business is the key to improving the overall economic health. But what is more critical is to have a correct approach to it so that the benefits of the efforts percolate down to the last mile creating sustainable growth paths for the various sectors.
The author is MD – Wealth Management, IndiaNivesh. Views expressed are the author’s personal.