With an alarming faltering of growth, consumer sentiment in the Q1FY20, the government may need to make some structural reforms in investment and reduce its direct involvement in the economy.
With an alarming faltering of growth and consumer sentiment in the first quarter of the current fiscal year 2019-20, the government may need to make some structural reforms in investment and reduce its direct involvement in the economy. While the government may have already exhausted its previously successful weapons to tackle slowdown, structural reforms will be critical for higher GDP growth in the coming quarters, said a research report. “The government may have largely exhausted the fiscal and monetary options unlike the previous periods of slowdown in the economy when it had more ammunition to fight the slowdown,” said Kotak Institutional Equities in a research report today. Instead, it may look into investment reforms and lowering its role in the economy, added the report.
Suggesting a lowering of government’s direct role in the economy, the Kotak report said that the government must consider large scale privatization of PSUs. PSUs have largely uncertain future with the emergence of new technologies, which in turn may hit current profitable companies in the next 15-20 years. Also, the PSU’s “may not have the flexibility to manage costs given their very high employee costs,” the report added. Also, PSUs have been a drag on government financials specially PSU banks.
Reforms are needed in both manufacturing and infrastructure sectors. In manufacturing, the reforms must take into account various factors of production like labor, faster approval processes for automatic and deemed approval systems are also needed, the report said.
On the other hand, in infrastructure, “investment-related reforms covering areas of ownership of infrastructure assets and pricing of services will be important for greater role of private sector investment and more sustainable investment models,” the report added. Currently, government entities are largely responsible for investment in infrastructure, which does not work at times considering the government’s fiscal constraints.
Currently, the Indian economy is facing structural challenges in certain sectors which includes agriculture, and automobile, leading to a consumption slump. The slowdown in several sectors is now evident and the government too has started to take cognizance of the same in last few weeks.