Given the large multipliers the sector has—both for employment as well as for consumption—this can really spur growth demand and GDP growth.
Finance minister Nirmala Sitharaman has done well to talk of the government responding to sectoral problems as and when they are brought to the government’s attention; indeed, in her first press conference to announce changes in tax rates on FPIs etc, she had indicated that the next set of measures would be in real estate. There are, of course, macro solutions that need to be taken, such as ensuring India’s tax rates are on a par with those in competing countries like China and Vietnam, getting labour policy right, giving environment clearances quickly, and so on. Beyond that, however, everything is sectoral and the impact of policy changes will be both quicker and, possibly, even sharper.
Now that the government has allowed 100% FDI in commercial coal mining, for instance, it must focus on ensuring Indian levies are brought down to reasonable rates; as compared to 7-15% in Australia and 0.5-4% in China, India’s royalty rates are 30-35%. A Niti Aayog strategy paper had pointed out that while India’s prospective geology is very similar to that of Western Australia, only 10% of it has been explored, as compared to 95% for Australia, and an even smaller 1.5% is being mined right now; according to Niti, even doubling the area being explored could create an additional 5 million jobs by 2022-23.
Similarly, if environment clearances are not streamlined, there will be no big mining investment. In the telecom sector, similarly, it is not lower corporate taxes that will drive investment, it is the reduction in statutory levies that is required; from 12% in 2011, the pre-tax government share of telecom revenues rose to a crippling 25% in 2018. And, thanks to the government never settling the issue of what ‘revenue’ is, telcos face the possibility of a `92,000cr bill once the Supreme Court rules on this; a ruling is expected soon.
In the case of the oil and gas sector, thanks to unfriendly government policy, while prime minister Narendra Modi planned to cut import dependence by 10 percentage points by 2022, a series of major policy missteps (bit.ly/2lVXdN4) ensured that import-dependence rose, from 83% in FY13 to 86% in FY18 in the case of oil, and from 30% to 45% in the case of gas. Indeed, going by the BP Energy Outlook, for 2019, this is going to continue to rise further, to around 95% for oil by 2040 and around 60% in the case of gas.
In the case of the real estate sector, similarly, as this newspaper has consistently argued, the government has to be more pro-active in taking over stuck projects, and giving these to builders who have a reputation for delivering—the Centre telling the Supreme Court that it would consider tax concessions to the public sector NBCC if it was willing to take over Jaypee’s projects and complete them, is a step in the right direction.
Given the large multipliers the sector has—both for employment as well as for consumption—this can really spur growth demand and GDP growth. In the case of the power sector, similarly, while the issue of ` 77,000 crore of SEB dues and stressed assets is a very real one, the power ministry has made some concrete progress and has interesting plans for the future. It is really about sectoral reforms, and the sooner these start, the better.