Economic Agenda for the new Govt

If numbers are anything to go by, the last three years of the United Progressive Alliance government have been disastrous for the economy. From the highs of 9.5 per cent growth in 2006-07, India's gross domestic product plummeted to 4.5 per cent in 2012-13, and is likely to be around 4.9 per cent in 2013-14. Were the global conditions to blame? Or the numerous scams? Or was the government simply ill equipped and unable to steer the economy out of trouble? Perhaps a combination of these, though the most significant factor has been the government's inaction. Compared with where India could have been, the economic situation is not good at all. While some of it is because of the global situation, the more important aspect of India's economic downturn is the drop-off in investment, signalling the lack of enthusiasm about the future prospects of the economy, said Shubhashis Gangopadhyay, research director, India Development Foundation. The new government will have the unenviable task of cleaning the mess. Standing like a Goliath in its way will be the fiscal deficit, which is the difference between the country's earnings and expenses. The fact that the UPA-II government has slyly deferred several big expenses to the next fiscal year to keep the fiscal deficit under 4.8 per cent will make things tougher. The next government will have to settle some mammoth bills. That, however, will be one of the many problems, and the new government will have to immediately act upon a number of issues to bring the economy back on the growth path. Inflation The problem: Everyone from economists, businessmen, politicians and the common man agreed that the spiralling prices of essential commodities were the biggest problem under the UPA II government. Food inflation was particularly bad. The consumer price index increased from 3.9 per cent in 2004-05 to 10.2 per cent in 2012-13. The fix: Set up a panel of experts to regularly monitor prices of commodities. The panel should have representatives from the ministries of agriculture, consumer affairs, finance and commerce and the power to act immediately. Long-term plan: The removal of bottlenecks in procurement and distribution of essential commodities will reduce the pressure on supply and prices. The new government can promote a second Green Revolution, in fruits and vegetables. Also, measures should be taken to increase production of meat and eggs. Trust deficit The problem: While retail investors are unsure if they should spend or invest their resources, businesses have been shying away from big investments. In many cases, companies took their business overseas while putting on hold expansion plans within the country. There was a time when the India story was being discussed. Now there is no India story. We need to bring this story back onto the world's radar, said Sidharth Birla, president, Federation of Indian Chambers of Commerce and Industry. The fix: The government can restore investor confidence through proactive decision-making. The Prime Minister or finance minister should hold regular press conferences on the development agenda for at least six months, said Birla.

Long-term plan: A single body, which can coordinate with various ministries and provide project clearance, could change things drastically. Providing incentives to industry could also help in boosting growth. There are 70-odd clearances required to set up a manufacturing unit and more than 100 returns to be filed. Our suggestion is, give a moratorium of at least three years and allow entrepreneurs to self-declare the compliance, said Rana Kapoor, president, Associated Chambers of Commerce and Industry of India. Goods and services tax The problem: Though there had been substantial progress in getting the Goods and Services Tax bill passed in Parliament in the two years that Pranab Mukherjee was finance minister (2009-12), it got stuck after that owing to the opposition from states. The fix: The new government should bring states on board. Regular discussions with chief ministers and state finance ministers can expedite the process. It is critical to roll out the GST within a year as it is the best stimulus for growth. This would add 1.5 to 2 percentage points to the growth rate, said Chandrajit Banerjee, director-general, Confederation of Indian Industry. Long-term plan: Once there is consensus on the GST, the government can work towards its implementation. The GST will not only streamline the taxation process, but also bring in more revenue for the government. Manufacturing The problem: Industrial production has slumped from double-digit growth to below 3 per cent in the last few years of UPA II. An economic revival can come only at the back of robust factory output. The fix: Increasing investments in manufacturing, giving incentives to create a healthy workforce in the organised sector, clearing large projects through Centre-state coordination and encouraging micro, small and medium enterprises can boost the sector. Long-term plan: The government could focus its resources to create and innovate some products in which India would be the market leader. Banking The problem: Non-performing assets, or bad loans, of public sector banks have been a worry for the economy. NPAs increased from Rs.1.83 lakh crore in March 2013 to Rs.2.43 lakh crore in December 2013, by 28.5 per cent. The fix: In its interim budget, the UPA government earmarked Rs.11,200 crore as recapitalisation of banks. The new government would have to pump this into the banks in 2014-15. Also, clearing pending projects would help companies pay back loans. Companies that have suffered financial losses but have credible business models should be encouraged to sell off hard assets so that they can be put to use, said Birla. Long-term plan: The Reserve Bank has given a breather to banks by extending the deadline for implementation of Basel III norms by a year, to March 2019. But it is still a daunting task. According to a report by Standard & Poor's, Indian banks will require 02.6 lakh crore by March 2018 to conform to Basel III norms. To tackle this, public sector banks could be allowed to access capital markets. Social schemes The problem: The Mahatma Gandhi National Rural Employment Guarantee Act, Food Security Act

and Land Acquisition Act have been historic legislations. However, the FSA will put more pressure on the country's already stretched fiscal deficit (it is likely to increase subsidy expenditure by 18 per cent) and there has been criticism that NREGA has not led to any real asset creation. We need to worry how to make social spending effective, said Arvind Panagariya, professor, Columbia University. There has also been criticism that NREGA is causing labour shortage. The fix: While no government would dare scrap welfare schemes, the importance of efficient distribution of subsidies cannot be overrated. All misdirected subsidies need to be scaled back, including food subsidy that is being targeted to 67 per cent of the population, said Birla. Long-term plan: NREGA could be linked to asset creation and skill development among workers. Work done in industrial units may also be covered under the scheme. More uniformity in implementation of the social schemes across states would help plug gaps. None of the social schemes have been as successful as they could have been. This is largely because of their flawed implementation plans and the consequent corruption, said Gangopadhyay. Current account deficit The problem: Current account deficit, or the difference between the values of the country's exports and imports, has been a nagging problem for the UPA government. The trade deficit widened from 0.3 per cent of the GDP in 2004-05 to 4.8 per cent of the GDP in 2012-13. The fix: The new government should have a plan to keep the current account deficit at 2 per cent of the GDP. Restrictions on gold imports may need to be continued for at least the first half of the current financial year. And export needs to be promoted. India should be able to build scale in manufactured exports across top globally-traded items, such as electronics, machinery, textiles and garments, pharma and chemicals, said Sunil Kant Munjal, chairman, Hero Corporate Service Ltd. Long-term plan: Sops to exports have helped the sector and they need to be continued. Increased domestic manufacturing, exports and a better-managed rupee will help contain trade deficit. We occupy just 1.6 per cent share in the world merchandise exports against China's 11.3 per cent in 2012. The scope for export expansion even within a stagnant world economy is huge, said Panagariya. Infrastructure The problem: UPA-II had planned to build 22km of national highways a day, but managed only 1.5km. The promoters in this sector are stuck. Majority of them want to get out of the projects. At stake is not just the health of the promoters but also the several hundreds of crores sunk in by the public sector banks, said Kapoor. The fix: The new government must ensure that the Land Acquisition Act does not hinder the implementation of infrastructure projects. Stalled infrastructure projects must be cleared immediately. Long-term plan: The government should work through public-private partnership issues. Better urbanisation, revival of mining sector and encouraging renewable energy should be on the long-term agenda.