India must look to recognise and reward States that consistently take steps to improve the overall business environment for private investments, N. K. Singh, Chairman of the 15th Finance Commission, has said.

Addressing the 96th Annual General Meeting of industry chamber FICCI in the Capital, Singh underscored the need for mechanisms that would ensure orderly transition of the matrix of governance changes due to general and assembly elections.

“What worries me more is how do we ensure sanctity of contracts across governments. Predictability and sanctity of contracts is a must. 

People who invest do so on the predictable course of return and if that is reviewed in a fundamental way (when governance matrix changes due to elections), it does not add to business confidence,” Singh said.

India is one of the few countries in perennial election mode and this does not help predictability of governance matrix, he noted.

India must also look to introduce steps to reward States with better quality of capital expenditure and take up the challenge for faster movement towards a middle-income country in terms of per capita income, if the quest is to become a developed country, he said.

Singh also highlighted the need to continue focus on both merchandise and services exports. Becoming a viable, credible export nation should be one of the quests and existing competitive advantage positions India well to achieve this goal, he said.

“No nation in memory has sustained 8-9% GDP growth without a vibrant export sector,” he added.

“For very long we lulled ourselves into believing that India would be the soft power on services and China the hard power in manufacturing. This was a myth. 

In the long run, you cannot sustain one without the other. We need to harness the advantages of the services sector, improve the cost and efficiency aspects of production to improve our manufacturing prowess”.

Noting that India has a complex federal polity, Singh said land and labour are still problematic areas and they are in the domain of the states.

India’s economy is a bright spot and that the country has rarely been in a position where macro stability and congruence of fiscal and monetary policy is as it is today.

On Multilateral Development Banks (MDBs), he said, “MDBs have done a remarkable job balancing socio-economic funding requirements. 

However, prevailing challenges and geo-political situations call for reinventing the MDBs. Additionally, garnering private capital to support growth remains important. MDBs need to increase their financing support to $390 billion by 2030, from about $120 billion at present”.

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