Opinion

An economic agenda for New India

Gopal Krishna Agarwal | Updated on May 23, 2019 Published on May 23, 2019

Economy push Reducing real interest rates to spur investments is on top of the government’s agenda   -  REUTERS

With the macroeconomic parameters on a sound footing, the government will kick off big ticket reforms

In 2014 when Narendra Modi came to power there were several challenges; India had a large number of people below the poverty line, so elimination of poverty in absolute terms was an important issue.

The second was the large scale leakages in the delivery mechanism of the government’s social security schemes. There were gaps in the tax compliances. Macroeconomic parameters such as inflation, fiscal deficit, GDP growth rate were in unhealthy terrain. Concentration of wealth was a big concern. In the last five years, Modi has been successful in addressing some of these issues; others are part of our unfinished agenda.

Aspirational middle class

India’s aspirational middle class is rising again, looking for opportunities and ease of living. This middle-income group will be driving consumption demand and setting up businesses. We proudly remember that in the past, India and China together accounted for almost 60 per cent of the global trade.

If the government successfully removes certain capacity constraints like credit availability, high interest rates, land acquisition, tax complexities, connectivity and logistic support etc, it will help propel economic growth. The government has planned massive infrastructure investment over the next five years on roads, railways, airports, and housing.

Employment growth is very important for the economy. Our emphasis has been on entrepreneurship and self-employment, focusing on the manufacturing sector particularly MSME, what we have termed as the missing link.

We are working on achieving 50th rank on Ease Of Doing Business (EODB). We have an investment- driven roadmap to become a $5-trillion economy by 2024 and $10-trillion by 2032.

At present, most macroeconomic parameters are looking healthy. Inflation is low, GDP growth rate is high, fiscal deficit is under 3.5 per cent and tax-to-GDP ratio is at 12 per cent. But there are some challenges to be overcome.

Various chambers of commerce are worried about the high real interest rates. Cost of deposits is an important cost component of our banking system. Fixed interest rate saving schemes determine the deposit rates. Central and State governments’ borrowings have a bearing on the deposit rates.

The government is maintaining its fiscal deficit targets; but with rising GDP there will be space for borrowing without disturbing the fiscal deficit. The RBI Governor too has said that there is a limit to which lowering of repo rate can be transmitted to lower real interest rate. We need some structural changes to achieve low real interest rates.

The second important cost component for the banks is the risk premium determined by the level of NPAs and stressed assets. With reforms like IBC, NCLT and other legal changes we have set up the institutional mechanism to resolve the NPA problem.

Banking reform

Of the 11 banks under the Preventive Corrective Action (PCA), five are out of it. The government is infusing capital and merging some of the weak banks.

Credit off take, after an initial slow down, has now recovered. Last year the credit growth was around 14-15 per cent year-on-year.

The benefits of our reforms are being felt after a time lag. The government is also working on project revival under the ‘Pragati’ initiative. It is trying to sort out certain complex problems faced by some NBFC and infrastructure companies like IL&FS.

Earlier the Financial Sector Legislative Reform Commission (FSLRC) had recommended certain reforms. Most of them have been implemented. Financial Resolution and Deposit Insurance (FRDI) has to be implemented. Setting up Development Financial Institutions (DFI) to finance long-term gestation projects is also on our agenda.

Indians need to understand the sanctity of taxpayer’s money. Every penny that the government spends the taxpayer’s money. These are governance issues involved with the exchequer.

The government is one of the biggest borrowers. Giving out doles will add to the inflationary pressure and fiscal deficit will rise. Efficiency and transparency in government expenditure are important. If government borrowing is used for asset creation, it expands the economy. If we invest ₹100 lakh crore in infrastructure development in the next 5-10 years it will help the economy.

Better targeting through direct benefit transfer (DBT) is an important goal for us. ‘Benefit to the last person’ is our ideology from the Jan Sangh days. The Central government refrained from giving a farm loan waiver despite the pressure. Good economics is good politics.

Big-ticket reforms in land, labour and capital are very important for the industrialisation of the country.

The government could not amend the Land Acquisition Act. But land being a State subject, States are making changes. The Centre is pushing for digitisation of land records and land lease agreement; it will help in establishing ownership of land. Even for ease of doing business (EODB) ranking, transfer of title is an important consideration.

On the labour front there has been efforts on the formalisation of labour. Ninety-three per cent of our labour force is in the informal sector. The working conditions in this sector are very poor. Provident Fund (PF), ESI, job security, social security etc. are not available. The government plans to consolidate the Labour Code and promote fixed-term contracts.

Agri focus

Foodgrain production in the country has moved from shortages to surplus. But the agricultural policies are still being formulated with a ‘deficit mind set’. We will drastically change this. Earlier all our commodity import-export policy was aligned with the requirement of consumers. Now it is being aligned to ensure that farmers get better price for their produce. Currently low inflation with high growth rate is ideal but not at the cost of lower price realisation to farmers. A big challenge is doubling of farmers’ income by 2022.

The writer is National Spokesperson of BJP for economic affairs.

Published on May 23, 2019
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