9 Point Agenda for Renewed Economic Reforms
Good news seems to distance itself from the Indian economy. The index of industrial production (IIP) at 4.3% in September 2019 is at its lowest in seven years; business confidence index of National Council of Applied Economic Research (NCAER) is also down by 22.5% from last year’s second quarter; Moody’s sovereign rating also looked southwards to 5.6% this fiscal. Trade cycles, ups and downs and market uncertainties are natural phenomena. These should be no reason for the economy at the cusp of change and set to touch $5 trillion by 2022, to dwarf its long-term vision. This challenge is an opportunity to clean up its policies. 
 
During the past five years, remarkable changes took place in the Indian economy: GST was introduced; the insolvency and bankruptcy code has come into being; Real Estate Regulatory Authority (RERA) has been set up in most States; corporate laws also underwent changes to plug many loopholes; the way the country should look at priorities is being driven by the National Institution for Transforming India (NITI) Aayog. Yet, somewhere down the line, political stability, cooperative federalism and the economy’s resilience seem to be having a serious disconnect that demands correction on the policy front. 
 
Environmental issues that took the front seat through Swachh Bharat during the first five years would appear to cause greater concerns through mountains of plastic waste, smog caused by burning stubble, irreverence for regulations and disrespect to authority. The national education policy, after all the opinions are drawn in on the draft, is still in hibernation. Water policy totters between the rising demand from industrial users, irrigation for the farm sector, and universal safe drinking water amid acute scarcity. 
 
Contrary to expectations, demonetisation exacerbated the concerns on corruption and money leakages. The financial sector continues to be in doldrums with frauds, acts of maleficence, regulatory sluggishness, capital erosion and adverse global impacts. 
 
The interface between government and industry is drifting to high expectations from the private sector participation at a time when its credibility is at its lowest, with corporate frauds and an ever-shrinking morale. 
 
Even against the declining growth rate of the population, we notice from the www.tradingeconomics.com (MoPSPI), an alarming status in the unemployment rate at 6%, 49.80% in labour force participation rate and a decline in real wages among the wage-earning population. Average wage of the manufacturing work force is around Rs347 per day compared to Rs330 per day in the services sector.
 
High unemployment rates call for correction sooner than later as they are likely to increase the risk of youth migrating to hazardous terrorist outfits. 
 
The focus and forms of state intervention are undergoing a change with technology overdrive. Intense global competition has been pushing several nations to look at their nations’ interests more than balancing the headwinds in trade. WTO is fast yielding its space to regional trade agreements. The current economic scene in the context of global uncertainties tells us that there exists no room for complacence. 
 
This backdrop provides us least comfort over the improvement in World Bank’s ease of doing business (EODB) ranking in 2019. In fact, the current scenario uncompromisingly calls for serious introspection into the policies and the implementation framework. Corruption at different levels has been seriously hurting our growth prospects. 
 
Legal reforms that were taken up in 2017 suddenly retracted. Land disputes occupy a large space in courts at all levels. It is the government that is either a plaintiff or defendant in most cases and all the adjournments and delays in courts are because of the delays, incorrect information or wrong affidavits on the part of governments, more than any lapse on the part of the individuals. This also calls for cleaning up the databases of all the departments of both the Union and state governments. 
 
State governments and Union government are swearing by digital frameworks as solutions for several projects plaguing the information lags, even though much depends on the type of data we feed into the digital platforms. 
 
1. Hence, reforms should commence at the highest policy level first, with a resolve that we need them most. 
 
2. Since the foundations for a strong economy lie in good education right from childhood to the highest technical and managerial levels, the education policy with a clear roadmap should make the best beginning. 
 
3. While there has been considerable work in agriculture, there is no clear policy yet on an integrated approach to the sector where the issues relating to tenant farmers, agricultural insurance, agricultural marketing (e-Nam is just the beginning and lot of traction is yet to take place), value addition at the doorstep of the farmer, a firm resolve to disband the loan write-off, which alone will ensure flow of institutional credit, cleaning up of the rural cooperative credit structure etc., should find a resolution sooner than later.
 
4. Health, environment and water policies not as watertight compartments but as inclusive policies, need to be people-centric and people-participated, with concurrent evaluation of projects in these sectors over the promised deliverables. 
 
5. Since good economy and bad banking can never go together, cleaning up the entire governance system in the financial sector brooks no delay. This depends on setting up the right checks & balances at each stage of the ‘new normal’ in the financial sector to emerge. 
 
6. Industrial policy should lay more emphasis on inclusivity and comprehensiveness so that employment orientation and competitiveness get due focus. There must be a separate policy for micro, small & medium enterprises (MSMEs) with a focus on manufacturing that is defying expansion.
 
7. There should be a focus on reduction of regulatory costs in all areas where the cost of regulation should be far less than the cost of its avoidance or evasion. Minimum government and maximum governance should get more attention than now. 
 
8. Institutions that lost their relevance should be wound up as a part of reforms. There will always be a tendency to defend them in the guise of employment protection while they have been hindering employment growth in the real sectors they are supposed to promote, like the Small industries Development Bank of India (SIDBI) and the National Bank for Agriculture and Rural Development (NABARD). SIDBI is trusted with a host of funds that did not reach the MSMEs and there has been also neither monitoring nor evaluation of these funds that flowed from the Union budget while the needy are suffering. Similarly, in the name of the rural infrastructure development fund (RIDF) activity, NABARD is serving the State governments and large projects more while the farmers per se, the subjects of the NABARD Act, have no reprieve. Rural cooperatives in its fold diminished in reach and regional rural banks (RRBs) have branches in urban and metro cities!
 
9. The RBI governor in his latest address agreed that corporate governance failures in banks is responsible for their current status and needs urgent changes.
 
Obviously, this requires intervention from the Union ministry of finance. It is sad indeed that the issues identified in the year 2000 in my co-authored book Corporate Governance in Banking and Finance (Tata-McGraw Hill) remain unresolved till now.
 
(The author is an economist and Risk Management specialist. The views are personal.
 
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    COMMENTS

    shadi katyal

    4 weeks ago

    My single question since all what you claim to be positive why is even domestic investments are fleeing abroad.
    Why is that no body is able to write the true health of economy and how since Modi arrival, it has been going down hill and false GDP figures are being presented? Why is no one willing to come out and say it is the Law and Order which has kept all the foreign investors out . The very fact that lynching and rapes have become of our culture and Govt has kept quite. Why is it difficult to understand that World has shrunk so much that news of such crimes in the press in no time.
    We have not seen any agenda for development and jobs but we keep petting our backs that how Mopdi has done GST which he opposed at one time.All other bills passed have nothing to do with economy and industry.
    With all these worldwide trips by Modi,why has failed to bring any investments????

    REPLY

    B. Yerram Raju

    In Reply to shadi katyal 3 weeks ago

    I have not underplayed the data imperfections, corruption, slow progress etc. You see the glass half empty while I saw the other full half. I mentioned about irrelevance of certain institutions and the series of reforms that would be the surest route for attracting investments.

    shadi katyal

    In Reply to B. Yerram Raju 3 weeks ago

    I appreciate your trying to explain your positron but my question is when
    We have wasted 6 years and yet there is no agenda of any kind to pull the nation out of downward trend.You also miss the point that present Law and Order situation is even forcing the domestic investors to look outside of the nation. No nation can last longer with the havoc we have and'kindly show me a nation which has developed when religion has become the major goal and not welfare of all the citizens.


    Ramesh Poapt

    4 weeks ago

    work in (slow) progress!

    With Elevated Food Inflation, RBI May Not Go for More Rate Cuts after December: SBI
    The consumer price index (CPI) inflation rose sharply to 4.62% in October compared with 3.99% in September, mainly due to a huge jump in food prices.
     
    Surplus rainfall during August and September has seriously damaged Kharif crops across several states. This would result in food and vegetable prices remaining elevated and inflation in November may be on a higher side due to the low base in 2018, says a State Bank of India (SBI) research report.
     
    The report says, "We expect FY2020 CPI to now average closer at 4.0%. Even as food CPI will remain elevated, core CPI will go below 3%. We expect a December rate cut, but beyond December it will be close decision as inflation prints beyond October will remain elevated. Thus, it will be better if the rate cut is frontloaded in December."
     
     
    Five states, namely, Rajasthan, Madhya Pradesh, Maharashtra, Gujarat and Karnataka, bore the brunt of excess rainfall in 2019 and were severely affected by floods. This has seriously damaged many crops during the Kharif season. 
     
    Madhya Pradesh, which is the biggest producer of pulses and soybean in the country, is impacted due to the excess rainfall this year. Similarly, the floods in Maharashtra damaged crops on over 400,000 hectares in western and northern parts of the state. Sugarcane, cotton, rice, soybean, tur dal and groundnut were among the worst hit in the state. In Gujarat, excess rains in late-September have adversely impacted both the yield and the quality of groundnut.
     
     
    Inflation in food and beverages rose to 6.93% in October 2019 compared with 4.70% in the previous month. Prices of vegetables, including onions, rose significantly in the previous month.
     
    During October, core CPI, which has shown decelerating trend for the last one year, plunged to 3.47% from 4.02% in September 2019 and 6.19% in October 2018. 
     
    SBI says, "The decline in core CPI is primarily due to a sharp decline in health and personal care items under rural core. The deceleration in rural core CPI, including health and personal care, is more sharp compared to deceleration in urban core CPI indicating demand slowdown in rural areas. The continuous decline in weighted contribution from health (medicines) is heartening and it remains to be seen whether the availability of such medicines under Ayushman Bharat may have contributed to such a decline."
     
    Meanwhile, the September 2019 index of industrial production (IIP) numbers have thrown up interesting facts. "First, since April 2013, this is the first instance when consecutively the deceleration in capital goods has been above 20%. Second, looking at the data for a month prior to Diwali, this is the highest decline since 2013. Third, this is the 9th consecutive month in which capital goods’ growth has decelerated, just short of 11 months de-growth during January 2009 to November 2009," SBI says.
     
    Among the components of manufacturing IIP, which constitute around 52% of the total weight in IIP, basic metals is the only component whose weighted contribution has increased this fiscal. The weighted contribution of all other major components has turned negative, except for food products, which, although positive, has declined in the past two months. Electrical equipment, paper and tobacco are other industries that have witnessed increase in weighted contribution in IIP between April and September 2019; however, their weight in IIP is quite low.
     
    Another sign of demand slowdown is the fact that there has been only a marginal uptick in currency in circulation (CIC) during the Diwali season this year. It was only in 2009 (the time of global crisis) when CIC had decreased; all other years have seen sizeable increase in CIC during the Diwali week. 
     
     
    SBI says, “Such marginal increase in CIC reaffirms our contention that demand remains a significantly laggard and the jump in CIC prior to the Diwali week could have just been a one-off affair.” 
     
    Commenting on the corporate results, SBI says, sectors that has reported all round growth includes healthcare, agro-chemicals, retail and pharmaceuticals, while sector that reported negative growth are automobile, constructions, auto-ancillaries and steel.
     
     
    "As per the results declared for second quarter of FY2020 by 1,443 listed entities, we observed top line contraction of around 2%, whereas bottom line and earnings before interest, tax, depreciation and amortization (EBITDA) grew by around 22% and 9.79%, respectively. Excluding banking, financial services and insurance (BFSI) and refineries, 1,205 entities reported top line de-growth by 3.12%. Further, though the EBIDTA grew by less than 1% only, profit after tax (PAT) reported a growth of more than 20%, mainly because of corporate tax cut," SBI concluded.
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    Moody's Cuts India's Growth Forecast to 5.6%
    After cutting India's sovereign ratings, Moody's Investor Services on Thursday cut India's growth forecast to 5.6%, from its earlier 5.8% due to subdued consumer demand, along with sluggish liquidity supply.
     
    Accordingly, the ratings agency revised downwards its growth forecast for India to 5.6% in 2019, from 7.4% in 2018. 
     
    "We expect economic activity to pick up in 2020 and 2021 to 6.6% and 6.7%, respectively, but the pace to remain lower than in the recent past," the ratings agency said in Global Macro Outlook 2020-21.
     
    "India's economic growth has decelerated since mid-2018, with real GDP growth slipping from nearly 8 per cent to 5 per cent in the second quarter of 2019 and joblessness rising."
     
    In the current slowdown consumption demand has 'cooled' notably, the ratings agency said.
     
    Last week, Moody's had changed the outlook on the Government of India's sovereign ratings to negative from stable and affirmed the Baa2 foreign-currency and local currency long-term issuer ratings. 
     
    Moody's had also affirmed India's Baa2 local-currency senior unsecured rating and its P-2 other short-term local-currency rating.
     
    India's credit rating at Baa2 is the second lowest investment rating and Moody's has warned that India could be heading for a debt trap and recessionary phase.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    Govinda Warrier

    4 weeks ago

    Last week's quick response from the finance ministry to another aspect of Moody's report, though likely to be dubbed "damage control effort" has to be welcomed as the statement goes beyond being defensive and carries some facts and figures supporting long term optimism.
    But the international stakeholders, who should be investing in India or doing business with this country are more dependent on the language with phonetics like Baa2 or BBB- and therefore, ideally, India should prioritize creation of a trust-worthy rating agency of international repute headquartered in India, if necessary, associating willing BRICS countries.

    The above suggestion is in the context that the rating agencies with 'brand names' like Moody's, Standard & Poor's and Fitch look elsewhere for guidance and are ill-equipped to go deeper into the "SWOT" inherent in the emerging economies like India. They are, bluntly put, extended arms of external vested interests.

    Time is opportune to have a professional rating agency of international repute "Made in India" which will factor-in inter alia, India's hidden domestic resources, relatively lower consumption needs and do some country-specific research about the country's economic strength, as was done by Abhijith Banerjee and associates in the field of poverty.

    M G Warrier, Mumbai

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