Strengthening the industrial base, reducing redtape and a focus on infrastructure should be the top focus areas
There is a sense of euphoria all around. And this is not at all ill-founded. After around 30 years, we have a government in power, which has absolute majority. A government which has all that it takes to perform and do what it wants to do for the nation. While the nation waits for delivery and looks forward to “Acche din aane wale hai”, there are certain areas in our economy, which need more attention than ever before. There is basically a need to work on structural change in the economy and also ensure that hitherto neglected areas of the economy get their due attention. While economic reforms were started in 1991 and gave the Indian economy a new shape, the government now needs to focus on a new set of reforms required to provide necessary impetus to Indian economy. So what is that needs to be worked at in terms of priority.
Here is a potential list of that:
Industrial sector needs to be the backbone of the economy: In the process of economic growth in India, we have moved from being an agrarian society to the service based economy. Some industries never got the place that they should have in an economy. This is in spite of the fact that industries were looked upon as temples of modern India and as long back as in the 2nd five year plan, a robust industrial policy was laid down to improve performance of the industrial sector. Industrial sector remained broadly in control of public sector undertakings (PSUs). When our economy was opened up in 1991, the service sector started growing very fast and industry remained a laggard.
This is what differentiates us from China. In China, contribution of GDP in the economy is as high as 45% while in India, it is less than 20%. Much of the growth in China has come from manufacturing, which is part of industries. India also needs to provide the necessary push to industries and it would be great if small and medium industries are promoted that are largely employment intensive. There has been inertia on policy front often referred to as policy paralysis even in context of micro, small and medium enterprises (MSMEs). Government needs to formulate a completely new policy with respect to MSMEs. It needs to start with the change in the definition of MSMEs. MSMEs were defined in the 2006 Act and with increased costs and changing business dynamics the definition does not make sense in the current environment. Also, we need to move from a subsidy based approach to the creation of a business environment which provides opportunity to produce and sell products in domestic as well as international markets.
Manufacturing needs to be promoted for the triple benefit that it can provide i.e. employment, exports and overall economic growth. The kind of emphasis that has laid on information technology sector in India, if we can channelise same kind of efforts for our industries it will work wonders.
Unshackle business from red tapism: While we had a series of reforms in the past, business environment in India is still not conducive for new businesses to prosper. Red tapism is still in place. A simple yet puzzling question? There are businesses which require no pollution certificate as clearance requirement though such businesses are not even remotely connected with any activity that can cause pollution? Instances like this are just tip of the ice-berg. In terms of ease of doing business, India still lags behind in the world. The date below shows this:
It is time that government takes measures to ensure that business can flourish easily in India. It is important to note that the government cannot directly provide employment to a large number of people itself, it needs to create environment which will promote job growth.
Focus on key infrastructure projects: There is a lot that needs to be done on infrastructure front. Some of the areas that need big attention are railways, road and power sector. Let us compare ourselves with the emerging economies of the world. Here is how our railways look in comparison to China and Korea.
Time has come when a mega infrastructure development plan is drawn which focuses on power generation, railways and roads as priority areas. Most of the states in eastern part of the country are chronically power deficient and that is what is preventing prospering of business in these areas. The investments required in these areas will be huge as well as time consuming. This can be taken as public-private partnership model.
While there is a lot that needs to be done, it is important we focus on areas which help long term and sustainable growth creation in the country. An employment based growth where the benefits are enjoyed by all is what government needs to focus on. In other words, economic growth won’t be sufficient we also need economic development.
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Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)
It takes a few years to build roads, and hence that work should start immediately. High speed trains is also a great idea, but roads offer higher capacity and produce great flexibility in supply chain development.
Capt Kenjle