India is a nation which was once the envy of all – a ‘sone ki chidiya’, which because of its wealth and well-being, was coveted as a prize by all the unscrupulous invaders. It took the country a long era of enslavement, destruction of its domestic economy, its arts and crafts, and plunder of its resources, when after almost 200 years of British rule, the country emerged free. But India’s economy fell in terms of GDP from 24.4% of world’s share in 1700, to 4.2% in 1950.
After Independence, the Nehruvian economic model of mixed economy and scientific socialism, which was targeted to reduce poverty and want, could not spur growth as the key economic sectors were held under state control.
It was only in 1991 under Prime Minister (PM) Narasimha Rao and Finance Minister (FM) Manmohan Singh that the Indian government could shake-off the legacy and go for economic reforms. These reforms paved the way for a vibrant economy. Yet, the country and the economy were saddled with red-tapism and corruption, which stifled enterprise.
In 2014 BJP came to power, showing a ray of hope to the country and promising “Acche Din”. It has been almost five years since then, and the elections are looming. Let’s take a stock of the government’s work in the economic sector to see whether the promised ‘acche din’ have indeed arrived.
A mixed bag?
It must be said that during this period the government took some unprecedented measures, some worked, some didn’t. But the government had the courage to take tough decisions. Today India is the 3rd largest economy in the world in purchasing power parity, and the fastest growing economy at 7.3% growth rate of its GDP. Its fiscal deficit is contained at 3.4%, and its inflation is in check at around 4% on average.
Among the notable achievements of the BJP government are:
- GST (Goods and Services Tax) – This tax ensured that India became one common market, instead of several different entities. It is a major economic reform which the trade and industry were pitching for, and its introduction has made a sea change in the way business is being conducted. Apart from easing business transactions, it also provides a transparent platform, which ensures that a true picture of trade and business volumes are noted for taxation purposes, avoiding corrupt practices.
Insolvency and Bankruptcy Code – This is another landmark reform which helps banks to take action against companies who default in payment of dues. It vests power with the banks for recovering their dues, and in the process ensures that loans do not become non-performing assets or NPAs. - Benami Transactions (Prohibition) Amendment Act – This Act is against the benami properties amassed by corrupt people. A number of such cases have been unearthed where properties were in the name of domestic servants or drivers, with or without their knowledge.
- Pradhan Mantri Jan Dhan Yojna – This helped the unbanked population. There are around 310 million new account holders especially in the rural areas. The scheme ensures that the Direct Benefit Transfer of subsidies or any other financial benefit goes directly in the account of the beneficiary, avoiding any middleman.
- RERA – The Real Estate Regulation Act is a major reform in the real estate sector. This Act makes it incumbent on the builder to be responsible about the project undertaken, especially its completion, and record of its financial accounts. It’s a great help to the home buyers who were earlier at the mercy of builders.
- Arbitration and Conciliation (Amendment) Act – The amendment of this Act helps to ensure that Arbitration must end in a defined time and the arbitral award has the force of law. A great help to the business community which wanted a fast and cost effective means for resolving disputes.
- Road Infrastructure – 60% of freight is transported by road. There has been major improvement in road building. At present over 27 kms of road is being built every day. While in 2014-15, 4,410 kms of highway stretches were constructed, this figure went up to 9800 kms in 2017-18.
- Aadhaar Act -The Aadhaar has been institutionalised as an Act. This ensures that the card has legal validity.
- Revival of stalled projects – It is estimated that there are projects both in the public and private sector worth around Rs 13 trillion which are stalled for some reason or the other. These have received government’s attention. Some projects like the Bogibeel Bridge is the longest rail-cum-road bridge of India on the Brahmaputra River in Assam, which started in April 2012, and finally was completed in December 2018. Similarly, a number of hydro power projects are stuck, and the government is trying to revive them.
- Waterways – Though still in its nascent stages, the government has started the waterway transportation on the Ganga. Soon this river water transportation will give a big boost to trade and business by cutting cost, and reaching goods to the required destination.
- Digital Infrastructure – Government actively aided the digital revolution by actions such as the digital payments interface, JAM (Jan Dhan, Aadhaar and Mobile telephony), and PFMS (Public Finance Management System). Through the PFMS, the government connects directly with households and businesses, and transfers financial subsidies directly to the beneficiaries account.
These achievements are noteworthy, though still much needs to be done for the country to achieve its past glory.
Some trying areas
Among the major reforms required for private investment to take place is the ease in acquiring land for establishment of factories. Despite its best intentions, the BJP government has not been able to make land acquisition laws industry friendly. This is one of the reasons that inhibit industrial infrastructure and investments by private sector.
Another is labour reforms. This is a touchy subject for all political parties, and has not been adequately addressed. Large factories require labour laws which allow them to hire and fire based on the requirement of labour. Unfortunately, as the state does not provide a social security net, lot needs to be done to solve this issue in the best interests of both industry and labour.
Although government spending has increased in recent years, the private sector investments have not kept pace. More needs to be done in the ‘ease-of-doing-business’ to bolster business sentiment and get capital investments from the private sector.
Youth unemployment is another problem. As per OECD estimates, 30% of Indian youth are NEET (Not in Employment, Education or Training). This is especially an acute problem considering that India is slated to be the youngest country with the maximum number of people between the ages of 30 to 40 years in 2050. The demographic opportunity needs to be utilised by skill development. Although the government has formed a Skill Development Ministry to take requisite measures, the country still needs institutional support to skill development on the lines of the German model, so that the youth is productively employed.
Demonetisation of 500 and 1,000 rupee notes as a measure to curb black money had limited success, as almost all the old notes (98.96%) were deposited back to the RBI. Yet it had a salutary effect in as much as it made digital money transfers more popular. Today small shopkeepers and fruit vendors readily accept money by digital wallet, rather than cash. This has made money trail transparent and tax avoidance difficult.
In a nutshell, the Indian economy at the current juncture is strong and moving in the right direction. But it requires careful handling to ensure that the animal spirits of our entrepreneurs are unleashed to take on the world.
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Arvind Pradhan
Arvind Pradhan, a former Direc- tor General of IMC Chamber of Commerce and Industry, has over forty years’ experience in international trade and develop- ment. He has a post graduate degree in Management and a post-graduate diploma in
International trade from IIFT, New Delhi. He has actively helped the industry in business development including market penetration, capacity development, interaction, and inputs to the Government for policy formulation. Currently, he advises small and medium enterprises in international trade and development.[/column]