Structural Change

Capital expenditure (capex) in the economy will now be driven by investments in digital, broadband, telecom, power transmission and distribution space and not so much by heavy industrial projects like in the past. The structure of economy is changing. The composition of invest­ments will also change along with what is happening in the rest of the economy. After a decade the lands­cape is changing at a rapid rate for India Inc. The traditional model of subsidy funded consumption growth and crony capitalism driven capex growth in India are being ‘reset’. The RBI brings about multiple policy changes to radically increase com­petition in the Financial Services sector. Technology lowers the barriers to entry into sectors such as lending, consumer goods and auto. The three steps already taken are: increasing India’s financial savings, to “‘curb

PD/April/2016/93
subsidies and an attempt to attack black money and crony capitalism. These measures would lead to noti­ceable changes in the Indian eco­nomy.

The Kelkar Committee Report points out the need for genuinely independent sectoral regulators. Without such regulators taking arms- length decisions, the working of PPPs will always be excessively subject to political and bureaucratic pressure or to influence by powerful promoters. The Report also recognises that renegotiation in such projects, given their long-term horizons, may become a fact of life. However, the continued capacity deficit in administering PPPs means private interest will not be revived soon. Indian Railways is clearly pursuing off-budget fund-raising doggedly. After LIC’s ? 1-5 lakh crore, the World Bank is working on a $ 30 billion package. These will be a major boost for the railway to fund several big-ticket expansion projects, includ­ing the debottlenecking of highly congested sections of the network. Capital expenditure in 2016 is thus expected to pick up substantially.

Agriculture

What about agriculture ? It’s all- pervading gloom in agriculture. The farmers are under severe stress with profitability in farming falling alarm­ingly. What are the key issues in the farm sector ? We need to be aware weather is a known unknown. Agri­cultural performance has been poor since the boom of the 2003-08 phases. Agriculture will be a concern and going ahead a lot is expected from the government in terms of spending. There is an urgent need to rejuvenate agriculture and the rural economy. The focus should be on how to revive agriculture in the medium term. In the last two years, it has shown how vulnerable agriculture really is. Especially in the context of climate change, we can’t afford to neglect agriculture.

As per the first revised estimates by the Central Statistics Office (CSO), the share of Primary Sector including agriculture, livestock, forestry and fishery was 20-04 per cent of the Gross Value Added (GVA) during 2014-15 at 2011-12 prices. During Q1 FY2016, agriculture and allied sectors
grew 1.9 per cent year-on-year and contributed 14.2 per cent of GVA.

Make in India

The present Government is try­ing to push the idea of ‘Make in India’. This is a welcome move. In order to rejuvenate India’s stunted industrial progress, we need better transporta­tion, more reliable and good quality power, fewer taxes / inspections / controls / registrations and other bureaucratic nightmares, faster clearances and turnarounds at ports— the list is long. Any government which is serious about supporting Indian manufacturing will have to attend to all these issues before entrepreneurial animal spirits take over. At a minimum, businesses should not be discouraged from ‘Making in India’. Make-in-India is not going to be a medicine that can cure all our ills. Creating the enabling environment of better infrastructure and less bureaucracy is not going to happen overnight.

Micro, Small and Medium Enterprises (MSMEs)

The present regime needs to focus more on getting the MSMEs sector up. The Micro Units Develop­ment and Refinance Agency (MUDRA) credit guarantee fund is expected to guarantee over ? 1 lakh crore worth of loans to micro and small units in the first instance.

Financial Sector

Large sections of the economy, including the crucial banking sector, are in trouble. The RBI has said that the government-owned banks’ health has deteriorated. Public Sector Banks (PSBs) are waiting for the big changes to come through. The gross non­performing assets ratio was 5.1 per cent for the first half of 2015-16. That’s around ? 65,000 crore. It will deter­iorate further by the end of March 2016. Banks are loathe to fix this because of unbearable strains on their accounts. The question of non-per­forming assets (NPAs) will linger on in 2016. Commercial banks are stuck with bad loans—in several cases, they have to engage in a write-off—and the risks. Restructuring is a legitimate activity. Large corporate defaulters have taken cover under dysfunctional bankruptcy laws and procedures.

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