India is a story which is yet to become a fact that we want her to be. For every Indian, of any generation, India is a half-written song. One such song is that of the USD 5 trillion-dollar economy by 2025 where you and me, are the singers and the listeners of this song. A song where each event has its own tune. In this article we will touch upon these events and try to synergize the outcomes. We should know whether the song is worth hearing or we may have to bring Anu Mallick on board! (no lame puns beyond this)
The right instruments for this song
Niti Aayog: This organization can entitle himself as possibly the country’s largest, empowered and most organized thinktank. The entity has been the driving force for the decision makers at Center and state and has the guiding force behind all key decisions taken, except on matters of defense and strategic policy. The Body is also responsible for creating a sense of competitiveness among all states on implementation of the policy plans and the Sustainable Development Goals. As an illustration, the Body’s contribution can be derived from the optimization of railways infrastructure and initiatives for privatization, implementation of GST and proven ability in operationalizing pro-people policies at grassroot level such as implementation of National Broadband Mission, Jal Shakti Mission, Ayushman Bharat etc.
Dedicated Freight corridor: Dedicated Freight Corridor was borne out of the joint strategic agreement between Japan International Cooperation Agency and Government of India in 2005. The sole purpose of such corridor is to enable concentrated, dedicated, safe and economical means of freight transportation. However, since its inception in 2005, only 2 DFC operate partially. They are the Eastern DFC and Western DFC. To suit the titled song of this article, the present Government has specifically diverted suitable funds for 100% operability of these planned DFCs and introduction of new DFCs in the annual budget of 2021-2022. They are the East West, North South, South South and Easter Coastal DFCs. Having such dedicated routes, 70% of all freight trains can be diverted onto these tracks, thereby freeing the existing lines for more passenger trains. DFC will be shot in the arm for heavy machinery manufacturers such as automobile and also for e-commerce set ups.
Initiative like the International North South Transport Corridor: By now, we should understand that the term “Corridor” shall imply that the available resources are being synchronized and re-organized to obtain a larger objective. INSTC is a reorganized transit route connecting important trade hubs from Chabahar port to St Petersburg. This transit route is financed by joint agreement between India, Iran and Russia. It has enabled reduction of transportation cost by $2500/ tonne of cargo and reduction in travel time down to 20 days compared to previous duration of 44 days from Mumbai to St. Petersburg. Similar such proposed arrangements are Bhutan India Myanmar Malaysia north east corridor, India-ASEAN Free Trade Agreement. Such access of trade enables a smoother access to flow of trade.
Production Linked Incentive Scheme for manufactures of white goods: The Scheme to incentivize localized manufacturing and production is aimed to encourage Overseas Equipment Manufacturer (OEM) and for the Government to capitalize from the inherent markets available for these manufacturers in India. The Scheme targets 10 sectors and has a funds corpus of INR 1,45,580 Crores (USD 19.862 Billion). The scheme will eventually be expanded to wearable digital products such as smartwatches. As per the recent address by Prime Minister at a public address to policy makers and academicians, the impact of PLI on manufacturing and export is pegged at USD 520 Billion in the next 5 years.
Rural reforms like Swamitva Yojana and Farm Laws: Rural reforms have traditionally been more focused on social welfare and to relief farmers from bad debt. However, the recent reforms of Swamitva and Farm Laws help enable rural India to effectively engage with the modern-day Finances. Swamitva Yojana enables recording and certifying the land owned by Farmers in their villages. Such a measure will enable the farmers to present their ownership of land which thereby increases the personal wealth inherited by the individual farmer. The farmer can engage with the Banking system to get better loan terms and mortgage.
Labour code reforms: The assimilation of 44 Union labour laws into four codes and 1,458 sections into 480 (a fall of 67 percent or the removal of two out of three sections on average) by Parliament should, if the baton of intent is taken up by state legislatures enacting their rules in the race of growth and prosperity, deliver a business environment more in tune with the future. The recently issued labour code reforms target on ease of compliances for businesses, better accountability to their employees, increasing the safety of all workers in organized and unorganized sector and ease of doing business. Code of Wages 2019 has reduced the quantum of disclosure mandated for any business entity thus reducing the red tapism. Industrial Regulations Code 2019 have brought a great degree of accountability into the system, by introducing a 14 days’ notice period prior to going on strike. Occupational Safety, Health and Working Conditions Code 2019 helps expand the social and workplace protection to all workers from all forms of operations. Now, all workers are to be given appointment letter by their employer. It entitles women to work at night shift, with written consent. Contract Workers employed through unlicensed contracts will be treated as direct employee of the Company. The law gives protection to the migrant workers as per which such migrant workers will be given a journey allowance once a year to visit their home. Code on Social Security 2019 helps bring a larger definition to the term of worker. The Law expands the coverage of labour laws for gig workers, freelancers, home based workers and other workers in unorganized sector.
The instruments for this song which certainly need Anu Mallick (no lame puns beyond this too.)
Demonetization: The move by the government to demonetize old currency and replacing it with the new one has taken the country by surprise. The move was an effort to handle the threat of illegal money, corruption, terror funding and counterfeit currency. The decision regarding demonetizing the old currency was considered as a surgical strike against the undeclared money in the history of Indian Economy, it may be a move towards the cashless economy. The demonetization is followed by a liquidity crunch in the country, banks and ATMs across the country faced severe cash shortages with detrimental effects on various small business, agriculture and transportation. Currency ban by the government of India created chaos in short-term as most people with old currency notes faced difficulties exchanging them in long queues outside banks and ATMs across India. The total value of old currency notes in the circulation was to the tune of Rs 14.2 trillion, which constitute about 86% of the total value in circulation. The black money has either been accounted by paying heavy taxes and penalties or has reached the bank accounts through direct or indirect channels. Demonetization would bring a positive impact on Indian economy as it encourages the digital mode of payment like E-wallets and apps, online transactions using E-banking, usage of plastic money etc Demonetization is beneficial for the economy in the medium to long-term. However, demonetization was surely hiccup to the normal business cycle and a possible cause of dent to the progress of Works.
Indirect costs of crude oil: The surge in crude oil prices spells bad news for India's state finances, coming at a time when the economy is trying to recover from the disruption caused by COVID. Ballooning fiscal deficit is a cause of concern given that India is the world’s third-largest oil importer and consumer. Its top suppliers are Saudi Arabia and Iraq. As per a Reserve Bank of India (RBI) report, every $10/barrel increase in crude prices leads to an additional $12.5 billion deficit. Thereby, crude oil prices has established itself as the Achille’s heel for the 5 trillion US dollar song. impact of the rising crude oil prices is on domestic inflation, through two channels. First, the direct channel where crude products themselves appear as constituents in the CPI. In the short run, a change in prices of crude products will affect the CPI directly due to their weighted contribution in the index. Second, over time the retail prices of all other commodities manufactured using crude as an input will also increase due to this shock and in turn affect the CPI again, which is the indirect effect.
The instruments for this song which are yet to be heard
Farm Bills: In January 2021, Supreme Court of India has issued orders and put the recently passed Farm bills, that is Farmers Produce Trade and Commerce (promotion and facilitation) Act, Farmers (Empowerment and Protection) Act on Price Assurance and Farm Services Act and Essential Commodities (amendment) Act. These bills were proposed by the Central Government to help enable the farmer to sell his produce commercially and legally without geographical limitation anywhere. However, the recent protests by farmers of Punjab, Haryana and Western Uttar Pradesh have brought up the point that diligent feedback from Agriculture Unions was not taken. Although promising, the Central Government has to prove it to the proposed beneficiaries, that is the Farmers, on the possible opportunity from the Bill.
Reforms for bankruptcy and insolvency: Insolvency and Bankruptcy Code (IBC), 2016 was finally enacted and notified in the Gazette of India in May 2016. The law aims at insolvency resolution in a time-bound manner (initially 180 days, extendable by another 90 days under certain circumstances but now extended to 330 days) undertaken by insolvency professionals. The law ensures the separation of judicial and commercial aspects of the resolution process, thereby correcting the mistakes of past legislations. Furthermore, under IBC, the adjudicating body will be the National Company Law Tribunal (NCLT) and not the DRTs. The NPA cycle reversed in commercial banks after 2008 and NPAs rose sharply in 2016, 2017, and 2018. This jump in NPAs happened when economic growth was considered to be robust, quite the opposite what was seen in the 1990s. Thus, a large part of the rise in NPAs can be ascribed to factors other than economic such as asset stripping, willful default, fund diversion, and poor corporate governance. It was in this context IBC was instituted in 2016. Thus, the purpose of IBC was not just debt recovery but to correct the behavior of borrower. Promoters, fearing of losing control of the company, do not want to be dragged into IBC. Benefits of these codes can only be seen in the long run.
Overall, the story is sophisticated, as it should be. However, the dream is not merely a fantasy neither does it need a miracle. The players of the game have the strengths, that is political fervor, economical acumen and a global crisis in the guise of COVID-19. It is certainly a tryst of a decade.
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