Year 2014 Economic Overview and Government Initiatives

19 Dec 2014 (All India Radio - Current Affairs)

Participants: Prof BB Batacharya, Noted Economist; V Raguraman, Former Principle Advisor, CII and Arjun G Choudry, Senior Journalist

Complete Transcription:

Recent Morgan Stanley Report – Reg. India – 6.5% GDP growth projected – what extend?

Most of the countries in the world are in depression, Russia’s rubble crash worst situation, even Brazil, so the BRICS. Except china, everybody else is in trouble situation recording below 5%. So for India’s Indications are not very positive, Industrial growth just 0.12%, services is in subdue rate, with the bad monsoon Agriculture – one more quarter for this Financial year – growth might touch 6 Plus- optimistic scenario.

55% of GDP belongs to Services sector – market no longer been commodity driven – manufacturing taking advantage of it, but our IIPs not recovering?

Investment cycle has not started – lot of anticipation – stock market bloom up – new IPOs not coming; only silver lining is lower crude prices; IIP for manufacturing must revive in this quarter, but indication for this; with falling crude prices, export get good hit - Rupee getting near to its value; Surge in Gold import – after the Govt. relaxation; Indication & expectation are there, but still we are not yet there;

Revival of Manufacturing/ IIP need Capital investment but Gold imports constitute - $ 60Bn - 1% of GDP – How do you see, that particular import being reduced with currency still weak against US Dollar?

Gold import picked up because Govt. started giving concession; Earlier (2 years back) Gold import alone push the CAD to 6+, so Govt. increased the import duty - when the CAD comes down - Gold import has been eased. Question of Capital goods – when real investment start taking place – companies starts buying machinery, building, construction – now we are only hearing, no mega project has started; some of the project talked about with China, Australia, and Japan collaboration – then only the revival of capital goods market will start – real investment will take place;

Indian is a top of Reform mandate – according to the Morgan Stanley report – speaking about project clearance – How the govt., capitalizing on this and employment be generated in the market?

Four factor – land, labour, power and capital – govt. need uncloak many of this kind procedural problems – also centre state issues; caldron of problems – long persisting – so the issue – project monitoring team – strengthen with PM directly monitor – 18 Lakh Crore worth of projects; Foreign investment issues: first from Domestic sector – Public sector have lot of money but not invested, they must initiate -  it would boost the Domestic private sector to investment there on the Foreign Investment would automatically inflow; unless this cycle start – we have to wait for it;

Since independence we have issues of Land Acquisition, Labour and Taxation; now the government has now resolved this, under the mandate of PM Modi; it is not going to be an easy one; do you see, the great deal of planning right now- for proper implementation in the Next fiscal?

Taxation are easiest to handle, it is Domain of the centre – Double Taxation threat has been sideline but not completely resolved - FM assured not to use;

Land - joint issue of Centre & State – centre can attract investment (Domestic/ foreign), but the actual land allocation comes to the state – 3^rd tier of the Govt. become stumbling block of releasing the land; e.g. POSCO case – $13Billion project hanging around for several years; it require Centre- State to come together;  PM should convene now, big Centre-State Mega National Development Council meeting – to resolve some of these issues; Mining though it is centre – still there are throne issues – reg. Rights of the Tribal people, on whose land mining will be done; But land will be the biggest stumbling block; No surplus land available for industrial purpose; Critical issues of land – Tripartite understanding with (Industry- Centre – State ) – in fixing the market price of the Land; Current Mechanism -  Govt. acquire land for the Industries – this lead to disastrous cases e.g. Singur case in Bengal; When Market Operate – Industry should buy land directly from the owner - Govt. should be an Facilitator /Arbitrator rather than the Govt. Machinery used/misused to usurp the land;

Other issue - Labour Reforms are attempted to be carried out in the winter session?

i. Especially states like Rajasthan have really gone ahead – span out on National; Tamil Nadu – Nokia Plant has been closed down – more than 6000 worker has been sent out – as a result of this Foxonn also closed on the result of this; Unless States can come on Board – and then try to – People are losing their war just for winning the battle – why do we have retrospective position – why can we make Taxation as loss?; We have lot of works to do - to get the investor confidence;

ii. We have lot of  stalled projects – we need Labour, Environment all things given to the prospective project not retrospectively- there has to  be a sanctity of the  contract be maintained – case of Oil Exploration – good progress with NELP – now we are in trouble – problem in getting investment- predictability of the policy – Govt. as facilitator – Labour issues;

iii. In point of view of Productivity – Savings into investment - our Capital productivity is very low – because of Transaction cost, Delay, Procedure – without this Efficient productive use of capital will not be possible;

New Foreign Trade Policy – to Balance the Balance of Payment – How do you expect – New initiative not only Favorable Import & Higher Export but also Employment, that is a Key Issue as far as India’s electorate is concern?

New Govt. - Remarkable achievement – Food Secuirty Clause in WTO- India was held up in Investment & Services, basically because Agriculture Stumbling Block which is threat to Food Security – the issue has been sorted out, to favourable Investment in services; In Manufacturing – International competitiveness in Service; Skill Labour Shortage, Make in India – Pronouncement made of PM – Right spirit need to be translated in to Concrete Policy & Action – Second stage the corporate (Large/Small) – need to implement the pronouncement coming from the Top; India is not command economy like China where Xi Jing Ping’s Pronouncement will be carried down the stream; Grouping Policy Action – Parliament has to bother more about certain issues; though the present govt. is free from the compulsion of coalition govt. – but it has still must go through throne issues  of  Bureaucracy, State Govt and Local Government; equal stress should be given to Institution building before pronouncing policy;    

Convening of Chief Minister Meeting by PM – what thrashed out meeting action on the ground?

Bringing states on Board with respect to sharing of Revenue – Ensure Greater participation of State on Resources Allocation – one of big problem is New Planning commission and its future roles; first Acid test is to go through GST – to establish unified Indian Market – hopeful to keep the petroleum products out of the purview; 

New Govt under Modi - Fiscal Consolidation and meeting Fiscal deficit target are the key concern, at that time Crude oil prices were relatively high, (they are low now) – so, Govt. not encouraging the Subsidy either- what will be performance score sheet at the end of the FY?

In this it is great survivor – not only crude price, but also other commodities like Coal & IronOre; Reason is Lack of demand – China biggest consumer of Energy – its slow down, decline the market for all this; in that aspect relief to the Govt. the Inflation has come down – Govt. More bothered about the Fiscal Deficit, but it should bother only about the Quality & Productive Expenditure – more and more productive asset should be the centre of attraction – many countries of the world has FD around 6%, that is no matter as long as it is productive capital -therefore Structural reform in Govt. Expenditure (in the forthcoming Budget) is the need of the hour;

Govt. could have utilized this opportunity to build an Oil pool resource – very soon the oil price may revert back – instead accustoming the customer with lower price – giving some relief to the customer, rest should be utilized for cutting FD, New oil Exploration, Renewable Energy;

Quality of Asset – Previous govt. also create it – but accompanied with corruption – that has maligned the Govt. in Conceal – Current Govt. want to tackle both – can it be go hand in hand?

All are increasing transaction – speed up decision making process – people taking genuine decision will not gone be held up later for something which they didn’t think they commit with in the policy framework;

ii. Make all transaction transparent- Digital India mission – Broadband penetration – empowering bureaucrats – bring down transaction cost is essential to competitive around the world;

iii. India is not export lead growth but growth lead exports – we need to create Made for India – supply side should not be met from the import – capacity should be improved to meet our supply side - on this line Make in India Campaign should be speeded up with Centre-State cooperation;

RBI Governor – not reduced interest rate – cross of bordering will be reduced -

If consumer price were declining, probably RBI governor would be proactive but now Wholesale prices decline quite sharply– objectively it was not lack of capital which prevent the Investment – both the public sector and private sector has sufficient capital – but they lack of right opportunity – unless stumbling blocks like Land Acquisition, Power, Infrastructure need to be corrected, siphoning cheaper capital would fetch nothing; 

Previous Govt. – eased the FDI restriction on various sector – if that have been done in 10 years, would bought in more investment  - now new govt. made it but to roll out it would take time.

FDI in Service sector Insurance – that require so much of Infra – steel, coal, power; if govt timing is very poor, private investment cannot materialize;

Issues: How to handle PPP ? Production sharing Contract in Oil Exploration and suddenly issue of Commercial & Proprietary Audit; things retrospectively burden the corporate/companies;

Why Supreme Court interfere in these matters- because -Manner of sanctioning mega project need to be transparent; Issue of Coal Block Allocation – cost to the consumer; Bring Electorate & Govt. to the common point?

More time to handle problem – chronic to India; Govt. Democracy cannot by-pass Supreme Court; Supreme Court suo-moto action in public interest; Tripartite is right solution bringing all the stakeholder on the table;

Appellate Authority – papers - Issues of Environmental – unraveling all and taking measure 

require more time.

Certainty of decision – issue of clearances – Economic activity should not be disrupted even in crisis – capital scarce economy – retrospective action affect investment;

Regulatory committee/ Authority – institution building – as the principle discussed & passed in parliament – delay in their creation ended in such process – most of the complexity problem are due to this delay;