Subrata Majumder
The worst period of Indian economy is over. The downtrend in growth has bottomed out. The world economic institutions, viz, IMF and World Bank, are on the run to revise India’s growth projections. IMF revised India’s GDP growth in 2014-15 from 4.7 percent to 5.4 percent and World Bank pushed it from 5 .0 percent to 5.5 percent. FIIs are flocking to pour their fund in Indian equity market. The new Government will be blessed with the platform of bouncing back of the economy on the growth trajectory. Can the new Government gear up the growth?
Several opinion poll surveys revealed that the greatest concerns in this general election were development and inflation, which were botched by corruption. The immediate solution to douse the voters’ anger is to taper the inflation and bring down the food prices. Food products were the engine for high inflation. Notwithstanding having the best food grain production in 2013-14, food prices skyrocketed. The problems relate to the lackluster storage facilities and spurt in the active roles by the hoarders taking the advantages of storage facilities. Every year India loses 10 million tonne of foodgrain due to inadequate storage capacities. Millions of foodgrain are wasted lying in the open field. Facilities of cold storages are at nadir. India has half the capacity of its cold storage requirement. With corruption hogging limelight in media, which unleashed the image of wobbling administrative practices, hoarders turn active to make overnight profits by making artificial shortage in supply. Abundance in production turns into shortage of supply at the retail point. These indulge the prices to go high. High price of onion before the State assembly elections was an example, even though production of onion was not at rock bottom. Why was then onion prices dropped sharply after Congress lost in Delhi Assembly election in December last year? Food is the main driver for the volatility of inflation.
The immediate solutions are to expand the food storage facilities and assert on cold storage facilities. In 2010 UPA Government provided a number of incentives to establish a strong base for cold storage facilities to improve the distribution of perishable food products. But, the scheme underwent moribund because of cumbersome regulations and red tape.
In this perspective, Modi’s mantra of minimum Government and maximum governance should be ideal to purge of red tape and cumbersome procedures.
The second major agenda should be to create a big platform for employment generation. In a big and densely populated country like India, where the economy depends largely upon domestic demand, manufacturing is the mainstay in creating job banks in the country. Unlike developed nations and China, India’s golden period of economy relied more on service sector than manufacturing. There was almost no growth in the share of manufacturing in GDP during 2004 to 2012-13, despite GDP splurged to one of the best growth in the world. Share of manufacturing hovers around 15-16 percent of GDP during these periods.
National Manufacturing Policy was formulated under UPA Government. But, few were there to take it. The main issue which haunted the new manufacturing policy was the land availability under the new Act. After the new Land Acquisition Act 2013 was enacted (which is yet to be implemented), a number of SEZ projects remained idle. Some withdrew even after obtaining approval. State industrial and infrastructure development organizations – the prime organizations in acquisition of land for industries – deferred acquisition. FDI to set up manufacturing facilities at green field level were choked. Foreign investors preferred merger and acquisition route to invest in India.
In this perspective, creation of Land Bank is an immediate requirement to trigger the growth in manufacturing sector. Land is in the Concurrent List, where both State and Central governments have roles to play. However, State Government has more say in land acquisitions. Various poll surveys are euphoric over BJP led NDA to win in 2014 election. Assuming the forecast turning true, the immediate task for the BJP government will be to set up land bank in cooperation with States government which are ruled by BJP and its coalition partners.
Service sector accounts for biggest share in GDP. Its share in GDP is about 60 percent. In service sector, trade churns a paramount share of 25 percent. But, over 92 percent of retail trade is in the unorganized sector. Service sector catalyzes a big potential for employment opportunities. The potential is scuttled by the unorganized nature of trade sector. Organized retail sector plays a greater role in providing ample opportunities for employment. In this perspective, FDI in retail sector, including in multi-brand retail, is imperative.
According to a report by Indian Staffing Federation, FDI in multi-brand retail can create 10 million jobs in 10 years. It was believed that FDI in retail would have wider impact on organized employment than what it happened in IT twelve years back. This will open doors for less skilled and less educated people as well. In addition, a ripple will be felt in the development of logistic industries, which will further create more employment opportunities.
In this prospective, BJP’s (the prospective party to win in the 2014 election) aversion to FDI in retail will nail the employment opportunities in the country. It is imperative that BJP should have a rethinking on FDI in retail and should reinvent its strategies to induct a cohesive relation between organized retail and the Kirana shops- the biggest supporter of BJP
On external front, the immediate task should be to increase export. Given the lackluster growth in West, thrust should be to increase trade with East Asia. Bolstered by Look East policy, India’s export to 10 ASEAN countries spurred by ten times since 2001-02. India has FTA or CEPA (Comprehensive Economic Partnership Agreement) with 10 ASEAN countries and SAARC countries. But, India failed to gain much through these preferential trade agreements due to its inverted duty structure. While duty is reduced on finished product under FTA or CEPA, the high tariff on raw material and inputs, which are not included in FTA, nullified the advantages of FTA. Inverted duty structures should be rationalised to ignite the export to these East Asian countries.
With the surge in political bonhomie with African countries, thrust should be given to promote trade and investment relation with this region. Given the large Indian people domiciled in Africa, India has an edge over a number of developed nations to penetrate in this region. Japan is a case in point. A mutual understanding should be explored between Japan and India to jointly foray into this region. (IPA)
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