The next government has its task cut out over the actions it needs to take to convert optimism into revival. We have listed a 10 point agenda for the next government. The path is arduous, but here is an opportunity for the next government to come up with fresh ideas for economic recovery.
- Bring down fiscal deficit
Fiscal deficit had touched 6.46 per cent in 2009-10, the highest in a decade. The Finance Minister targeted a deficit of 4.8 per cent for 2013-14, which seems achievable as the year draws to a close. Revenue inflows are expected to boost the government's income. However, the government's fiscal stimulus packages have stretched finances.
A disciplined fiscal management policy will be the only way out. Government schemes need to be backed by corresponding reforms in income generation.
Reducing deficit number benefits all; the Government will have more resources at its disposal, FIIs see a financially disciplined Government and the country's ratings may go up, which makes India an attractive investment destination. At the same time, these factors create encouraging signs for investors to feel confident and invest in the markets.
- Check inflation
Food inflation has been a perennial tooth ache for policymakers as much it has been for the common man. Food inflation has not come down to comfortable levels and high inflation has limited the options that the UPA II had at its disposal to stimulate growth. Both the RBI and the Finance Ministry have not been able to balance growth and inflation successfully, which has impacted both the business as well as the citizenry.
A new Government may push for a loose monetary policy. However, if Rajan continues as the RBI Governor till 2016 when his term ends, he could continue to play spoilsport.
A good rabi crop is expected to ease food inflation. If the CPI does cool down, a rate cut could be on the cards but that at the moment seems more back-ended this year. A rate cut could then stimulate lending and output.
- Implement tax reforms
The Direct Tax Code (DTC) and the Goods and Services Tax (GST) have not seen any progress to a logical conclusion. Disputes on corporate taxation is a huge factor in attracting foreign investment.
States need to be brought in line on matters of GST and a transparent simplified tax code without retrospective clauses is important.
A simple tax code addressing all issues will make it easy for foreign investors to take decisions. A lower and easier direct tax code could help increase the tax base.
- Revive the investment cycle
For the past four years, the country has been struggling with growth. High inflation, strained monetary and fiscal policies in no way can help boost growth at the moment.
Cost of capital has to go down, policies need to be framed that are industry friendly, tax sops may be required to incentivise and encourage investment. Likewise, FDI needs to be relaxed or opened up in more sectors.
An uptick in the investment cycle will lead to growth, more employment, more spending, lower deficits and more resources to fuel a higher growth trajectory.
- Approve and clear projects
The Cabinet Committee on Investment (CCI) has cleared projects worth ₹5.5 lakh crore and a further ₹10 lakh crore is awaiting clearance. Delays in clearing large projects is a hallmark of the current Government, with the Ministry of Environment being the most notable departments for delays.
For a speedy turnaround, projects stranded for clearances will need fast approval. The delays are mostly due to necessary government clearances.
Clearing of projects is likely to see more investments as it will pave way for several investors who are at the moment hesitant to invest in India. Necessary clearances will open investments, which in turn will create more jobs and its attendant benefits. Collectively, these factors will give a leg-up to the economy.
- Natural resources allocation
A grey area which potentially opens the door to corruption is arbitrary allocation of natural resources by way of discretionary quotas or bending the rules. Many of the scams of the last decade were linked to different natural resources. These scams saw the nation's natural resources being sold off for a song often without legal procedures.
The new Government should ensure that arbitrariness goes and the process of allocation or auctioning natural resources becomes transparent through competitive bidding. A policy framework needs to be devised that ensures both the nation and the buyer of the resource end up as gainers.
Equitable distribution of the natural resource is an important consideration for everyone, especially citizens who will also be consumers. The allocation of natural resources should not be done with the sole objective of profit maximisation.
- Improve the power situation
The country suffers from massive power deficit and loss-making State Electricity Boards. Years of populism has meant that power rates have not gone up, when the power generation costs have multiplied.
The next government needs to increase power costs, which could be tough as power rates are set by State Governments. Further, linkages will have to be provided. The time has also come for a policy on encouraging development of alternate energy sources and encourage the same across the country.
Reduction in power deficit will ensure people and businesses get the necessary power.
- Fuel subsidy reforms
The Government has tried to move in the right direction by de-regularising petrol, increasing diesel price by 50 paisa every month and limiting the number of subsidised LPG cylinders per year to ease the burden.
Diesel prices will need to be deregulated while at the same time keeping fuel price inflation in check.
Market pricing of fuels will make OMC's viable and the Government's resources could be productively used elsewhere.
- FDI in Multi-brand retail
The UPA II tried to relax norms for the retail industry by allowing 51 per cent FDI in multi-brand retail and 100 per cent in single brand retail. But that was a wet fuse. Stringent restrictions played their role while the rest came from opposition from the States.
Need for a consistent policy on FDI in retail with a clear roadmap is the key for the next government.
FDI in retail will help India solve the lack of modern supply chain infrastructure. The Food Corporation of India has been unsuccessful in reducing price inflation of food items or eliminate deterioration and wastages. Large foreign investors like Walmart, Tesco and Carrefour can step in here. If FDI is kept away, local retailers would continue to benefit.
- Agricultural reforms needed
India suffers from low agricultural productivity and the agricultural markets are highly regulated, which imposes many layers between the farmers and the ultimate consumers.
Agricultural markets need to be deregulated, farmer-producer organisations need to be encouraged, intermediaries need to be weeded out so that farmers get better prices for their produce.
If properly managed, a progressive agricultural reform could lead to higher agricultural growth, lower food price inflation and lift large sections of the poorest of the poor to above the poverty line.