- As per the Economic Survey 2014, tabled by the Finance Minster:
- Immediate challenge is the revival of growth – can be achieved through reforms and speeding up policy decision-making.
- Factors responsible for the slump in growth:
- Slow decision making.
- Low agricultural productivity – this directly affects economic growth.
- ‘Ill-targeted subsidies’ which have cramped the fiscal space for public investment and have distorted complementary investments.
- Slowdown in corporate investment – due to high and volatile inflation coupled with increased global uncertainty; subdued business environment; low investor confidence; sluggish demand, high input cost, delay in the collection of receivables after delivery of orders.
- Low manufacturing base, especially of capital goods, low value addition in manufacturing and lack of skilled manpower.
- Project delays and insufficient complementary interests.
- Difficulties in land acquisition.
- Delayed environmental clearances.
- Infrastructure bottlenecks.
- Problems in coal linkages and ban on mining in some area.
- About the economic downturn:
- This creates an opportunity to push for critical reforms and remove infrastructure bottlenecks.
- Sustained improvements in the policy environment and a quick return to peak investment rates will ensure an upturn.
- Recovery will be gradual, but the economy will overcome the substandard 5% GDP growth of the last 2 yrs with a range of about 5.4-5.9%.
- To achieve a 25% GDP:
- Capture the global markets in sectors with growing demand.
- Policy focus – on revival of corporate interest in the short term and also on increasing the standards of public and private expenditure on technology upgradation, R&D, innovation and skill development.
- Rejuvenating and fortifying MSMEs and small businesses in the informal and formal sector for job creation.
- Macro economy has stabilized, improvement seen in external situation and fiscal deficit has declined for the 2nd year in a row.
- Legislative, administrative and regulatory changes to be adopted and the state’s interference to be restricted to times of market failure (monopoly power, asymmetric information or externalities).
- Short term, medium term reforms to be undertaken through executive decisions of the Finance Bill and long-term reforms for institutional change.
- New regimes for taxation, subsidies, financial consolidation, government expenditure, and food markets.
- It is time to shift from big-ticket items (telecom and IT) to potential big-ticket items such as tourism, hospitality, port services and railways as they have high manufacturing sector and employment linkages.
- With 57% share at factor cost, services constitute a major portion of India’s GDP. Domestic regulations that hinder growth prospects should be addressed immediately.
- On real and nominal interest:
- Ponders over whether the real or nominal interest rates better explained the reduction in the investment rate.
- As per RBI, a lower real interest rate can stimulate growth and investment as long as it was not achieved via inflation. Nominal rate is necessary for investment planning at firm level.
- According to another study, real interest rates explain aggregate investment activity better than nominal interest rates, but account for only one quarter of the explained investment downturn.
- Lowering nominal rates may provide short-term relief from interest burden, but coupled with slack in the economy in the medium term will lead to further inflation and affect investment adversely.
- Structural reforms and resolution of supply-side bottle necks of critical importance.
- Issues that need urgent attention – augmenting coal production, permitting commercial coal mining, restructuring power distribution, upgrading road and rail networks, reducing delays in regulatory approvals and land acquisition and rehabilitation.
- Challenges – moving from lower to high-tech, high-value and higher productivity sectors.
- Tackling food inflation is critical to maintaining sustained economic growth. Issues that need to be addressed for the same:
- Presence of intermediaries in different tiers of marketing.
- Shortage of storage and processing infrastructure.
- Inter-state movement of agricultural produce
- There is a need for:
- Nodal agencies for services to weed out unwanted regulations as services cover issues beyond trade.
- Promotional activities for service exports such as setting up a portal for services, to showcase competence in non-software services in trade exhibitions, and engaging dedicated brand ambassadors and experts.
- Speeding up disinvestment in certain service sector PSUs to increase revenue for the govt and speed up their own growth.
- For tourism and hospitality:
- Creating world-class tourism infrastructure.
- Addressing multiple taxation issues.
- Skill and etiquettes training to cater to the needs of tourists
- Special focus on cleanliness at tourist sites and safety of tourists.
- Implementing urgently visa on arrival and E-visa facilities at 9 airports to 180 countries barring 8 ‘prior reference’ countries.
- Read at:http://www.thehindu.com/todays-paper/economy-to-breach-5-mark-survey/article6195406.ece
- http://www.thehindu.com/todays-paper/tp-business/downturn-is-an-opportunity-to-push-reforms-economic-survey/article6194873.ece
- http://www.thehindu.com/todays-paper/tp-business/immediate-challenge-of-services-sector-is-revival-of-growth/article6194880.ece
- http://www.thehindu.com/todays-paper/tp-business/tackling-food-inflation-must-to-spur-economic-growth/article6194874.ece
- http://www.thehindu.com/todays-paper/tp-business/excessive-land-environmental-regulation-cause-investment-slump/article6194886.ece