The Economic Survey is a review of the year gone by and what is needed to be done to put the economy on a stronger footing.
The Economic Survey is a review of the year gone by and what is needed to be done to put the economy on a stronger footing. Keeping in mind the fact that the GDP growth rate for FY13 is seen at a decadal low of 5 percent, substantially lower than the projected figure of 7.6 percent given in last year’s Survey, it is evident not much has gone right for the economy in FY13. Inflation has remained high throughout the year, the twin deficits have limited government’s ability to stimulate economy and the high interest rate regime has also discouraged private sector to go for investment and capacity creation.
Let us not think about what is happening on the global front. We have a huge domestic economy. If India can get its act together on the domestic front, we will be able to sustain high growth and that would also help us attract investments from abroad. The driver for domestic growth should be infrastructure. India is an infrastructure deficient nation and every attempt must be made to encourage private investment into infrastructure. Not only will it lead to job creation, it would fuel internal demand and increase the productive capacity of the economy thus readying it for even higher growth. This is also in tune with the Survey’s special emphasis on job creation. As mentioned in the Survey, India is creating jobs mainly in the low productivity construction. Thus, off-take of more number of infrastructure projects will create more such employment. Growth of domestic economy will provide a spurt to manufacturing and services sectors (which have witnessed marked slowdown of late) – avenues for the high productivity jobs.
There is a perceptible liquidity crunch at the moment. Infrastructure projects being marked by long gestation periods, there is a need to explore tapping of long-term funds, be it available domestically or from abroad. In addition, as mentioned in the Survey, the tax base needs to be widened to generate more domestic resources.
With RBI indicating that the monetary tightening phase is now over, investment is expected to pick up in FY14. However, strings can be pulled, not pushed. Thus, expecting investment to rebound just by reducing policy rates would be naïve. For infrastructure projects to take off in a big way, we need an urgent consensus on issues like land acquisition and environmental clearances. Most infrastructure projects are facing delays on these fronts. Also government must address the problems arising from this growing trend of over-aggressive bids and then projects getting stuck mid-way with promoters appealing for reworking the terms of the contract. This nuisance has to be dealt with strongly as many serious players are getting sidelined during the bidding process while others, by virtue of unrealistic bids, are winning the projects and then unable to complete those. This is creating huge losses for the economy. The rising level of NPAs is indeed something to worry about. This trend must be reversed. We must waste no time in getting our policy framework correct and sprucing up our infrastructure. While the direction is clear, the implementation remains the key issue.