The nation has given a decisive mandate in the recently announced election results and this is a very positive development for India. It is amply clear that the country, especially the youth, wants development and good governance.
The country’s economic situation has been treading in difficult waters for some time now. Amidst the current state of affairs, immediate action is required to cruise the economy towards a brighter horizon. There is no doubt about the urgency to move to a higher growth trajectory. FICCI hopes that the new leadership will restore much needed investor confidence, attract higher investments and generate employment, especially in the manufacturing sector. Industry must be seen as a key factor in the nation’s advancement by enabling efficient provision of goods and services and creation of jobs.
FICCI conducted a quick survey amongst its members to gauge the sentiment post election. The survey results are based on responses from about 76 CEOs, who are members of FICCI’s National Executive Committee.
- In the present survey a whopping majority of 93% CEOs said that they foresee a substantial improvement in the near term economic situation. The remaining 7% of the participants expected a marginal improvement.
- The decision making machinery at the government level has witnessed a significant slowdown in recent past which has had an impact on growth as well. With new leadership on board, a majority 93% of the participating CEOs said that they certainly see a reversal as far as this trend is concerned. The remaining 7% were a little sceptical about a change in the decision making machinery.
On business and investment prospects..
- A majority 82% cited a substantial improvement in their business and investment prospects over the next twelve months.
Critical challenges confronting Narendra Modi government
Participating CEOs indicated that there are a plethora of challenges facing the incoming government. The growth has decelerated quite notably and the situation of the manufacturing sector continues to remain worrisome.
A significant majority of the participants felt that issues related to factors of production- land, labor, capital and power are amongst the most critical challenges that the new government will have to deal with. Inflation and need for tax reforms were also cited as other immediate concern areas. In fact, FICCI’s recently released agenda highlights these as the priority tasks that should be taken up by the incoming government.
- Market for various factors of production has not seen much liberalisation. Be it land, labor or the capital market, we have a long way to go to ensure optimal utilization of these resources.
- Availability of land is a prerequisite for industrial development. However, the new Land Acquisition Act makes it virtually impossible to acquire land and industry would like to see a comprehensive review of the Land Acquisition Act.
- All natural resources are scarce and therefore access to these natural resources including land must be at equitable prices. Natural resources allocation must be rapid, enforceable and through transparent process.
- Labour laws in the country remain archaic and inflexible. There is an urgent need to review the existing labour laws. The new laws should be such that these create a greater balance between capital and labour intensity.
- India’s two trillion dollar economy no doubt has an enormous capital requirement for sustaining its high growth aspiration. However, at present our financial sector is not geared to meet this requirement. It is imperative that we seek to attract capital from all acceptable resources. We have to deepen and broaden our capital market to reduce dependence on FIIs. Also, the corporate debt market has to be strengthened to reduce dependence on banks for long term funding requirements. Consolidation amongst public sector banks may be considered for creating large sized banks.
- Inflation has been persistently high and remains a major concern area. Moderating prices is important as this will not only provide some relief to the last common denominator in society but will create space for an accommodative monetary policy.
- In addition, the CEOs also highlighted infrastructure development, increase in non performing assets in the banking sector and law and order situation in the country as areas that need urgent attention of the new government.
- A suggestion was also made to review the impact of FTAs on India’s economy and industry.
- It was mentioned that transparency and stability in policies should be the key thrust area for the government to boost investor confidence. The participating CEOs were of the view that government should consider repealing retrospective tax provisions that have negative implications on the conduciveness of investment environment. FICCI has already called for the need to make retrospective legislations a rare exception. A clear course of action should be set to end tax adventurism.
- It was also reflected by the CEOs that the forthcoming Union Budget should seriously look at subsidy rationalisation and bringing stability in fiscal regime.
Brief, crisp and to the point survey. I congratulate Team FICCI for the initiative. Have also read your agenda for the new govt. Let me remind you that even with the benefit of preferential market access, exporters from many developing countries (like India) are unable to compete in global markets due to diverese barriers including macroeconomic policies, which distort efficient market entry and competition, poor conditions (cost & skill of labour, cost of capital), poor infrastructure and backbone services like transport & logistics inefficiencies that raise production and trade cost.
In brief, differences in productivity growth are the most important explanation for differences in income growth rates among countries.
Thanks for your observations Sanjeev.