India has emerged as one of the fastest growing economies of the world and is expected to become one of the top three economic powers over a period of 10-15 years, with the support of good governance, strong democracy and efficient partnerships. The country has grown at more than 7.4 per cent (average) in the last few years with significant improvements in the macro-economic environment. Inflation is contained and fiscal consolidation is on the right path. In the recent years, on an average, CPI stood at 3.8 per cent, fiscal deficit remained at 3.5 per cent, current account deficit stood at the level of 1.7 per cent. The foreign exchange reserves touched a record high of USD 434 billion recently.The labour force of India is expected to touch 160-170 million by 2020. This will depend largely upon the rate of population growth, increased labour participation, and higher education enrollment, skilled labour and efficient human resource, among many other factors. Our country is said to emerge as USD 5 trillion economy by 2024.
The recent breakthrough in reform measures is commendable as the steps taken by the government would boost the businesses, investors as well as consumers’ sentiments. The significant cut in corporate tax for domestic firms will accelerate the investments in manufacturing, open up new employment opportunities and kick start economic growth trajectory of the country.
Now, India’s corporate tax is below the various competitive and peer economies such as the US, Germany, China, Japan, South Korea and Canada, among many others. This will strengthen India’s global competitiveness. Reduction in the corporate tax to the level of 25 per cent (effective rate) and 17 per cent (effective rate) for the new manufacturing units will strengthen India’s position.
The continuous cut in the repo rate by RBI during the last few quarters will enhance competitiveness with reduced cost of capital for the producers. However, at this juncture, transmission of the cut in repo rate by the banking sector will be crucial to percolate the benefits at the ground level. In addition, other significant steps undertaken by the Reserve Bank of India including the launch of repo rate/ external benchmark linked loan products, provisions for banks’ lending to NBFCs for further on-lending to MSMEs up to Rs 20 lakh per borrower under the Priority Sector Classification, Rs 30,000 crores liquidity support to HFCs and transfer of Rs 1.76 lakh crore by the RBI to the government would create immense scope for government spending in various needy and promising sectors of the economy. India is also focusing on renewable sources to generate energy. It is planning to achieve 40 % of its energy from non-fossil sources by 2030 which is currently 30 per cent and is also determined to improve its renewable energy capacity to 175 GW by 2022.
The other big ticket economic reforms announced including recapitalization of Public Sector Banks, merger of 10 Public Sector Banks into 4 Banks, rollback of enhanced surcharge on Foreign Portfolio Investors, payment of all pending GST refunds to MSMEs within 30 days and withdrawal of Angel Tax provisions for Start-ups are inspiring and would go a long way to foster strong, stable and inclusive growth environment in the country.
To bring in much needed simplicity and flexibility in the labour laws, the government announced the codification of 40 labour laws into 4 codes viz social security, industrial relations, wages, occupational safety and health has enabled/or. This will pave the way for higher investments and employment generation. However, bold and flexible labour reforms with adoption of fixed term employment by all the states would be crucial to ease the business environment and create employment opportunities for millions of growing young workforce.
At the global charts, the Indian economy is looking remarkably attractive in comparison to its performance in the last five years. The improvement in the Ease of Doing Business from 142nd in 2014 to 77th in 2019 is the significant outcome of the diligent efforts of the government towards improving business environment in the economy. The implementation of GST and Insolvency and Bankruptcy Code along with improvements in registering for new electricity connection, upgradation of port infrastructure, among others have yielded positive results and facilitated the country to improve in various parameters of ease of doing business. The economy ranks 1st out of 30 economies on the Global Retail Development Index. We are at 44th position out of 160 economies on the Logistics Performance Index. Further, India ranks 52nd out of 130 economies on the Global Innovation Index and 58th out of 140 economies on the Global Competitiveness Index.
In a nutshell, Indian government has been continuously making significant reform measures in the areas of taxation, housing, MSMEs, banking, tourism and exports as these sectors have immense potential to generate employment and strengthen India’s journey towards USD 5 trillion economy by 2024-25. Moving ahead, the reforms undertaken by the government and RBI have the potential to push economic growth trajectory to better position compared to the growth rates in the previous quarters. The effective implementation of the reforms will scale up the economic growth rate to more than 8% in the next few years.
The author is the Chairman and Managing Director at SMC Investments and Advisors Ltd.
