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The decisive mandate in favour of Narendra Modi led BJP Govt reflects people’s overwhelming vote for change. Change in the way the country is administered; change in the way India does business; change in the way food is distributed; change in the way healthcare is delivered; and change in the way the government addresses the aspirations of a billion Indians.
If the new government is serious about delivering on its promise of a better life for every single Indian, its No. 1 priority should be to navigate the country towards a path of sustainable and inclusive economic growth.
The new government will be starting off with economic “tailwinds”: inflation is showing signs of cooling; CAD has eased significantly; the rupee has stabilized; and GDP growth is expected to pick up pace in FY15 after two consecutive years of sub-5% growth.
However, there is no scope for complacency as significant challenges face the country. Projects worth over $100 billion were shelved or abandoned in FY14, the highest in the past 18 years, due to policy uncertainty and pending regulatory clearances, according to CMIE. Capital goods production has contracted in nine of the past 12 months, according to latest government data.
The new government that comes to power will have to move quickly to de-bottleneck projects and revive investment sentiment in the country. India desperately needs to be seen taking corrective actions to regain its lost glory by creating an enabling ecosystem that paves the way for a double digit growth.
The prospect of a positive change by the new Government has already started reflecting in market sentiments. The Sensex has hit record highs as overseas investors are aggressively buying into Indian equities in the hope that a BJP-led coalition will take the steps necessary to boost consumer and investment demand that in turn will give a leg-up to economic growth. The Indian rupee is near a 10-month high. Concrete actions by the new government will help capitalize on this mood.
> Need for decisive action
In order to restore investor confidence the new government needs to introduce enabling policies as well as build the necessary infrastructure that supports the development agenda for the country across sectors.
Some critical steps the government needs to take to revive in the Indian economy are as follows:
> Smarter regulation for ease of doing business
The need of the hour is not more regulation but smarter regulation. The government needs to focus on a number of regulatory reforms that will address the ease of doing business, reduce transaction costs and expedite approval timelines.Currently, businesses need to secure a plethora of approvals and licenses from multiple agencies. We need to move away from over-regulation to a system of self-regulation. To make the system transparent and stakeholders accountable, we have to ensure that E-Governance becomes the backbone of regulation. Moreover, the regulatory process should be re-engineered to replace the current system with ‘deemed approvals’ and ‘automatic approvals.’ A time-bound approvals system can help fast-track projects, businesses and start-ups, thus improving the business climate in the country.
These measures alone can add a percent or two to GDP growth through increased FDI and project implementation.
> An efficient taxation system
The long-pending GST needs to implemented as an uniform tax on all goods and services across India is a key indirect tax reform that needs to see the light of day. There is also a need to exempt SEZs from MAT.
> Remove bottlenecks to boost flow of foreign capital
A lack of clarity over laws regulating FDI in key sectors like multi-brand retail is preventing much-needed foreign money from coming in to bolster India’s infrastructure setup. MNCs can help bring in technological knowhow and share best manufacturing practices with local companies, thus helping them upgrade their systems and processes.
> Build the necessary Infrastructure that supports industrial growth
All infrastructure projects which have been held up for long need to be cleared. The SEZ policy needs better implementation if it has to boost manufacturing and exports.
The government also needs to allow a longer tax free status for SEZs for the real benefits to kick in. Broad banding in a pragmatic way should be allowed to unlock the full potential of this far reaching scheme.
Establishing industrial corridors through high-end road and rail connectivity that links metros to interior towns can spread economic growth and create job opportunities more uniformly across the country.
> Generate high-skilled jobs
There is an urgent need to create high-skilled jobs that add long-term value. Employment generation initiatives should focus on creating a large market for skilled jobs through building scale in high-end manufacturing. For this, the government needs to provide adequate incentives to the manufacturing sector. Incentives should also be given to encourage start-ups as they can contribute to the goal of employment generation.
> Introduce a universal healthcare program
The ‘Right to Health’ should be addressed through a universal healthcare program which hinges on affordability and access. An IT enabled healthcare delivery model like that of Tamil Nadu has the potential to revolutionize various aspects of the industry. The implementation of an e-healthcare system at a national level can ensure fair and transparent delivery of affordably priced, good quality medicines to patients across the financially challenged socio-economic strata of India.
> Focus on Science & Technology, Incentivize Innovation
Science & Technology is of strategic importance to India’s future leadership. Innovation is key to value accretive growth and India needs to step up its investment in research and translational innovation. We must identify key areas in which to build world class scientific and technological excellence, e.g., genomics, nanoscience, analytics, synthetic biology, information technology, space technology etc. Incentivizing innovation and IP creation is important for India’s future growth prospects. Enabling entrepreneurs to propel ideas into sustainable businesses will add value to our economy in the long run.
In the final analysis, the new government needs to exhibit strong political will to implement bold economic reforms, create world-class infrastructure, usher in overdue tax, labour, land and regulatory reforms, address power woes and roll back unfriendly business regulations to return the India economy to a path of high growth in 2014.