With the advent to office by the NDA government after a decade in May 2014, the Indian economy today presents an exemplary case of how to make do efficaciously without much ado. As the government completes three years in the saddle, it is able to usher unobtrusively significant economic reforms to spur the economic growth. The measures like the enactment of the Benami Transactions (Prohibition) Amendment Act, 2016, enactment of Real Estate (Regulation & Development) Act 2016 – RERA and demonetization of high denomination currencies of five hundred and one thousand rupee notes could be seen as path breaking reforms to end corruption and eradication of black money. It is no wonder that India remains the fastest growing major economy in the world. Provisional estimates show real GDP grew by 7.9 percent in 2015-16 compared with 7.2 per cent in 2014-15, the inaugural year of the NDA government under Prime Minister Narendra Modi. The very first year suffered because the economy had to bear the brunt of legacy issues and cleaning up the mess inherited by the government.
Meanwhile, the second advance estimate for GDP growth for 2016-17 is pegged at 7.1 percent. Even as there were some dislocations to real sectors’ activities, the currency reform step would help to move the Indian economy over the long haul to a less-cash pattern, increase tax compliance and minimize the threats from counterfeit currency which is a source of terror-funding. It needs to be remembered that in the first two years of the government, there was a back-to-back drought, hitting hard the farm sector growth with aggravated distress in the rural economy. The poor farm growth in the first two years and the tepid growth on the industrial front for the third year in a row had not dented the overall growth momentum in the economy which is now more than 60 per cent driven by services sector.
The Government is infusing capital in Public Sector Banks (PSBs) to meet their capital requirements in line with global risk norms and to spur credit growth. Recent announcements made by the Prime Minister for the provision of cost- effective credit to farmers and housing loans to the poor including enhanced access of credit for Micro Small and Medium Enterprises would enlarge the scope of institutional credit to the hitherto under-banked segments of the economy. Alongside, Micro Units Development and Refinance Agency (MUDRA) is proactive in facilitating structured microcredit to small scale entrepreneurs for productive activities. Underpinned by AADHAR, the biometric based unique identity system for individuals, the ongoing rapid expansion of digital payment mechanisms will galvanize the government’s financial inclusion efforts.
The wide ranging liberalisation of the FDI policy in recent years is set to spur employment and job creation. Most of the sectors, except a small negative list, are now under the automatic approval route. India is now a distinctly open economy in the world for FDI. Net FDI inflows during April-December 2016-17 increased to US $ 31.18 billion from US $ 27.22 billion during the same period in the previous year. The increasing strengths of economic fundamentals have made India the darling of investors’ destination.
India’s foreign exchange reserves at US $ 367.93 billion as of 24 March 2017 with its current account deficit (CAD) at sustainable level of 1.3 percent and 1.1 percent in 2014-15 and 2015-16, respectively are other plus points.
India’s Gross Fiscal Deficit (GFD) was contained at 3.5 percent in 2016-17 following a steady path of fiscal consolidation without compromising on the public investment requirements of the economy and spending on programs for poverty alleviation. The GFD for the year 2017-18 is pegged at 3.2 percent with a commitment to achieve 3 percent in the following year. The steady approach towards fiscal consolidation is being judiciously adopted to avoid excessive curtailment of public investment owing to the overwhelming need for higher public expenditure in the light of sluggish private sector investment and subdued global growth.
The Union Budget 2017-18 has significantly increased resource allocation for infrastructure as well as rural, agricultural and allied sectors. The government would continue to increase fiscal resilience through greater focus on the quality of expenditure and higher tax realizations including those that would accrue from large cash deposits made in banks due to demonetization. India is also fully on course to implement the Goods & Service Tax (GST) by July 1, 2017. The GST will ensure improved taxation efficiency and the ease of doing business and will usher in one common market pan-India.
Since 2014, India undertook systematic and steady efforts to implement deep structural reforms to unlock the full potential of its economy. Far-reaching reforms have been put in place which include the Goods and Services Tax Act, AADHAAR (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act 2016, rationalization of subsidies, enactment of Insolvency and Bankruptcy Code 2016 and operationalization of National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) for new corporate insolvency framework.
Other conspicuous policy initiatives cover implementation of the hybrid annuity model for PPP, passage of Mines and Mineral Amendment Act, announcement of National Capital Goods Policy and directions to PSEs for expediting arbitration in construction sector. Alongside, steady progress in India’s ranking in Ease of Doing Business, the Government’s flagship program ‘Make in India’ goads new processes, new infrastructure, new sectors and new mindset to drive entrepreneurial zeal. India is definitely on the cusp of a major transformation before long.
*Formerly Deputy Editor, The Hindu Group, the author now works as independent economic journalist and is based in Delhi.
Views expressed in the article are author’s personal.