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The BJP-led NDA has been voted to power with a resounding majority in the just concluded general elections. The new government is inheriting an economy which has clocked below five per cent growth in the last two fiscals. Even in FY15 the economy is expected to grow at around 5.5 per cent provided the country receives normal monsoon and sees quick revival in projex activities.
The Narendra Modi-led government will be sworn in on 26 May 2014 and will present its first budget in June 2014. The expectations from the new government are very high. Already, suggestions from different quarters are pouring in on what the Modi government should do. Below we have listed the most crucial matters the NDA government should look into to steer the economy back to high growth trajectory.
As of March 2014, according to ProjectsToday, there were projects worth Rs 16.33 trillion relegated to the back burner by their respective promoters, for a number of reasons. The new government, instead of clearing more new projects, should first concentrate on those stalled projects which can be revived at the earliest. This will set the ball rolling in the project investment arena. Most of these projects could not take off either because of land issues, fuel shortages or delays in clearances.
Here is a look at the tasks laid out for the new government in major sectors.
Manufacturing
The Manufacturing sector has to be the priority of the new government. Even though the economy grew at a higher rate in FY14 as compared to the previous year, manufacturing output declined from 1.1 per cent in FY13 to 0.2 per cent in FY14, thus indicating slower manufacturing growth vis-a-vis the overall economy.
Even though the previous government announced a National Manufacturing Policy with the objective of enhancing the share of manufacturing in GDP to 25 per cent by setting up National Investment & Manufacturing Zones (NIMZs), so far the efforts have failed to bring in major investments. Issues like lack of scale, raw material shortages, poor infrastructure and logistics, as well as rigid labour laws have kept India’s manufacturing sector from reaching its potential.
Sectors like Textile and Electronics need special attention from the new government. Being the largest producer of cotton in the world, coupled with low-cost labour and a large domestic market, India has a clear advantage in this sector. However, stringent labour laws, rigid tax structures and lack of scale have been the vice of this sector. A modern national textile policy would provide a roadmap in doing away with the fragmented structure of the sector.
Due to lack of domestic base and inverted duty structures, much of India’s demand for electronics is currently met by imports. This is quite worrisome as India's demand for electronic products is forecast to reach $400 billion by 2020. Though the government has recently approved two semiconductor wafer projects costing a total of Rs 63,410 crore, the new government should tune up our semiconductor policy so that the local electronics industry gets the maximum benefits.
India is the fourth largest steel producer in the world, but the growth in this sector has remained low due to the low domestic demand. A revival in infrastructure investment can spur the demand for both, steel and cement, and in return see projex revival in both the sectors. .
Timely implementation of the proposed industrial corridors will certainly provide the much needed infrastructure support to the manufacturing sector and help it increase its share in the overall economy.
Infrastructure
Most of the mega infrastructure projects are stuck for want of land, environment clearances and funding issues. The policy paralysis the country witnessed in the last couple of years made banks and financial institutions deny loans even to viable projects. As a result, in the last two years, the country saw a number of expressway developers terminating their contracts with NHAI.
Setting up an efficient bidding process, where the necessary land and clearances are already in place, as well as a fair exit policy, could help in reviving investor’s sentiment in these sectors.
Railways need quick modernisation. Actualization of the Diamond Quadrilateral project – of High Speed Train network (bullet train) -- part of the BJP’s election manifesto, will galvanise investment in this sector.
Similarly, the Real Estate sector requires a regulator at both, state and central levels, to ensure faster execution of projects and to instil confidence in new house seekers.
Mining
The Mining sector is almost in shambles following the unearthing of coal and iron ore scams. Formulating a clear mining policy could bring about transparency in the sector and counter irregularities which led to the deallocation of coal blocks and bans on iron ore mining.
Resolving the controversial issue of fixing a fair domestic natural gas price should be on the priority list of the new government. Ambiguity in this matter has not only affected oil and gas exploration activities but has also affected fresh investment in sectors like power and fertilisers.
Power
Coal-based power plants will require around 567 million tonne in 2014-15. Though Coal India has so far signed fuel supply agreements with power projects having an aggregate generation capacity of 78,000 MW, the ability of CIL in meeting the requirements is still a question mark. The new government should give enough independence to CIL to formulate its expansion plans so that it can meet its commitments in a time-bound manner.
The synchronization of the southern grid with the national grid was a commendable feat achieved by the previous government but the work is far from done as single grids are at a higher risk of a grid collapse and major blackouts. Thus, focus should be on maintaining grid security by setting up more inter-regional links that will improve the stability of the national power grid system.
Continuing with the Jawaharlal Nehru National Solar Mission (JNNSM), which has a target of installing 20,000 MW of solar power capacity in the country by 2022, setting up the proposed 4,000 MW ultra mega solar project in Rajasthan and making the overall infrastructure more affordable will help in harnessing this resource.
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