It’s a clear mandate for development

India’s electorate can be trusted to deliver a historical verdict as required by circumstances, and it has once again spoken decisively. The strong mandate to the Bharatiya Janata Party breaks many electoral records; more important, it sets the foundation for a stable government over the next five years. This verdict must be leveraged to set a new pace of growth and development for the country.

The Indian economy is barely recovering from a deep slowdown and needs a fresh infusion of economic reforms aimed at market liberalisation and promotion of private sector competitiveness. GDP growth rate at below 5 per cent for two consecutive years can only be revived with a strong dose of investments. Alongside, conditions must be created to generate employment on a large scale to meet the aspirations of a growing workforce.

The first order of the day would be to put on the ground the projects that have been stalled and subsequently cleared. This is eminently doable and should be the most obvious way to revive investment demand. Therefore, implementation has to be the biggest focus.

Simultaneously, there must be efforts to build up the investment to GDP ratio and increase efficiency of investments. A key challenge would be to coordinate the actions of the Central and State governments to fast-track delayed projects which are currently locking up huge funds and contributing to bank non-performing assets.

Given the high potential of manufacturing to create millions of new jobs, the reform list must prioritise entrepreneurship. Actions to encourage mass manufacturing in labour-intensive sectors as well as boost the micro, small and medium enterprises are required.

In this regard urgent attention is required to be given to the land acquisition law which has become a huge obstacle for the manufacturing sector by making land acquisition time-consuming, expensive and extremely difficult.

Priority should be given to bringing down inflation, especially in food articles. The supply chain for vegetables, fruits and protein-rich foods can be made more productive and efficient if perishables are exempted from the provisions of the agriculture produce marketing committee law which would allow farmers to respond to price signals and sell in markets of their choice. More private investment needs to be attracted into creating new storage and cold chain facilities.

Fiscal consolidation would also play a role in moderating inflation. The Government must strictly comply with targets according to the Fiscal Responsibility and Budget Management (FRBM) Act. Fuel and fertiliser subsidies can be rationalised to balance usage and lower public expenditure. The Government may also consider widening the tax base and undertaking disinvestment in a committed manner to raise resources.

The expeditious introduction of the Goods and Services Tax (GST) would reduce transaction costs and make the Indian economy more competitive. We believe that GST alone can add as much as 1.5-2 percentage points to the GDP growth rate, while also helping to tackle inflation. A facilitative and stable tax environment that avoids retrospective tax decisions would attract more investments, including from overseas.

Indian savings as a proportion of GDP have down-trended of late as households have shifted out of financial instruments and total private sector savings have dropped sharply. Steps to incentivise housing construction, increase thresholds for equity savings schemes and raise the taxation floors can help add to savings.

The financial sector too would need to be addressed to boost investments. A deep, liquid and strong corporate bond market should be promoted through various steps. Pending legislation on insurance and pension needs to quickly undergo the Parliamentary process.

Overseas investments must be high on the reform agenda with the idea of attracting funds into sectors such as manufacturing and exports.

Stability of policy is required on FDI in multi-brand retail, while sectors such as defence production and insurance should be further opened up to overseas investors. Foreign players can help India to slot into global supply chains and contribute to job creation.

Going forward, a lot would depend on how easy it is to do business in India. While the parameters of doing business as defined by the World Bank would be obvious intervention areas, one legislation stands out. That is the new Companies Act 2013.

Though a long time in the making, the Act has proved to be cumbersome and in many ways impracticable. While some of it seems inadvertent oversight, there are aspects that would need amendments in the rules if not in the Act itself.

The elections have re-set the economic reform dialogue in the country and we must not lose this historic opportunity to achieve our vision of development. The thrust has to be implementation, implementation, implementation.

The writer is Director-General of the Confederation of Indian Industry