EDITORIAL Agenda for Transformation Globally there are several apprehensions on the India growth story as the current macroeconomic challenges are manifold. Increase in prices, higher interest rates, corruption and other uncertainties are all the factors that hold back the economic growth of the nation. The newly elected government under the leadership of Shri. Narendra Modi began their journey with the right note, bringing in a 10-point framework for good governance, assigning maximum importance to the need for empowering the bureaucracy to work without the fear that actions will be investigated post-retirement. In order to achieve double digit growth, this government will have to implement a series of reforms that are aimed towards improving savings and investment rates boosting productivity and growing the country’s labour force. The government has also assured the industry of the introduction of the general sales tax while also encouraging foreign investment and speeding up approvals for major business projects. The success or failure in implementing these policies will determine whether India is truly one of the world’s economic superpower or whether it will be remembered as a pretender that failed to live up to its potential. Sensing the Indian economic growth potential, the international rating agency Fitch on recently stated that India's economic growth will accelerate to 5.5 per cent this financial year and 6.5 per cent in FY 2016. Further, the agency opines that previous periods of high growth illustrated that potential for significantly higher growth rates certainly existed, but that would imply higher savings rates - through fiscal consolidation, productivity gains through reforms, for instance related to governance, and product and labour markets, and the elimination of infrastructure bottlenecks. Consequently, all eyes are on Shri. Arun Jaitley, Hon'ble Union Minister for Finance, Govt of India as delivers the budget on 10th July, as he tries to balance reducing inflation with the need to revive economic growth from its second year below 5 percent. The Southern India Chamber of Commerce & industry which had participated in the pre-budget consultation with the Finance Ministry had also commissioned a study on the 'Agenda for Transformation', a holistic research project to identify the challenges in the various industrial sectors and chart out its possible remedies. The SICCI had interviewed senior industrialists and executives from the southern region in this regard and the findings of the report had been circulated to the relevant government departments. The SICCI feels confident that with the Shri. Narendra Modi’s leadership and dedication, the new government would surely usher in a new era of growth and development with the support of the masses and the assistance of organizations such as the SICCI.
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C H A M B E R AT W O R K Interactive meeting with Mr. Luis Cabello, Economic Commercial Counsellor, Embassy of Peru in New Delhi
exports to Peru are iron and steel laminated products, rubber tyres, three wheelers /motor cycles & parts, pharmaceuticals, organic and inorganic chemicals,
SICCI organized an interactive meeting Mr. Luis Cabello, Economic Commercial Counsellor, Embassy of Peru New Delhi on 13th June 2014 at the Chamber Board Room.
yarns, etc. Main Indian imports from Peru are copper and its concentrates (80% of imports), zinc and fish meal. Mr. Luis Cabello, Economic Commercial Counsellor of Peru in India, said, “Tourism constitutes a significant
Mr. S K Hazari, Executive Committee Member, SICCI delivered the welcome address. He said that the total bilateral trade between India and Peru in 2010-11 amounted to US$642.76 million, an increase by 56% as compared to the trade in 2009-10. India’s exports to Peru were valued at US$ 455.40 million (up 66%) and India’s imports from Peru amounted to US$ 187.36 million (increase of 37%). The trade balance was US$ 268.04 million in favour of India. India’s main
aspect of the country’s economy and both Indian and Peruvian cuisines are fairly similar. Nearly 5,000 Indian tourists flew to the country last year, which resulted in a 40 per cent rise in Indian tourist arrival. Peru was home to the Amazon River, which has a large number of endemic avian species and Lima has 41 plush shopping malls.”
Mr. S K Hazari, Executive Committee Member, SICCI delivering the welcome address.
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Mr. Luis Cabello, Economic Commercial Counsellor of Peru in India, interacting with Mr. S K Hazari, Executive Committee Member. Also seen Mr. S. Raghavan, Secretary, SICCI.
He further said that the Peruvian economy had risen rapidly in the last decade and registered the lowest inflation rate. Since it was a leading exporter of gold, silver, copper and zinc, the country provided a wide array of business options. Energy, infrastructure, food industry and natural fibres were potential sectors that have enormous investment options.
sustainable development of the communities we live and work, including the environment in which we operate. On introduction of the recent company’s bill 2013, business houses tend to think in the lines of what could motivate them to devote their employee’s time and resources in sustaining effective CSR initiatives. Mr. Jawahar Vadivelu, president, SICCI delivered the welcome address. Mr. Suresh Subramaniam, Sr. Partner with the Assurance Practice of the Ernst & Young India member firm, SR Batliboi & Co and Mr. Lakshmi Narayanan, Vice Chairman of Cognizant Technology Solutions and Founder Member of United Way of Chennai made a detailed presentation. Dr. M.A. Alagappan, Past President, SICCI also addressed the participants.
Interactive Session on CSR Mandate of the Companies Act 2013 SICCI jointly with Ernst & Young India and United Way of Chennai organized an interactive session on CSR Mandate of the Companies Act 2013 on 7th June, 2014 at Hotel My Fortune, Cathedral Road, Chennai – 86. CSR is linked to business sustainability and is the
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Mr. Jawahar Vadivelu, President, SICCI, delivering the welcome address.
Dr. M.A. Alagappan, Past President, SICCI, addressing the participants.
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Mr. Lakshmi Narayanan, Vice Chairman of Cognizant Technology Solutions and Founder Member of United Way of Chennai, addressing the participants.
Mr. Jawahar Vadivelu, President, SICCI, presenting a memento to Mr. Lakshmi Narayanan.
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A view of the participants.
ICC India – J.P. Morgan Trade Finance Seminar Navigating Change in an Evolving Operating Landscape The chamber jointly with ICC India conducted the 'ICC India – J.P. Morgan Trade Finance Seminar Navigating Change in an Evolving Operating Landscape' on May 30, 2014 at Hotel GRT Grand, T Nagar, Chennai. The seminar focussed on issues like documentary credits, issues relating to the preparation and examination of documents, Incoterms 2010, Bank Payment Obligation, Guarantee or Standby Letter of Credit and Documentary Collections among others. The Seminar was led by Mr Gary Collyer, Chairman, Collyer Consulting Global Ltd.
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E C O N O M I C S U RV E Y Agenda for Transformation Excerpts from the Survey conducted by SICCI and presented to the Prime Minister of India.
Economy
strongly suggests that the government consider making it mandatory for the MNCs to procure material from Indian companies directly as well as seek listing in the local stock exchanges. Moreover, the bridge fund should become a permanent concept for the SMEs and should be made available to them on time.
V Owing to the persistent imbalance in the country’s fiscal position, combined with the absence of economic reforms, India’s economic growth has sharply decelerated in recent years, with the most recent estimates pointing to GDP growth having slowed down to 4.6%. Tax collections have been growing at over 15%. However, 12 out of 22 sectors have recorded negative growth (data from CSO), which indicates the regressive policies of the government towards industry. The country’s fiscal position must be restored through expenditure rationalization, most immediately on the subsidy front, while rationalizing taxes and improving tax administration.
Taxation V The SICCI strongly suggests that the Indian government should come out with a long-term fiscal policy. Frequent tinkering of tax laws should be avoided. Further, speedy implementation of the GST will enable the industry to grow and be competitive. V There is an inordinate delay in genuine tax refunds – whether income tax, Cenvat or customs duty. Artificial withholding of tax refund orders has negatively impacted business environment, and also facilitates corruption. The government should start issuing the refund orders immediately to alleviate the already strained cash flows of the businesses.
V The SICCI seeks monetization of real estate assets, opening of Libor-based credit, creation of a price stabilization fund for agricultural commodities and creation of land bonds. V The SICCI suggests an overhaul of some of the provisions of the Companies Act 2013 that are particularly restrictive to the functioning of industry.
V The SICCI seeks the abolishing of the Securities Transaction Tax (STT) and Commodities Transaction Tax (CTT).
V The SICCI welcomes foreign companies to establish manufacturing base in the country. However, these MNCs are given preferential treatment right from the investment stage. They are allowed to bring in their own vendors or they mandate Indian suppliers to collaborate with their international suppliers, because of which Indian companies are deprived of the opportunity to supply directly to the manufacturers. Further, in the name of MoUs, the MNCs enjoy many facilities like uninterrupted power supply and tax immunity, which are not equally granted to the Indian manufacturers. There should be a level playing field for the domestic industry. Hence, the SICCI
Banking and Financial Sector V The SICCI seeks the removal of the stay provisions being granted by Debt Recovery Tribunals (DRT) under the SARFAESI Act, with specific reference to the housing finance segment. V The National Housing Bank provides rural housing refinance to housing finance companies. It stipulates that the housing finance company must onward lend it at a mark-up of not more 2%. Given the attendant risks in rural loans, the NHB must recognize that access to credit is more important than the rate at which the loan is lent and must
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therefore not regulate the spread at which loans are lent onwards.
to the common rail technology as well as in the availability of value-added raw materials such as highquality alloys would be welcome.
Infrastructure V The SICCI seeks one ministry for logistics, covering ports, airport cargo, rail cargo and road transport to create an enabling environment that optimizes logistics costs.
V Pump manufacturers: This sector needs to be classified as a priority sector and be provided credit at the levels available to the agricultural sector. NABARD funding for this sector would also be appreciated.
V The SICCI recommends the formation of Regional Power Grids and Regional Electricity Bodies to ensure effective distribution of power among states and to monitor honouring of PPA by the State Electricity Boards (SEBs).
V Pharmaceutical industry: Sales promotion gifts given to doctors by the pharma companies should be exempted from being covered under the Indian Penal Code. V Textile industry: A national fibre policy covering the imports of polyester, viscose and cotton is the need of the hour. The sector also seeks for coordination between the Agriculture, Textile, Commerce and Finance ministries and facilitation of an online trading forum for farmers for knowing, and trading at, the current prices.
V The SICCI finds that the Indian shipping industry is uncompetitive, with less than 2% of Indian flag vessels operating in Indian waters as against that of the US and Europe. The SICCI requests that the government should facilitate the Indian shipping industry by encouraging and providing incentives and financial support for this industry to help become a larger player and to operate Indian flag vessels competing with the international market.
V Textile machinery manufacturing: As this is considered as a heavy industry, enhancement of support to this industry would facilitate better employment generation. There has been an attempt from the US-based lobbies to insist on end use certification for the import of a 5-axis machine. The government should provide support to the cause of domestic industries.
V The SICCI suggests that the government should focus on inland waterways and a separate policy on the must be initiated.
Labour Laws V There are around 22 different labour laws. SMEs spend their productive time in filing various returns and face stringent legal penalty for non-compliance of laws. Penalizing the manufacturers for noncompliance of labour laws by the service providers has also affected the industry. The SICCI suggests that the entire gamut of labour laws be redrafted keeping pace with the changes in the business environment. As a first step of labour reforms, the SICCI suggests a single registration for PF, ESI, and all labour laws, one rate and one point of collection.
V Fertilizer industry: There is a need for balancing the pricing of DAP, NPK and urea. The sector also seeks a clear policy on gas pricing. The industry would benefit if companies are allowed to buy LAB kerosene and refine it, in order to use the paraffin for the production of fertilizers. V Steel industry: This sector is the solution for the stalemate in input industries like coal. In spite of the huge availability of coal in India, there is a need to import it because of the creation of artificial scarcity. In order to survive, the foundry industry needs support similar to that provided by the TUF to the textile industry. It would be good if the government is advised on the difference between the electric arc and coal-based furnaces.
SICCI Sectoral Recommendations V Auto and auto component sector: Government facilitation in the transition from the fuel injection
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V Leather industry: Government support is solicited in removing the monopoly of Chinese chemical suppliers. The return of the duty drawback procedure and removal of the ‘consent order’ requirement to reduce corruption in the ILDS system are essential components of the leather industry’s wish list. Improvements are sought in agriculture infrastructure to enhance the quality of the country’s livestock.
midst of a massive wave of urbanization, with over 30 million people moving to towns and cities each year in search of jobs and opportunities. This historic change at this unique juncture has placed the Indian economy at crossroads. The economy is witnessing high inflation, fiscal imbalances, high rates of interest, etc. At the same time, a spell of global financial turbulence has caused capital outflows, and the pressure on the exchange rate has added to the challenges faced by the country. The country awaits in anticipation that the new government would have a reformist agenda that would help restore the country’s fiscal position, while facilitating the ease of doing business and reducing the costs of doing business in India.
V Edible oil industry: Government facilitation in allowing the import of seed and edible oils to ease the shortage situation in the country would help in meeting the edible oil needs of the industry. V Food grains: Food grains need to be graded during procurement based on the quality, which will help yield better realization.
The SICCI, established in 1909, is one of the oldest chambers and a founder member of FICCI, New Delhi. The chamber had initiated a study on the current economic scenario and the expectations from the new government. This study focuses on more than 200 member and non-member companies from different sectors. It is based on a five-point scale, covering aspects in the following four broad areas of the economy:
V Sugar industry: Proportionate treatment of sugar and cane prices and a long-term policy on the import of raw sugar are essential. Allowing 10% blend of ethanol to utilize the 3500 MW cogeneration capacity in the sugar industry would really help. V Cement industry: This industry depends on imported coal, which costs 2.5 times the domestic coal. The SICCI seeks better facilitation of inputs and support in the logistics as well as infrastructure status for the cement industry. The SICCI also recommends that the import duties on key raw materials be reduced.
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Monetary policy
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Fiscal or public policy
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Sectoral growth
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International business scenario
Interest rates and the Forex situation are derivatives of a country’s fiscal environment. India as a whole and the business community in particular are expecting a great turnaround in both the monetary and the fiscal sides. A high-interest rate regime has increased the vulnerability of the small-scale industries in the country.
Introduction India, with a population of over 1.2 billion and currently the world’s fourth largest economy, is on the threshold of transformation. India is home to globally recognized companies that have created significant impact in the economy.
The primary function of any government is to create jobs. Over the eight-year period from 2004–12, about 48 million people joined the country’s workforce and around 33 million either retired or were displaced from agriculture, resulting in only about 15 million additional jobs being created in the economy, which is too meagre for a country of the size of India. A dismal job record as this has serious consequences for our capacity to leverage our demographic dividend. Most of our
The Golden Quadrilateral Project initiated by Shri Atal Bihari Vajpayee was an effective and noteworthy industrial project. We are confident that this project would not only be completed but also further be expanded to make it the most comprehensive and complete road network project. The country is in the
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The following are the key problems for doing business in India:
workforces are employed sub-optimally. Generation of large-scale employment for those who graduate and those who migrate from agriculture is a twin-headed problem faced by the economy. The average size of a firm in India is about 75 employees as against 194 in China. Larger firms are able to work with a long-term vision and better economies of scale, and are better able to withstand uncertainties in the external environment.
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Limited access to credit
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Inflexible labour laws
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Lack of market access
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Regulatory overhang
To highlight the regulatory overhang, the numbers of forms that are to be filed by firms in India and China are presented here:
A similar scenario is observed in the textile industry as well.
The regulatory mechanism in India should have a timebound approval system that can facilitate speedy business process. In the light of the complex international trade scenario, the SICCI is of the view that the Free Trade Agreement (FTA) needs re-thinking. The duty structure in some of the core sectors like cement, aluminium, textiles and tyres is such that the import duty on the raw materials is higher than that on the finished goods. Does our FTA policy incentivize the manufacturers of other geographies? Therefore, the Indian FTA policy needs a complete re-look. The government should initiate a dialogue with all industry associations as well as with other stakeholders throughout the country.
Considering that larger-sized firms are better able to sustain the creation of wealth, and provide more stable employment opportunities, the government must create an enabling environment where firms are allowed to grow larger.
If we have to enable competitive manufacturing in the country, we need to address the infrastructure deficit. Especially with regard to power, there is inequality in the distribution of infrastructure in the country.
The SICCI feels that there is an urgent need not only to upgrade but also to facilitate policy initiatives for partnerships.
The speed of cargo movement is one of the vital benchmarks for a country’s infrastructure. Comparing
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the speed of cargo movement by road in India and in the US, it is evident from the given graph that manufacturers cannot bridge the infrastructure deficit of our country. Hence, the government should provide priority for infrastructure development.
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Similarly, there is a great deficit in the speed of rail cargo while comparing India and the US.
In light of the above, the SICCI wishes to express that the higher power costs and higher logistics costs are the key factors causing higher cost of production, which is the main problem faced by the industry. The ease of doing business in India is very low and Indian businesses are therefore highly uncompetitive. India is ranked 3rd in the world in terms of purchase power parity (PPP) but is ranked 134th in ease of doing business. One of the objectives of the SICCI is to facilitate an environment conducive to business by way of interaction with policy makers and other governmental agencies. A conscious decision has been taken to obtain first-hand information from business leaders, heads of industry associations and trade bodies, and other professionals to articulate the expectations of the new government. This study is a result of such an effort. The feedback from the industry leaders and members of the SICCI are presented in the following sections of the report.
In the case of ports as well, it should be noted that the turnaround time of JNPT is longer than even that of the Colombo port. The presence of efficient energy infrastructure is so critical to the development of a vibrant business sector. The following points are observed with respect to the energy sector: n
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erratic supply to consumers, etc. are some of the challenges faced by the energy sector in India. The fuel for power generation is another major challenge faced by the energy sector. Consistency in power pricing policies across states is an essential factor in improving the energy scenario in the country.
The transmission and distribution losses prove to be a major problem. If we compare India and China, T and D losses are around 21% in India whereas only 5.7% in China.
The SICCI trusts that the new government under the Prime Ministership of Shri Narendra Modi will have a positive look and transform the ease of doing business in India from one that is cumbersome and difficult to one that is an attractive proposition.
Inefficient planning, lack of investments, inadequate maintenance and low plant load factor,
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SECTOR OVERVIEW Economy
Real Sector Growth
V According to a UN report, India’s economy will grow at 5% in 2014 and 5.5% in 2015.While the GDP growth rates have been over 4.6%, tax collections have grown at over 15%, indicating a non-business friendly environment. V It is not surprising that the FIEO aims to raise India’s export share from 1.7% to 4%.According to CSO, 12 out of the 22 industry groups in the manufacturing sector have shown negative growth over the last year. V The growth rates in March 2014 over March 2013 are 4.0% in basic goods, (–)12.5% in capital goods and 0.6% in intermediate goods, indicating the complete erosion of business confidence.
growing significantly.Services have also been growing at 6% over the last three years.In the 3rd quarter, the gross capital formation has turned negative.The economy has been growing from 4.5% onwards and it was 4.8% in Q3 of the last fiscal.Monetary support for the transition of the agricultural or industrial economic model to a service-oriented model has been negligible.
V Foreign exchange reserves are at $313.8 billion as of 9 May 2014, according to the RBI.While the revival of the stock markets and the value of the USD are welcome, extreme fluctuations have hurt the industry.
India is ranked 87th in subsidies as a percentage of public expenditure, according to World Bank data; yet reduction is on in India whereas it is not so in the other competing geographies.
While the industry growth rate has been about 1% over the last three years, the agricultural sector has been
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S U RV E Y R E S U LT S With the support of VIT University, the SICCI had undertaken a study for the past 30–45 days, travelling extensively across Tamil Nadu. The team met senior industrialists, presidents of various associations, professionals, etc. with a structured and open-ended questionnaire. The feedback obtained has been compiled and the outcomes are given here:
The sales have not been growing for over 40% of the businesses.
About 40% of the respondents agree that the exports have grown.
Over 45% of the respondents felt that profitability has not been increasing over the last year.
About 42% of the respondents feel that the receivables have improved over the previous year.
Almost 67% of the respondents believe that the costs have increased over the last year.
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About 33% of the respondents believe that their payments have improved over the last year.
About 63% of the respondents believe that the current tax rates do not affect the business adversely.
Almost 48% of the businessmen still feel that there are bottlenecks for imports.
Over 75% of the respondents believe that sales would improve with the change in the government. About 49% of the respondents feel that the inventory levels are in line with their expectations.
About 50% of the respondents feel that exchange rate fluctuations have adversely affected their business.
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Over 77% of the respondents believe that the receivables will improve.
About 70% of the respondents expect the receivables to improve over the next year.
About 27% of the respondents believe that the Cenvat credit has been delayed unnecessarily.
About 40% of the respondents believe that the cost of borrowing would come down during the next year after the new government has taken over.
Almost 46% of the respondents feel that the customs duties on imports are not reasonable.
Almost 53% of the respondents believed that genuine tax refunds have been delayed.
More than 48% of the respondents feel that the cost of borrowing is not reasonable.
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About 46% agreed that they have access to liquidity from banks.
About 50% of the respondents have mentioned that the recruitment levels have not improved over the last year.
About 35% of the respondents feel that they are unable to find good talent.
Only 42% of the respondents believe that the government would reduce the rates of interest.
Almost 37% of the respondents believe that the employment costs will be at manageable levels.
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LEADERS SPEAK Agenda for Transformation Interview with Gary L. Springer President & CEO, World Partnerships, Inc., St. Petersburg, Florida In India, there are a host of important issues and sectors that need attention. What do you think should be the principle focus areas of the New Government?
and investment opportunities within the Central/South Asia region will give India an opportunity to develop its closest markets, help to stabilize and grow the economies of its neighbors, and promote closer business ties within the region.
Education and training for a young population. Transportation and infrastructure for economic development. Expanded, productive relationships with its neighbors for competitiveness.
India has been competitive with regards to its service industry. How do you think the Indian government might revive the manufacturing industry and make it competitive?
One common hurdle that overseas investors complain about investing in India is that the legal system is outdated and not conducive. According to you, what are the most important Indian laws that need to be enacted or amended?
India’s potential for manufacturing competitiveness is immense, provided world-class laws, regulations (and enforcement) and incentives are in place to create more domestic investment in manufacturing, as well as to attract foreign direct investment partners.
Foreign investors are always reviewing ease of market entry, and especially the hallmarks of transparency (in laws and regulations), rule of law, and general acceptance of foreign direct investment. Key laws that might be modernized include foreign direct investment law, customs procedures, import rules, protection of intellectual property rights, and barriers to trade in services. If FDI is desired as an engine for India’s economic development, modernization of these laws is the key element to spurring India’s global competitiveness.
The Economist magazine stated that one of the main reasons for India's growth potential is the higher percentage of the young working population of the nation. How can India make the Demographic Dividend count? More and better access to world-class education for everyone. A young population is an economic development opportunity not to be missed.
After a years of global gloom, experts opine that this year would mark the beginning of the turnaround for world trade. Under these circumstances, what should be India's strategy with regards to foreign trade?
Though the potential is evident, there are many challenges that need to be surmounted for India to succeed in the global arena. What according to you, are the main challenges that can derail the Indian growth story?
As one of the world’s largest economies, India should focus on becoming a global leader in education, manufacturing and services, and international trade. Its openness to foreign markets and investors, as outlined above, will in large part determine its success in the global marketplace. In addition, expanding its own trade
Commitment to educational opportunities for all Indians is critical to India’s large and expanding population. A young population can be a significant opportunity for India’s future, or an incessant challenge to the social contract.
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A RT R TI C L E Viewpoint: How Narendra Modi can revive India's economy ARVIND PANAGARIYA Professor at Columbia University in New Yorkand Former Chief Economist at Asian Development Bank
India has witnessed a historic parliamentary election in which the Bharatiya Janata Party (BJP) has scored an absolute majority for the first time and the Congress has won less than 10% of the seats.
Mr. Modi must also push ahead with forging partnerships with chief ministers interested in seeing their states grow faster.
Prime Minister NarendraModi now heads the first government in 25 years that is not hostage to coalition politics.
He must consider creating a "single-window" facility in co-operation with these states so that central and state-level clearances for major projects can move on parallel tracks.
How should he use this majority to restore and accelerate economic growth, the principal means to eradicating poverty and bringing prosperity to all, as promised during the campaign?
Chief ministers interested in moving forward should be rewarded, not punished in the name of regional equality. The latter should be targeted using alternative instruments such as fiscal transfers.
The first thing the government needs to do is to remove the bottlenecks that have stifled the economy and cut its growth The first to half of the true potential.
Immediately, the government must also move to remove the barriers to coal and gas supplies that are forcing power plants thing the to operate at low capacity.
This would require appointing a pragmatic environment minister – Prakash Javadekar, the current minister, meets the qualification but holds the charge temporarily – who would judiciously balance the need for environmental protection against the need for growth.
government needs to do is to remove the bottlenecks that have stifled the economy and cut its growth to half of the true potential.
It also requires reassuring the bureaucracy to fearlessly move ahead with all legitimate decisions.
This requires bringing private players with modern technology to mine coal and linking remote mines in Jharkhand, Chhattisgarh and Orissa states to the existing transport network by building about 300km (186 miles) of railway lines. Pricing disputes holding back gas production must be quickly resolved.
The budget for 2014-15, due for presentation in parliament in early July, offers an excellent opportunity for the government to boldly state the new direction it intends to impart the economy.
Forging partnerships If necessary, the relevant laws must be amended to achieve better balance between the protection of honest officers and prosecution of the dishonest ones. Simultaneously, recalcitrant bureaucrats must be warned that obstructionism will invite swift retribution.
The budget should commit to completing the uniform goods-and-services tax within two years and to simplifying and codifying direct tax rules within one year. The current tax rules are ill defined and give the tax
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authorities far too much discretion, leading to unexpected demands by tax officials and frequent disputes. The budget must also end the retrospective tax – designed to net levies from foreign transactions involving Indian companies – introduced in 2012, making the relevant law prospective.
and allowing the states to shift funds across schemes within each broad category as per local needs. The latter will require time-bound presidential assent to states to amend central legislations on subjects listed on the Concurrent list of the Constitution. In the medium run, the government has no option but to undertake reforms necessary to make it attractive for entrepreneurs to invest in low-skilled, labourintensive manufacturing such as apparel, footwear and electronic assembly.
The government needs to forge ahead with accelerating infrastructure building. This will require, first and foremost, the amendment of the current draconian land acquisition law.
With a workforce that exceeds 450 million and is largely without sophisticated skills, inclusion will remain partial without robust growth in these industries.
Weak banks The budget must also begin the process of restoring the health of public-sector banks. Restructured and non-performing loans of these banks now stand at nearly 10%, undermining their capacity to issue new credit. The government should take this opportunity to enhance efficiency. Rather than rely exclusively on recapitalisation, it should lower the current floor of 51% on its share in equity and allow the banks to raise capital from the market. In addition, it should merge some of the weaker banks with stronger ones other than the State Bank of India (SBI).
Poor performance of India along this dimension is demonstrated by the fact that apparel exports by it are less than one-tenth of those by China and even less than those by little option Bangladesh.
India has but to reform its labour laws that have been identified as the fundamental barriers to the growth of employment-intensive manufacturing.
This will promote consolidation and competition in banking. The banking sector is currently fragmented with far too many small banks and one gigantic one, the SBI.
As China exits these industries because of higher wages, they are moving to countries such as Vietnam, Cambodia, Bangladesh and Indonesia but not India. India has little option but to reform its labour laws that have been identified as the fundamental barriers to the growth of employment-intensive manufacturing.
In providing super-high protection to the small number of workers in the organised sector - as opposed to India's much-larger informal sector - the country has sacrificed a high number of jobs.
The budget must also commit the government to giving states greater fiscal and legislative space.
Mr Modi's government must find a better balance between the protection of workers and creation of good jobs in vast numbers.
The former will involve cutting and consolidating centrally sponsored schemes under a handful of broad headings such as education, health and infrastructure
(Courtesy: BBC World Service)
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