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India - Growth Options
 

India - Growth Options

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The Economic growth rate of Indian Economy can be accelerated from the present levels. It requires the co-operation from all segments of the Indian society.

The Economic growth rate of Indian Economy can be accelerated from the present levels. It requires the co-operation from all segments of the Indian society.

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    India - Growth Options India - Growth Options Document Transcript

    • Indian Economy – Options for accelerating the Economic Growth The Indian Economy did very well immediately after the Crisis. The performance in the following year s was better than the expectations. After the growth of 9.3% in F 11, the Growth was down to 6.2% in F 12 and 5% in F13.The underperformance of the Economy continues. In F 14, the growth is likely to be in the range of 6% and Even till the middle of F11, the potential for the Economic growth was at 10% and it appeared that India would be able to achieve the potential. The developments in the Global economy and developments in many aspects in the Indian Economy had resulted in deceleration of growth and brought down the potential for growth to 8% today. Lot of new initiatives were identified by the government to revive the higher growth and action plans are in place and implementations are being addressed. To implement the action plans every segment in the society has to become a partner to the Government. Addressing the crisis requires co-operation of all. The slowing economy has affected all segments in the society and everybody is keen that India’s economic growth gains momentum. The support for Government Initiatives has to come from all political parties, Judiciary, the regulators , the media and all other segments of the Society. Agriculture. The growth in agriculture in the last many years was sub par and much below the growth in Industry and services. Year on Year the share of agriculture in the economy is going down. Considering the low productivity of crops in India, the potential for growth in agriculture is more than 6% p.a. Since the prices of agricultural commodities in the open market have become very attractive , by enabling the farmers to realise the high prices, the agriculture growth could be accelerated and the government subsidy to fertilizer could be reduced substantially. Apart from inflationary pressure, in recent times, the depreciating rupee has emerged as a major concern. Current account deficit has become one of the major concerns in maintaining the macro economic stability. Some of the following measures could be considered for addressing the pressing issues in the economy today. Measures to correct the Current Account Deficit • The current account deficit is mainly due to high imports of oil and Gold and very high value of non essential and consumer products from other countries. Many of the products imported are available in India and only action plans to be identified to make them available to the required customer segments . • To address the current account deficit the following measures could be adopted. • Identify the trade gap with every country with India has trade. • Discuss with these countries to increase the imports from India. • Request all the Diplomats from India to aggressively promote the Indian product imports in the country of their residence.
    • • Many of the products imported from few coutnries , are giving competition to the Indian suppliers and sme’s in India. Many of the consumer related products which are imported could be reduced substantially. • Set the quantitative limit for imports of Gold on a monthly basis. Create a campaign for discouraging the purchase of gold for non productive purposes . Identify action plans for using the unproductive gold in the economic system to meet the demand. • Create a nation wide campaign for reduction of fuel use. Encourage people to use public transport. Target a five per cent reduction in use of fuel across industries , homes and offices. • Create innovative schemes for investments by NRI’s. Offer sovereign guarantee for these products with reasonable rates of return. • Attract more FDI through clearly specifying the policies for FDI in India in each sector • Identify the imported products, which will not be productive in the immediate term. • Explore the scope for rupee trade with countries wherever the imports far exceed exports.( Rupee trade would help to reduce the dollar imbalance ). Measures to revive industrial growth • Projects above Rs.1000 cr of capex which are stuck due to regulatory and environment hurdles could be cleared by convening the CCI very frequently. • The infrastructure projects which are on and stuck due to various issues relating to regulation and environment could be cleared on an urgent basis. • The credit flow from banking system to industries had seen a decline. Banks stopped lending to many of the industrial sectors. This was also due to projects in many sectors not bankable today. The sectors which had become unattractive today can be made attractive again by introducing new investor friendly regulations . • Mining is a key sector for industrial growth and it has seen a big decline in volumes and there is an immediate need to target a growth of at least 15% in mining in the immediate term and target a growth of 10% year on year in the coming years. • Many of the power projects were stuck due to unavailability of competitive coal. Through the proposed MDO model, the output of coal India could be increased by at least 10% year on year and the government can appoint the best MDO operators in the world to increase the output of coal. • Automobile industry is one of the key industries in India and it has seen a big decline in demand. Many sme’s and workers’ fortunes are dependent on this industry. The
    • credit flow to this sector including SME’s could be increased and tax incentives could be considered for the short term. • The manufacturing council has come out with lot of recommendations for increasing the manufacturing activities and increasing the manufacturing competitiveness of India. The suggestions could be prioritised and take up for implementation without any loss of time. • Interest rates. Since there is very little activity on new projects and the inflation has gone up ,many of the industries in India had become unviable. There is a need to reduce the interest rates which will benefit the government, companies as well as individuals. • The affordability of interest rates will make the projects more viable and rekindle the consumer boom witnessed in the industry. • Land has become very unaffordable for new projects and thel government has to work very closely with each state government to make the land available at affordable rates. Single widow clearance including environmental clearance for projects could be created and the large projects can be show cased to the foreign investors ( already for Steel sector similar structure is being created ). Depreciation of the Rupee and its impact on trade and industry • Most of the companies left their exposures uncovered expecting that the rupee would move towards Rs.50. The analysts also expected the rupee levels to remain strong. • The announcement from the US fed that there would be early withdrawal of stimulus created panic among the investors and they had started withdrawing investments from emerging markets. • This has affected the financial performance of many of the Indian corporates in quarter one and despite good operational performance , the companies had to report poor performance. Many of the corporates are sitting on a large unrealised loss on account of sharp rupee depreciation. Appreciation from the present levels would reduce the burden on the corporates. This is also likely to reduce the NPA’s in the banking system. • Going forward, the currency could be managed by a narrow band and the frequent communication by the government on new measures to achieve a stable rupee will go a long way in bringing a stability to the exchange rate.
    • • Make the country more attractive for NRI investments, FII inflow and FDI investments through investor friendly measures. • By reducing the current account deficit through various measures mentioned above, it would be possible to manage the currency within a narrow band. Development of industrial corridors The proposed Delhi - Mumbai Industrial Corridor (DMIC), the Chennai-Bangalore Industrial Corridor (CBIC), and the Amritsar-Delhi-Kolkata Industrial Corridor (ADKIC) by the government will give a big boost to the economy. • These projects will create many large industrial zones and new cities . This will create demand for more than 300 industries. • Since these projects are very large, there is a need to raise resources from abroad. • Already Japan is involved in a big way in DMIC. UK and Japan had shown interest in CBIC. World bank has promised to assist in ADKIC. • Considering the large size of the projects, there is immense scope for other countries to get involved in these projects. • All the countries with large forex reserves and sovereign wealth funds can participate in these projects and we can invite them to participate in these projects. • Indian companies can play a major role in partnering these projects and management of these projects. • The government can create many sub projects with smaller size with attractive returns. • On the similar lines, now discussions are being held about Chennai – Mangalore corridor, etc. • This is the best way to develop the industries. This is the model China followed. For creation of large cities, China had shown interest. Since they are running a huge surplus with India, the scope for retaining the export proceeds within India to deploy them within India could be discussed with China. Skill development • Despite there is unemployment, in many cases, there is a shortage of skills.For .E.g. Drivers to drive Trucks and buses. There is a skills mismatch in many professions today. On one side there is a shortage of labour and at the same time, there is an high level of unemployment. • Further many professions are unattractive today and dying.
    • • The government has already drawn up a plan for developing skills in the Economy and detailed reports of skill development were prepared for more than 20 industries. • Each state has created a skills development council and each state is working on this concept. • Industry wise skill development councils were created and they have started functioning. • PPP model has been created and corporates are working very closely with the government to make the initiatives very successful. Corproates are very happy to co operative with the government on these initiatives. • These programmes can also be synchronised with programmes for unemployed in rural and urban areas. Since the following projects are being taking on a large scale there is a need for a large number of workers with competitive costs.
    • • The government has already drawn up a plan for developing skills in the Economy and detailed reports of skill development were prepared for more than 20 industries. • Each state has created a skills development council and each state is working on this concept. • Industry wise skill development councils were created and they have started functioning. • PPP model has been created and corporates are working very closely with the government to make the initiatives very successful. Corproates are very happy to co operative with the government on these initiatives. • These programmes can also be synchronised with programmes for unemployed in rural and urban areas. Since the following projects are being taking on a large scale there is a need for a large number of workers with competitive costs.