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Legal aspects of Business 
Indian economy – Road ahead 
Prepared by Bhooshan Kanani
AGENDA 
1. Indian Economy 
2. Current economic crisis in India 
3. Factors behind the crisis 
4. Suggestion to overcome crisis 
5. Conclusion 
6. References
Indian Economy 
The economy of India is the tenth-largest in the world by nominal GDP. India's GDP grew by 
9.3% in 2010–11; thus, the growth rate has nearly halved in just three years. GDP growth rose 
marginally to 4.8% during the quarter through March 2013, from about 4.7% in the previous 
quarter. The government has forecast a growth rate of 6.1%-6.7% for the year 2013–14, whilst 
the RBI expects the same to be at 5.7%. 
The economic growth is the increase in the amount of the goods and services produced by an 
economy over time. 
India has one of the fastest growing economies in the world India's share in the global trade, 
including trade in merchandise and services sector, has increased from 1.5% in 2006 & 2% in 
2009 & will cross the 2.5% in 2012. Foreign trade, as a percentage of GDP (in rupee terms) was 
over 24% in 2010 
Rupee reached below 65, falling almost 23% in past four months or say almost 45% in last 2 
years.
Current economic crisis in India 
1. India is in the midst of a grave economic crisis. This is substantiated by our growth 
trajectory over the last one year along with the trend movement in other critical macro-economic 
parameters. 
2. This is not our first brush with rough economic weather. We faced an economic crisis of 
equal proportions in 1991. We faced it again in 1997 as a result of the Asian crisis. The 
great recession of 2008 that engulfed the entire world also tested our resilience. 
3. When faced with economic adversity, we, as a nation, have risen to the occasion. Be it 
1991, 1997 or even 2008, the country was ruled by coalition governments, which took 
tough decisions. We are confident that the present government too is capable of taking 
tough decisions in the interest of the country. 
4. There has to be a clear recognition on part of the ruling parties and the opposition that 
we are in a crisis situation. Natural calamities or external threats unite us. Economic 
calamities can be just as devastating and require a similar response. We urge the 
national polity to stand united and strengthen the hands of policy makers to act 
proactively and decisively. 
Factors behind the crisis 
1. The combination of low growth, high inflation, high fiscal deficit and highest ever trade / 
current account deficit has raised a lot of concern. 
2. The deterioration in the economic situation has been marginally attributed to 
developments taking place abroad.
Suggestion to overcome crisis 
The challenges we face are not insurmountable. It requires tough and bold decisions. 
1) Government should eschew the temptations of a premature welfare state and announce an 
immediate moratorium on any additional expenses.Given the present state of its finances, the 
country can ill afford handouts. Under NREGA, greater emphasis should be laid on focused need 
based asset creation such as infrastructure and wages should not exceed productivity of labour 
in agriculture and other rural activities. 
The sums already allocated for welfare schemes should be distributed in an efficient manner as 
envisaged under the ‘direct transfer of subsidies’ program linked to the Aadhar platform. 
2) Expedite the implementation of the Goods and Services Tax (GST). 
A major landmark reform that could alter the dynamics of Indian industry and exports – making 
both more competitive – is the introduction of Goods and Services Tax. The move to GST has 
been inordinately delayed. This should change and GST should be introduced at the earliest. 
3) Ease the monetary policy and bring down interest rates by 200 bps and CRR by 100 bps. 
It is acknowledged that inflation in India is largely a supply side problem. To deal with such a 
problem using monetary tools may not be the right approach. Rather, at a time when more 
supplies – both for agri-commodites and industrial raw materials – are needed, a high interest 
rate environment, by disincentivising investments and hence greater supplies, may actually 
worsen the inflation situation. The RBI needs to fine tune its monetary policy stance and start 
bringing down interest rates. A beginning in this direction has been made but we need to see 
further movement here with a cut of 200 bps in interest rates and 100 bps in CRR at the 
earliest. 
4) Do not pass the Land Acquisition Bill in its present form. 
The Bill restricts the use of ‘irrigated multi-cropped land’ for infrastructure development 
(except linear projects) to merely 5 per cent of the multi-crop irrigated area in a district. This 
clause of the Bill will effectively render about 55 million hectares, or 40 per cent of arable land 
beyond the scope of acquisition. Further, the Parliamentary Standing Committee has suggested 
to replace ‘multi-cropped land’ in the Bill with ‘any land under agriculture cultivation’ to ensure 
food security. This would effectively render 142 million hectares (or 43 per cent of total land 
area of the country) out of the purview of acquisition for industry or infrastructure. 
5) Provide fiscal stimulus for investments across sectors. 
CSO data shows that growth rate of Gross Fixed Capital Formation during the period 2006 to 
2008 was in double digits (between 13 to 16 per cent). In the last two years this figure has come 
down to 7.5 per cent (2010-11) and 5.6 per cent (2011-12) respectively. The slowdown in 
growth in investments is deeper in case of the private sector.
6) Push through with FDI policy reforms in areas where action is possible. 
There are two areas where FDI policy action has been held in absence for a long time. These 
include opening up the multi-brand retail sector to FDI and allowing foreign carriers to pick up 
stake in domestic airlines via FDI. Discussions on each of these policy decisions are at various 
stages and do not require Parliamentary approval. Government must ensure that these reach 
their logical conclusion as both these measures would enhance overall growth in the economy 
including creating farm to fork linkages for the benefit of agriculture. 
7) Extend the price decontrol mechanism to diesel and other oil products. 
India’s rising deficit (trade and current account) is largely due to rising imports of oil products. 
Import of these commodities should be managed through policy action. Recently, price of 
petrol was increased by the government. Government should now think of decontrolling the 
price of diesel. If this measure cannot be implemented immediately, then government can 
consider imposing a higher duty on imported diesel cars. Inadvertently the government is 
encouraging imports of oil products and also creating an automobile industry dependent on 
subsidy. 
8) Take steps to energize the coal sector by fostering competition. 
Availability of coal has become a major concern. This is hurting industry and taking a direct toll 
on power generation and manufacturing. The government must consider introduction of 
commercial mining with participation of private coal production / coal mining companies. Also, 
as the process of granting environment and forest clearances is stalling exploration plans 
government must come out with a mechanism that ensures time bound clearances for such 
projects. Further, reforms like setting up of a coal regulator and allowing coal swapping as a 
tool to optimize physical movement of coal in the country should be considered. 
9) Strengthen frameworks for raising funds for infrastructure financing in the economy. 
Infrastructure is a key enabler for growth in the economy. Besides developing a robust 
inventory of bankable projects, we need to look at all possible avenues to raise long term funds 
for supporting such projects. We urge the government to lay greater emphasis on developing 
the corporate bond market, leveraging insurance and pension funds for investments in 
infrastructure sector and for developing the municipal bond market for financing urban 
infrastructure. 
10) Pursue the objective of food security through productivity increase and agriculture 
marketing reforms. 
The recent bout of inflation has highlighted a weak spot in our planning process. This relates to 
shortage of food products whose demand is already on the rise. As income levels in the 
economy increase, the demand for food in general and protein rich items in particular goes up 
at a fast pace. We are already witnessing this in India and unless we take appropriate measures 
to increase supply of food items such as pulses, milk and milk products, meat, fish and eggs etc, 
food inflation would become endemic and derail the growth process. Additionally, steps should 
be taken to improve marketing and distribution of food products in the country.
Conclusion 
The suggestions that have been outlined above are certainly exhaustive but if acted upon with 
urgency will go a long way in boosting business confidence and in improving the investment 
environment in the country. 
Suggestions are aimed at improving the health of the national economy. We understand that 
the stalling of the growth process and policy inactions hurt the common people of the country 
the most for what we lose in the process are valuable jobs and sources for generating income. 
We must grow and grow fast and generate sufficient employment opportunities for all. 
References 
http://articles.economictimes.indiatimes.com/2013-07-14/news/40570133_1_trade-deficit-rupee- 
high-cad 
http://www.tradingeconomics.com/india/gdp-growth 
http://en.wikipedia.org/wiki/Economy_of_India 
www.ibef.org 
http://blogs.wsj.com/indiarealtime/2013/07/10/interactive-track-the-rupees-rise-and-fall/ 
FICCI Report - Mr. R V Kanoria, President, FICCI ‘Current state of the Indian Economy: 
Challenges and the way ahead’

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Indian economy - Road ahead

  • 1. Legal aspects of Business Indian economy – Road ahead Prepared by Bhooshan Kanani
  • 2. AGENDA 1. Indian Economy 2. Current economic crisis in India 3. Factors behind the crisis 4. Suggestion to overcome crisis 5. Conclusion 6. References
  • 3. Indian Economy The economy of India is the tenth-largest in the world by nominal GDP. India's GDP grew by 9.3% in 2010–11; thus, the growth rate has nearly halved in just three years. GDP growth rose marginally to 4.8% during the quarter through March 2013, from about 4.7% in the previous quarter. The government has forecast a growth rate of 6.1%-6.7% for the year 2013–14, whilst the RBI expects the same to be at 5.7%. The economic growth is the increase in the amount of the goods and services produced by an economy over time. India has one of the fastest growing economies in the world India's share in the global trade, including trade in merchandise and services sector, has increased from 1.5% in 2006 & 2% in 2009 & will cross the 2.5% in 2012. Foreign trade, as a percentage of GDP (in rupee terms) was over 24% in 2010 Rupee reached below 65, falling almost 23% in past four months or say almost 45% in last 2 years.
  • 4. Current economic crisis in India 1. India is in the midst of a grave economic crisis. This is substantiated by our growth trajectory over the last one year along with the trend movement in other critical macro-economic parameters. 2. This is not our first brush with rough economic weather. We faced an economic crisis of equal proportions in 1991. We faced it again in 1997 as a result of the Asian crisis. The great recession of 2008 that engulfed the entire world also tested our resilience. 3. When faced with economic adversity, we, as a nation, have risen to the occasion. Be it 1991, 1997 or even 2008, the country was ruled by coalition governments, which took tough decisions. We are confident that the present government too is capable of taking tough decisions in the interest of the country. 4. There has to be a clear recognition on part of the ruling parties and the opposition that we are in a crisis situation. Natural calamities or external threats unite us. Economic calamities can be just as devastating and require a similar response. We urge the national polity to stand united and strengthen the hands of policy makers to act proactively and decisively. Factors behind the crisis 1. The combination of low growth, high inflation, high fiscal deficit and highest ever trade / current account deficit has raised a lot of concern. 2. The deterioration in the economic situation has been marginally attributed to developments taking place abroad.
  • 5. Suggestion to overcome crisis The challenges we face are not insurmountable. It requires tough and bold decisions. 1) Government should eschew the temptations of a premature welfare state and announce an immediate moratorium on any additional expenses.Given the present state of its finances, the country can ill afford handouts. Under NREGA, greater emphasis should be laid on focused need based asset creation such as infrastructure and wages should not exceed productivity of labour in agriculture and other rural activities. The sums already allocated for welfare schemes should be distributed in an efficient manner as envisaged under the ‘direct transfer of subsidies’ program linked to the Aadhar platform. 2) Expedite the implementation of the Goods and Services Tax (GST). A major landmark reform that could alter the dynamics of Indian industry and exports – making both more competitive – is the introduction of Goods and Services Tax. The move to GST has been inordinately delayed. This should change and GST should be introduced at the earliest. 3) Ease the monetary policy and bring down interest rates by 200 bps and CRR by 100 bps. It is acknowledged that inflation in India is largely a supply side problem. To deal with such a problem using monetary tools may not be the right approach. Rather, at a time when more supplies – both for agri-commodites and industrial raw materials – are needed, a high interest rate environment, by disincentivising investments and hence greater supplies, may actually worsen the inflation situation. The RBI needs to fine tune its monetary policy stance and start bringing down interest rates. A beginning in this direction has been made but we need to see further movement here with a cut of 200 bps in interest rates and 100 bps in CRR at the earliest. 4) Do not pass the Land Acquisition Bill in its present form. The Bill restricts the use of ‘irrigated multi-cropped land’ for infrastructure development (except linear projects) to merely 5 per cent of the multi-crop irrigated area in a district. This clause of the Bill will effectively render about 55 million hectares, or 40 per cent of arable land beyond the scope of acquisition. Further, the Parliamentary Standing Committee has suggested to replace ‘multi-cropped land’ in the Bill with ‘any land under agriculture cultivation’ to ensure food security. This would effectively render 142 million hectares (or 43 per cent of total land area of the country) out of the purview of acquisition for industry or infrastructure. 5) Provide fiscal stimulus for investments across sectors. CSO data shows that growth rate of Gross Fixed Capital Formation during the period 2006 to 2008 was in double digits (between 13 to 16 per cent). In the last two years this figure has come down to 7.5 per cent (2010-11) and 5.6 per cent (2011-12) respectively. The slowdown in growth in investments is deeper in case of the private sector.
  • 6. 6) Push through with FDI policy reforms in areas where action is possible. There are two areas where FDI policy action has been held in absence for a long time. These include opening up the multi-brand retail sector to FDI and allowing foreign carriers to pick up stake in domestic airlines via FDI. Discussions on each of these policy decisions are at various stages and do not require Parliamentary approval. Government must ensure that these reach their logical conclusion as both these measures would enhance overall growth in the economy including creating farm to fork linkages for the benefit of agriculture. 7) Extend the price decontrol mechanism to diesel and other oil products. India’s rising deficit (trade and current account) is largely due to rising imports of oil products. Import of these commodities should be managed through policy action. Recently, price of petrol was increased by the government. Government should now think of decontrolling the price of diesel. If this measure cannot be implemented immediately, then government can consider imposing a higher duty on imported diesel cars. Inadvertently the government is encouraging imports of oil products and also creating an automobile industry dependent on subsidy. 8) Take steps to energize the coal sector by fostering competition. Availability of coal has become a major concern. This is hurting industry and taking a direct toll on power generation and manufacturing. The government must consider introduction of commercial mining with participation of private coal production / coal mining companies. Also, as the process of granting environment and forest clearances is stalling exploration plans government must come out with a mechanism that ensures time bound clearances for such projects. Further, reforms like setting up of a coal regulator and allowing coal swapping as a tool to optimize physical movement of coal in the country should be considered. 9) Strengthen frameworks for raising funds for infrastructure financing in the economy. Infrastructure is a key enabler for growth in the economy. Besides developing a robust inventory of bankable projects, we need to look at all possible avenues to raise long term funds for supporting such projects. We urge the government to lay greater emphasis on developing the corporate bond market, leveraging insurance and pension funds for investments in infrastructure sector and for developing the municipal bond market for financing urban infrastructure. 10) Pursue the objective of food security through productivity increase and agriculture marketing reforms. The recent bout of inflation has highlighted a weak spot in our planning process. This relates to shortage of food products whose demand is already on the rise. As income levels in the economy increase, the demand for food in general and protein rich items in particular goes up at a fast pace. We are already witnessing this in India and unless we take appropriate measures to increase supply of food items such as pulses, milk and milk products, meat, fish and eggs etc, food inflation would become endemic and derail the growth process. Additionally, steps should be taken to improve marketing and distribution of food products in the country.
  • 7. Conclusion The suggestions that have been outlined above are certainly exhaustive but if acted upon with urgency will go a long way in boosting business confidence and in improving the investment environment in the country. Suggestions are aimed at improving the health of the national economy. We understand that the stalling of the growth process and policy inactions hurt the common people of the country the most for what we lose in the process are valuable jobs and sources for generating income. We must grow and grow fast and generate sufficient employment opportunities for all. References http://articles.economictimes.indiatimes.com/2013-07-14/news/40570133_1_trade-deficit-rupee- high-cad http://www.tradingeconomics.com/india/gdp-growth http://en.wikipedia.org/wiki/Economy_of_India www.ibef.org http://blogs.wsj.com/indiarealtime/2013/07/10/interactive-track-the-rupees-rise-and-fall/ FICCI Report - Mr. R V Kanoria, President, FICCI ‘Current state of the Indian Economy: Challenges and the way ahead’