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| Edited By: Bharat Joshi |Source: DNA |Updated: Jul 18, 2017, 08:38 PM IST
Three action-packed years of the Modi government have witnessed significant changes in the economy. Not only continuing the positive reformist trajectory of previous administrations, but also catapulting the scale and scope of reform to a higher level. They impact all areas of national life – politics, economy, foreign policy et al. For those wishing to do business in India the old beliefs no longer hold true.
It’s never been easy to navigate the tricky Indian business scenario. For decades, even after economic liberalization, India’s noisy entrepreneurial ecosystem has lured as well as deterred investors and entrepreneurs in nearly equal measure. But the radical transformation of India embarked upon by the Modi government marks a radical shift from these conceptions. The frame of the conversation had shifted to the promise of India—what the economy can deliver to its people and the world, and how all foreign investors could do as well. The Indian business lexicon is rapidly being challenged and redefined by the Modi juggernaut: FDI means ‘First Develop India’, Made in India has given way to ‘Make in India’, and hitherto unfamiliar notions like self-certification are being embraced.
In 2014, Prime Minister Modi promised many economic reforms including ease of doing business, inflation control, fiscal deficit, trade deficit, job creation, and manufacturing revival, among others. To realize his ambition to achieve a GDP of US$ 20 trillion in the next twenty-five years, India would require a compound annual growth rate (CAGR) of 9.65 per cent. While this seems to be a trifle optimistic, there is evidence to demonstrate that this is doable. Let’s examine the policies that have unfurled the promise of India as a global economic powerhouse:
We are witnessing a tectonic shift in policy making – from import substitution to export orientation. Easily Modi’s most ambitious initiative, Make In India seeks to make India a global manufacturing powerhouse. This will truly change the game viz employment, skilling and international competitiveness. The initiative contains a raft of proposals designed to get local and foreign companies to invest in the Indian manufacturing sector. With a vision of ‘zero defects and zero [negative] effect’, this initiative seeks to ensure that none of our exports are returned to us or have a negative impact on the environment.
To use India’s prowess in IT to enhance the nation’s competitiveness and create an enabling investment climate though emphasis on e-governance, e-healthcare, and e-education—covering both urban and rural areas. With over 100 million smartphones and over 200 million internet connections, the consuming class is around 65−70 million households, 250−300 million consumers, which is almost as large as the US population. The online revolution is here to stay. Tech is a wildcard that could well help India leapfrog cycles of evolution – just as we did leaping over copper lines to go to broadband telephony.
We have come to a fork in the road: leverage the world’s largest young, English-speaking workforce or witness a demographic time bomb. All efforts give hope that we are headed in the direction of former. The Skill India programme will enable the youth to acquire relevant skills that will not only help them in getting jobs but also create jobs. Presently, the unorganized sector comprises 93 per cent of the workforce, and if this target is achieved, the ration of unorganized to organized could be a healthier 75:25 in 2022. Further, at the current rate, 10 million new graduates are added to the employment pool annually, and will continue until 2035. Naturally, the government is rather keen to create these ten million new jobs every year, but realizes that it needs to innovate to address this challenge.
Based on a vision of a clean India, this campaign aims to provide all schools with toilets and separate toilets for girls. The PM has urged every Indian to ensure that every road, school, office, locality and neighbourhood is clean. the importance of this initiative is more than the obvious elimination of squalor. Observers are reminded of Lee Kwan Yew’s ‘Clean Singapore’ initiative in the early days, before the city state was transformed from a Third World city to an island of dazzling success.
The former promotes bank financing for start-ups and offers incentives to boost entrepreneurship and job creation. The Jan Dhan Yojana promotes financial inclusion, connecting the poorest citizens to the facility of bank accounts and up to ‘1 lakh insurance through a debit card.
Seen as the silver bullet to replace the myriad state-by-state tax rules with a single indirect tax, and for the first time create a single national market for the movement of goods. this is the single most important reform to make India more of a unified single market. Hitherto, the EU was more of an economic union (in many ways) than India.
GST has the potential to lead the economic integration of India, generate millions of new jobs, improve enterprise productivity and empower consumers and producers. Key benefits include easier compliance, uniformity of tax structures, it proved competitiveness and removal of cascading. The National Council of Applied Economic Research has predicted GST implementation to boost India’s GDP growth by between 0.9 - 1.7 per cent.
2016 was another big year for reform, which saw the Government further overhauling India’s FDI regime. The policy framework governing FDI in a variety of sectors, including strategic sectors like defence and aviation were further simplified, opened up under the automatic route, and FDI limits have been increased for those sectors that require approval. Passage of the Insolvency & Bankruptcy Code Bill in the Parliament is another key reform (remember India’s previously poor record at palliative care for companies?). This Bill is seen a major step towards improving ease of doing business, and assuring greater legal certainty and speed in closure of businesses.
India’s addiction to cash is complicated by the instance of black money - generated through tax evasion, counterfeit currency, criminal activity and corruption. The demonetization policy was initiated to address these challenges, and optimistic observers point out that the formalizing of the hitherto black economy alone adds growth to GDP, and tax rupees to the government. This is a great opportunity, and biggest challenge is ensuring the move to adopting fintech and digital wallets sticks.
The many upsides of the initiative, including better tax compliance and wider tax base; increased formalization of the economy; lower inflation and interest rates; stronger investor confidence; and a greater acceptance of digital payments leading to higher productivity.
The World Bank’s Ease of Doing Business rankings, benchmarked to June 2014 placed India 142nd out of 189 countries—below Sri Lanka and Pakistan. The Government has enhanced FDI limit in the defence and insurance sector to 49 per cent from 26 per cent previously, and 100 per cent FDI was allowed in railway infrastructure and medical devices sector. Real estate benefitted from easing FDI norms in the construction sector. Also, recently a composite cap has been implemented on FDI and the distinction between FII’s, NRI’s and other FDI has been done away with.
The government has recently launched an e-biz portal, which provides approvals for fourteen regulatory permissions at one source. Also, to improve business environment, government has set a timeline for clearing applications, enabled online application for industrial license and IEMs (Industrial Entrepreneurs’ Memorandum) and has proposed setting up a comprehensive bankruptcy code, corporatization of ports and replacing the system of multiple prior permissions with a pre-existing regulatory mechanism. EODB is not about one portal or a new policy, but rather all of the above campaigns, that cumulatively lead to some very promising improvements to return to the earlier subject - can we go from 2 to 20 (Trillion)? If we take the average growth rate of 7 per cent per annum, it is quite achievable and realistic that given all the others factors—growing demand, favourable demographics, and a promising track record—India will reach its target of US$ 20 trillion in 2049, i.e. thirty-three years from now.
And if we take the average growth rate to be 5 per cent then it will take another thirteen years to reach the target. So, going by the average growth rate and history, it appears that the target of US$ 20 trillion in thirty-five years is within reach for India. But as former Australian cricket captain Ian Chappell famously commented about the all-star Indian team: ‘Cricket is not played on paper’!
About the author
Bharat Joshi is the CEO of JCurve Ventures Pvt. Ltd. Prior to founding JCurve, Bharat has worked and trained with leading multinational and Indian companies in Malaysia, Denmark and India. He is the author of Navigating India: $18 Trillion Opportunity (Rupa). He can be contacted at bharatj@actlindia.com
Editor’s Note: The views expressed in the article are those of the author. DNA doesn’t necessarily support or endorse those views.
