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Open letter to the next PM: Free industry from excessive regulations

Friday, 16 May 2014 - 6:00am IST | Agency: dna

  • TK Bhaumik

TK Bhaumik
Chief economic advisor, JK Organisation

Dear Mr Prime Minister,

As you are already aware, the urgent imperative for you and your colleagues is to put the sagging economy on the growth path. For the last two years, growth has been at sub -5% level. Not many years ago, it was growing at above 9%. A fall from 9% to 4.5% is serious damage to the economy and its fundamentals.

If you look at the factors leading to the current economic slowdown, you will realise that the root cause is the crisis in the manufacturing sector which is steadily losing steam and its relevance in the economy. To be specific, its share in GDP (current prices) is now only 12.8%, the lowest in the last 10 years or so. Growth of the sector declined from 14.8% in Q1 of 2011-12 to (estimated) -1.8% in Q4 of 2013-14. Technically speaking, this sector is currently in recession.

I would like to suggest that for the overall economic revival, you may like to begin with a vigorous initiative for the revival of growth in the manufacturing sector. Again, the question is where in the manufacturing sector or which sub-sectors do you start with.

The immediate areas of focus have to be capital goods and consumer durables, as both are suffering from huge demand crisis, the latter being in deep recession. Both support a large number of SMEs as suppliers of components and ancillaries. In a way, the SMEs thrive when capital goods and consumer durables segments get a smooth environment for growth. Needless to say, they generate huge employment opportunities.

Without detailing further, I would like to repeat that sincere focus on sustained growth of manufacturing sector would be the right starting point. Revive the mood and confidence of the industries, on a priority basis.
Having said this, let me mention some other issues that must also be looked into. First and foremost, as has been the focus in the past, corporate governance must improve and be more transparent for competitiveness. We must, however, realise that corporate governance is not just about tightening the rules and norms of corporate behaviour. It is also about creating helpful business environment. Overall, business environment must reduce the cost of doing business and minimise the scope for corruption. It is like this. If business environment is good and helpful for productivity, quality of corporate governance tends to improve automatically.

Similarly, it is also important that the industry is freed from the burden of excessive obligations and regulations. Each obligation and regulation has a cost of compliance. Over-regulation and obligations make the industry high-cost and uncompetitive. On the contrary, environment that allows for growth and profitability helps not just the industry but also the society at large. One cannot expect the industry to fulfil corporate social responsibility if it is not growing or is not profitable. In this context, there is need to review the new Companies Act. Let me also add that while significant extent of liberalisation has taken place, there has been a visible tendency to encourage back-door controls and regulations. Please look into this.

Just two more things you may like to consider. First, you need to review the new Land Acquisition & Rehabilitation Act, which, in my view, is neither helpful for the industry nor agriculture. We need a growth-oriented policy, not a politically-motivated one as is the present one. It is my strong feeling that this Act will severely come in the way of industrialisation and particularly growth of SMEs. Second, it is imperative that your government should come up with a clear and transparent policy with respect to forest clearance and allocation of natural resources. Please don't make a resource-rich country look like a resource-poor country. We are paying a heavy price for it in every way.

Yours Sincerely

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