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5 simple things to do to revive the economy

No miracle man can revive the economy without revitalising the credit cycle.

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Last Updated: Jan 22, 2020, 09.14 PM IST
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The banking sector reforms that started in 2015 is the single largest economic reform that is being done since independence.
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By Sandip Sen

The economic slowdown has lasted four quarters and is unlikely to go away in a hurry. The banking sector problems are deep rooted and though the reforms have begun in right earnest, reviving credit flow will take time. No miracle man can revive the economy without revitalising the credit cycle. For that to happen opening credit lines is not sufficient.

The structural reforms would be necessary that protects banks from more bad loans and loan frauds. So what should the Government do avoid an impending recession? Here are 5 simple things to do to revive the economy without doing too much, some of which I proposed at the Lok Sabha TV budget discussion last week and some in my book India Emerging published by Bloomsbury last April.

1)Restructure PSBs in line with the Private Sector Banks
The banking sector reforms that started in 2015 is the single largest economic reform that is being done since independence. These reforms even when it happened in the UK and the US in the eighties took a decade to give results. The Indian scene is slightly more complicated with the Public Sector Banks PSBs having the role and responsibility to provide banking to the millions of people at the bottom of the pyramid.

Though the Government has speedily delivered the massive NCLT infrastructure to dispose stressed assets, a lot more needs to be done. One of them is to restructure the PSBs in line with the private sector banks and take the burden off the ‘Branch Manager’ in distributing credit as well as monitoring and recovering it. The private sector banks have independent verticals looking into these functions and the ‘Branch Manager’ is merely an enabler and not the key decision maker. It is time that PSB’s restructure and take off the burden from the Branch Manager’s shoulder.

2) Treat 42 food parks and rural markets as priority sector investments
The Modi Government has sanctioned 42 food parks which could revive both the agriculture sector as well as bring down food inflation significantly. Each project has come up on 50 to 100 acre land and was supposed to support 25 to 30 food processing and packaging units generating a revenue of at least Rs 500 crore per food park, generating work for 5000 employees and helping 25,000 farmers process their products.

The food parks have all exceeded the time frame of 3 to 5 years given for their completion. Unfortunately only two of the food parks Srini in Andhra Pradesh and Patanjali in Uttarakhand have achieved completion over 50%. Sixteen food parks are 25% complete and the balance have less than 10% of the investment committed. There are many reasons that have caused these food parks to perform below par and one of the reasons is because banks are not financing these units. Even successful parks like the Srini park are having to borrow at a rate of 14%.

The finance minister needs to ensure that financing of equipment in the food parks including processing and packaging equipment is at a priority sector lending rate applicable to the farm sector and that major bottlenecks hampering the development of food parks are looked into.

3) Build 100,000 water storage reservoirs to recharge aquifers annually
India has become a water deficient nation since 2010 when the per capita water availability dropped to below 1700 cubic meter per person. As per a WB report 29% of the water bodies were in dire straits then. The situation has deteriorated during the last decade with per capita water availability dropping to 1400 cubic metres. Despite spending over 50% of the substantial MNREGA funds on water bodies and aquifer development there has been little progress. Meanwhile funds are being pumped into Swachh Bharat and Piped water projects which cannot succeed unless there’s is adequate water to use.

Even the Namami Gange project cannot succeed without more fresh water input into the ecosystem. Most of the lakes and ponds of yesteryear’s have disappeared due to rapid urban development. These waterbodies need to be rebuild and connected to the natural aquifers. Our civilisation always prospered around water bodies. So the need is to budget and build and maintain large ponds or earthen water storage ponds to recharge aquifers and also for community use. They cost less than Rs 30 lakh to build and could be easily build within the annual MNREGA budget of Rs 40,000 – Rs 60,000 crores if planned for properly. Such capacity building needs to be added and monitored each year like Swachh Bharat initiatives.

4) Implement a long term energy security plan
India needs a long term energy security plan that ensures smooth transition from polluting fossil fuels to non polluting gas and renewable energy smoothly. It needs to consolidate all its oil companies into integrated players with production, refining and marketing capability. The Modi Government has taken the first step by merging ONGC with HP but more needs to be done. It needs manufacturing and mining initiatives for energy storage cells, rare earths. This needs a long term research and planning with futuristic tie ups and careful investment.

India also needs a new gas pricing policy. It also needs investment in gas terminals, gas pipelines to ensure low cost distribution in key consumption centres. It needs the creation of hybrid facilities where gas and renewable energy and coal and renewable energy ( CSP plants ) can give efficient and low cost stable energy output. It needs to ensure that existing energy sector giants like BHEL, GAIL, and the private sector Chloride, Emerson, Toshiba etc. and state mining development corporations and other stakeholders to make this transition and develop local manufacturing capability for India’s energy security.

5) Simplify GST and reduce 4 tax slabs to 2 slabs
Last but not the least is to bite the bullet on GST reforms. The GST in its present form is highly complicated. It has two many clauses and sub clauses, too many amendments and too many exemptions. GST is a consumption tax and it should be levied like one. Today it is a complex amalgamation of at least seven taxes. It is based on the architecture of the defunct central excise act 1950 with the clauses of sales tax to service tax all factored in. It is not business friendly in the current form and I have discussed it in detail in my book India Emerging : From Policy Paralysis to Hyper Economics published in April 2019 by Bloomsbury.

The GST act needs an startup solution. A smart way to collect consumption tax is needed so that it is not unduly complicated and is also a business friendly solution that also prevents tax theft. Also all over the world most nations have 2 tax slabs, so that is possibly the best formula to stick to. Only 3 nations include India have 4 GST tax slabs.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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