1. India needs to grow by about 14% in nominal terms to reach $10 trillion by end of 2032 to raise the living standards of people below the poverty line. There have been years when India has grown at that rate. With inflation expected to be higher, nominal growth will also rise.
2. The Government will have to undertake next generation reforms as it has to act out of conviction and not compulsion. Indian economy grew at a record pace of 20.1% during April-June 2021, compared with the corresponding period last year, when a nation-wide lockdown due to COVID-19 the GDP had contracted 24.4% in April-June 2020. Recovery during April-June 2021 had almost reached to the pre-pandemic levels.
3. Considering the above factors, Surya Foundation expert group of panelists on Economy have considered the above mentioned issues in detail while formulating Recommendations on “Accelerating Employment generation, Reinventing Health Infrastructure, Managing Fiscal Deficit, Guiding Inflation, National Asset Monetisation Plan and Fast Tracking Policy Implementation”.
RECOMMENDATIONS
Accelerating Employment Generation
4. Recent survey of labour force has shown sharp increase in the share of workers employed in agriculture from 42.5% in 2018-19 to 45.6% in 2019-20. Shift to agriculture is a sign of deep distress. This ‘reverse migration’ to agriculture has, in fact, deepened through 2020-21 (July-June 2021).
5. Spending through MGNREGS in the first quarter (April-June 2021) is far lower than last year, leaving the rural workforce vulnerable. MGNREGS provided nearly 10 million fewer jobs than in June 2020. Government must ramp up spending in rural India to stimulate demand through employment.
6. The latest survey of RBI for July 2021 reflects a persistent weakness in consumer confidence due to lower incomes than a year ago. If unchecked, likelihood of reverse migration trend becoming an endemic feature of the economy is real.
7. Consumption boost through food, work (MGNREGS), and cash transfers in urban India is must today than during the peak lockdown last year. To boost employment, there is need to focus on promoting labour intensive industries and SMEs, increase public investment in social and physical infrastructure and real estate sector and focus on skill development.
Reinventing Health Infrastructure
8. After facing challenges during the first and second COVID-19 waves, it is time that both Industry and Government should have partnership to make Healthcare accessible and affordable for all. The Government must increase its investment in Health sector significantly to at least 2.5-3% of GDP by 2025 from 1.29%. In India, as sickness increases sectors the cost for the poor and this impedes progress. A healthy population brings both — Economic development and prosperity to all. This is evident from the recent action of the Private Sector working in tandem with the Government to meet the shortage of healthcare facilities such as oxygen, injections, medicines, production of masks, PPEs, ventilators, and other essential medical equipments. The Government in collaboration with industry need to promote this collaboration further:
(a) Speeding up of vaccination. The Central Government has provided Rs. 35,000 crores in the budget for vaccination and this figure needs to be doubled. Large scale Vaccine procurement will lead to investment in additional capacity for vaccines and vaccine ingredients. Vaccinations will reduce fear factor and can go a long way in lifting consumer confidence which in turn will support the domestic consumption recovery.
(b) Create more Hospital Beds in Rural Areas.
(i) Digitisation. Tele-medicine facility to cover every corner of the country. This benefit the one billion people who are without Healthcare facilities.
(ii) Domestic manufacturing of medicines and vaccines where foreign patent are expiring and medicines would soon become “off- patent”.
(iii) Competitiveness of Pharma industry and having medical devices park, and pharma park.
(iv) Ease of doing business for the industry to reduce its transaction cost and make it a Global player.
(c) Incase the third wave hits us in the next two or three months the focus should be on limiting the spread of disease and creating more oxygen beds.
Managing Fiscal Deficit
9. It is expected that the Fiscal Deficit target of 6.8% of GDP for the current financial year will overshoot due to the second wave. Higher spending is needed to contain the toll on the economy due to lockdowns during the second wave of the pandemic. Need to spend on income support for the rural poor, for industry (particularly Micro, Small, and Medium Enterprises in stressed sectors), and for public investment.
10. RBI move to transfer Rs. 99,122 crores as surplus to the Centre while duly maintaining its contingency risk buffer at 5.5% as per the Jalan Committee report is significant and appropriate.
11. Recent relief measures at Rs. 6.29 lakh crore representing about 3% of GDP announced in June 2021 is likely to increase fiscal deficit to 7.5-7.8% of GDP over the targeted 6.8%, though most sops are in the form of “Credit Guarantee” that don’t need immediate spending.
12. India is a young, growing country and growth will generate resources to pay off debt. The focus of both monetary and fiscal policy should be to feed and sustain growth. Priority should be to facilitate growth through Capital expenditure. Government can still meet the fiscal deficit target for the current financial year backed by non-tax revenue such as disinvestment receipts, national monetization pipeline and rise in tax collections.
Guiding Inflation
13. Retail inflation was at three-month low in July 2021 at 5.6% on the back of moderating food prices. At present RBI and Government are clear that their priority is growth. However, RBI is monitoring to keep the inflation contained. Taking into consideration the present state of economic growth, Government and RBI is not in favour of sucking out liquidity from the system to check inflation, a correct and a right strategy.
14. India risks sacrificing economic growth and exposes itself to the need for constant policy interventions if it targets an inflation rate below 6%. RBI needs to continue with the present stance of accommodative monetary policy till December 2021.
15. Government can however, undertake a calibrated unwinding of excise duty on fuel—petrol and diesel—both at the Centre and State’s level to reduce price pressure on the economy. GST council should consider bringing petrol and diesel under GST regime. It will substantially bring down the price of fuel likely by 50%
National Asset Monetisation Plan
16. National Asset Monetisation Plan where Rs. 6 lakh crore of government assets will be monetized over four years involving 12 ministries and 20 asset classes is a big-ticket reform. The target this year is Rs. 88,000 crores to be achieved during the next six months. To achieve this, the Government should set up an asset monetization monitoring authority to look into the various aspects of monetization namely valuation, the impact of price charged to the consumer, monetization of underutilized vs. well-utilised assets, effective mechanism for contract management, timely arbitration and speedy conciliation.
Fast-tracking of Policy Implementation
17. This involves:-
(a) Focus should be on effective implementation of reforms and to ensure that they percolate down to the grassroot level.
(b) Reduce GST rate on automobiles to encourage scrapping of old vehicle.
(c) To generate and stimulate demand in villages, promote solar power generation system.
(d) Enhance digital infrastructure in rural areas to speed up economic development.
(e) Explore possibility of rural housing for workers along with the National Highways and in new industrial states on the lines of being implemented in the United Kingdom, Germany as also in the state of Haryana in India. This will promote labour intensive industries.
(f) Revisit the 14% Revenue Growth compensation to states for GST.
(g) GST council should arrive at a more realistic revenue neutral rate to enhance compliance.
(h) Second/next generation reforms (land, agricultural, labour, power sectors and others) need to be legislated and implemented through accommodative politics.
(i) Land bank needs to be set up to dispose off and monetise the surplus land of Government departments and Public Sector companies.
(j) There is need to bring certainty and stability in taxation laws to make India an attractive destination for investment. Amendments in the law should not be done to negate court judgements.
(k) The sharp surge in COVID-19 cases in the recent past has cast fresh shadows of uncertainty over Government privatisation and it is likely that it may be kept in abeyance. Government needs to go ahead with privatisation, monetisation and disinvestment.
(l) Agriculture-led manufacturing growth at farm gate to promote exports, reduce wastage of vegetables and fruits, and disguised unemployment.
(m) Government is no longer pursuing rules under labour codes, not pushing states to hasten the process in their domain. Employers lobbying to defer implementation will mean additional cost burden. As and when situation is conducive, Government must aggressively revise labour codes.
(n) Government needs to frontload its bank recapitalization plan to strengthen weaker lenders and further support its privatisation strategy.
(o) To reduce transaction cost for MSME sector and enhance ease of doing business, compliance reform should be focused upon.
(p) To enhance competitiveness of domestic industry, especially the export sector there is a need to have a look at real exchange rate.
(q) Revisit the Import Duty structure to promote domestic value addition and employment.
CONCLUSION
18. Today Indian economy is at $2.7 trillion. To reach the goal of $5.0 trillion, India needs to grow at 9% an year for at least five years. Indian economy is capable of bouncing back provided the pandemic is controlled and the economy opened up to normal activity.
19. India needs to ramp up vaccine supply and the vaccination rate. Goal should be to cover about 50% of the population (2 doses/person) by the end of 2021. This is the key to prevent a third wave and restoring economic normalcy.
20. The strong macroeconomic fundamentals of the economy are being reflected in the record-high levels of FDI and Forex reserves which the economy is currently witnessing.
21. Rs. 100 lakh crore-Prime Minister ‘Gatishakti National Masterplan’, an integrated approach in infrastructure construction will be an engine of economic development.
22. Government has already allocated Rs. 111 lakh crore under the National Infrastructure pipeline for the period 2019-2025. This needs to be frontloaded.
23. Growth projections by IMF for 2022 are :
India 8.5%
China 5.7%
U.S.A. 4.9%
World 4.9%
E.U. 4.3%
24. Equilibrium needs to be maintained between inflation and growth. However, need not to concern about fiscal deficit and inflation at present.
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