26 FEB,2024 | MEDC
If India is to truly enhance its ease of doing business, it has to engage in some serious infrastructure development. That calls for a surge in capital expenditure (capex) by all the concerned players – both public and private sector. But it is not wise to depend solely on the government. The government’s Keynesian role as a heavy lifter of the revival process is all set to recede with the changing times. The government is reducing its fiscal deficit after the pandemic expansion, aiming for 5.1% next fiscal and under 4.5% of GDP by 2025-26. Central capex at Rs. 11.1 trillion for 2024-25 cannot be enlarged much. The need of the hour is to encourage private sector capex in the economy through the revival of what Keynes called animal spirits. That is occurring, but only in bits and pieces, and not enough to make an appreciable difference to sustainable economic growth.
Past hopes in this sphere have been deflated once too often. But this time, things are different. Conditions are now supportive with our post-pandemic recovery posting an impressive growth of over 7% for the past three years despite global headwinds. The balance sheets of both banks and Indian corporates are relatively healthy. The positive and proactive approach of the RBI has also led to the taming of inflation. If the Central Bank succeeds in its endeavours, we could look forward to structurally cheaper credit to industry, thus jumpstarting economic activity. The green shoots of recovery are becoming visible everywhere, but a strategy that disregards animal spirits cannot adequately address today’s economic challenges.
In general, to encourage more private sector participation in the economy it is necessary to enhance systemic transparency, minimize officials’ discretionary powers, and introduce greater (and fairer) competition in the procurement of goods and services. Strong enforcement against venality is also an important part of the solution, but only if it is not used selectively and does not seem to be politically motivated. The era of the Tax Inspector Raj has still not ended completely in India, and it must be dismantled at the earliest. It is clear that draconian one-off measures such as demonetization or the legalization of opaque funding practices through mechanisms like electoral bonds are not viable long-term options to enhance the trust of the world in the India growth story.
India needs to rediscover its dynamism. The present geopolitical situation aids us to that end. The ongoing crisis in Ukraine and the China Plus One Strategy have spurred a new wave of global investments in critical industries and a reconfiguration of regional supply chains that India could benefit from. Our private sector must play a larger and more proactive role in seizing this unique opportunity and utilising it gainfully. Generational change could also help pave the way for this transformation. A series of (false) starts did occur in the past, but now there is reason to be cautiously optimistic.
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Interactive Meeting with Mr. Jaykumar Rawal Hon'ble Minister for Tourism & Employment Guarantee Scheme Govt. of Maharashtra