In a press release issued on 26 May, the Confederation of Indian Industry (CII) had stated that the Indian economy has benefited from key structural reforms over the last few years and a higher growth rate can be expected. The GDP growth data brought out by Central Statistical Organisation (CSO) on 31 May demonstrates that the trendline is now sharply upward. GDP growth rate of 7.7% for the last quarter on 2017-18 with strong pick up in investments is indeed heartening.
According to the CII statement, there are now strong indications that the economy is set on a recovery path. “The impact of sustained structural reforms is now being felt on the ground as a mammoth economy is turning around,” said Mr. Rakesh Bharti Mittal, President, CII. “Businesses across several key sectors are experiencing firm growth in sales and orders, indicating better capacity utilization and higher investment expectations,” he added.
The CII statement specified that strong rural consumption is reflected in sectors such as consumer non-durables, two-wheelers and tractors. Prudent macroeconomic management has encouraged growth, and investments for capacity expansion are being planned as demand conditions recover.
The Government has avoided slippage in the fiscal deficit despite the rise in oil prices. Inflation too has remained under control to the extent possible even as cost of oil is going up.
The capital goods sector is showing steady improvement and order books are filling up. Exports, too, are poised to grow at a faster pace in the current fiscal year, which started on a good note, noted CII.
“The feedback from businesses is that the rebound in the economy is now firmly entrenched and the positive impact of the actions taken by the government, including major structural reforms, are being felt on the ground,” added Mr Mittal.
The CII statement pointed to eight key areas where reform measures have unlocked growth forces.
Goods and Services Tax
The introduction of the Goods and Services Tax (GST), India’s biggest indirect tax reform, has been relatively smooth due to quick response in addressing roadblocks. Businesses have now settled down after the initial disruptions. With the elimination of interstate barriers and implementation of e-way bill system, transport and logistics have become more competitive and less expensive. The impact of this seminal tax is now being felt in formalization of enterprises, wider tax base and higher tax revenues, said CII.
Ease of Doing Business
The strong emphasis on ease of doing business, where India has improved 42 ranks has now impact on the ground. Starting a business, paying taxes, trade facilitation and obtaining permits are being emphatically taken up. CII highlighted that with active participation of state governments, a facilitative investment climate is evolving.
Insolvency and Bankruptcy Code
Industry believes that the Insolvency and Bankruptcy Code will transform the business environment and make it easier for failing enterprises to exit unviable businesses. It is also helping address the non-performing assets problem, reducing job losses, and will have positive long-term ramifications, stated CII.
Foreign Direct Investment
The foreign direct investment (FDI) limits have been enhanced in sectors such as insurance, real estate and defence manufacturing, along with facilitative regulations. FDI inflows increased to a record $60 billion in 2016-17 and a similar amount is expected in 2017-18.
The government has stepped up infrastructure spending despite budget constraints with visible outcomes on the ground. The pace of road building has steadily picked up to 21.5 km per day during April-January 2017-18 from 18.3 km per day in the same period of the previous year.
CII welcomed the milestone achievement of electrification of all 6 lakh villages in the country and said that this will contribute greatly to inclusive development.
UDAN is also a major achievement, stated CII, adding that this move will connect India and offer new opportunities for growth in the hinterland. Indian aviation has witnessed one of the fastest growth phases over the last three years and India has become the third-largest market globally in terms of domestic traffic.
Notable initiatives have been taken to strengthen micro, small and medium enterprises (MSME), added the CII press release. Measures such as lowering corporate income tax rates to 25% for 99% of enterprises, redefinition of MSME, addressing delayed payments, and differential treatment for MSME non-performing assets have been announced. The MUDRA scheme has helped millions of small entrepreneurs obtain loans and generated millions of jobs.
Specific initiatives in agriculture have helped improve rural incomes. These include upgradation of rural marketing infrastructure through Grameen agricultural markets (GrAM), the scaling up of electronic National Agriculture Market (e-NAM), tax benefits to Farmer Producer Organisations, and model act for land leasing.
A major step has been taken to introduce fixed term employment across sectors which will impart flexibility to the use of labour. Once companies start using this provision, there should be a rise in employment levels along with economic growth.
With several major development campaigns such as Make in India, Digital India, Swachh Bharat, Clean Energy and others gaining traction as well as recovery in the global economy and expectations of a normal monsoon, CII expects growth to record 7.3 – 7.7% in 2018-19.