Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tough Times Bring down the Growth Trajectory — 2011 was tough: a cocktail of
domestic macro issues (inflation, rates), policy issues (government indecision-inaction),
and global (sub-par growth, advancement of debt restructuring). Tough times don’t
always last, but they can last long enough to do more damage to the economic
structure and momentum. As a result, we have seen India growth expectations come
off from 9% levels to 7%, with growing doubts on whether even a 7% rate can hold.
2012 will need 12 Tough Measures to Sustain Growth even at ~7%— India is, we
believe, not yet beyond repair; and the following 12 measures are key to keep to even
these 7% levels. Key among them include incentivizing investments, attracting FX
flows, addressing structural issues on inflation, executing proposed fiscal reform, revamping the current model of governance, and battling corruption along with electoral
reform, etc. While one may argue that most of this has been on the agenda a while,
historically India has been quick to react in difficult times. This time is no different –
execution and institutionalizing project management is key (see pages 4-7).
2012 Brings Additional Vulnerabilities on FX/Funding — India’s FX dependence,
the need to finance its current account deficit and meet debt repayments, remains. This
needs a domestic/global market risk-on mood. An added worry in 2012 is the impact of
global bank de-leveraging. To meet capital requirements, there are risks of tighter
lending measures and a pull-back in bank lending. Moreover, with sub-par growth in
the US, EMU and UK (jointly 43% of world GDP), export growth could splutter.
BUT…One could see potential gains on inflation / rates and policy making —
While global developments are likely to remain volatile. India should see inflation /
interest rates peaking. We expect the RBI to begin easing rates by mid-2012. This,
coupled with some determined decision-making from policymakers, could provide
economic and investment gains and keep growth from falling below 7% levels
A Year On: The Global and Domestic Overhang Continues
2011 has proven to be an unfortunate cocktail of domestic policy issues (high
interest rates, infrastructure constraints) and a slowing global environment. As a
result, we have seen growth expectations for India come off from 9% levels to 7%,
with growing doubts as to whether even a 7% level can hold.
What’s worrying is that prospects do not seem sunny for 2012 either. Our global
team expects the hangover from the pre-recession credit boom to continue to cast a
deep shadow on global growth in 2012 and beyond. Another recurring theme in the
coming years is expected to be European bank deleveraging. Following shocks
from the eurozone debt crisis, many EA banks have announced plans to shrink their
balance sheets. Our regional economist (See Asia Macro and Strategy Outlook -
Prospects for 2012) believes this could have important capital flow implications.
Consequently, our team has again cut the 2012 global growth forecast, the sixth
consecutive monthly downgrade, and now expect global growth will slow from 4.2%
in 2010 and 3.0% in 2011 to 2.5% in 2012. (See Global Economic Outlook and
Strategy - Prospects For Economies And Financial Markets In 2012 And Beyond).
As regards India, in addition to global factors, domestic issues should take a toll on
growth in India. Taking into account the above, we are further reducing our FY12
GDP estimates from 7.6% to 7.1% and for FY13 from 7.5% to 7.0% (see p. 8-9
for details).
Risks to sub-7% growth: A key point to note is that, besides growth holding up on
the global front, our team does not expect the euro area to break up in 2012 or the
following years, nor do we expect the disorderly default of an EA sovereign. Risks to
a sub-7% number could also emerge if the recent momentum on the policy front is
once again derailed. Over the last fortnight, there have been a number of project
announcements, steps to encourage capital flows, including cabinet approval on
multi-brand retail. Given the recent deliberation over FDI, we hope that this is not
another false start, similar to that seen in Apr-11, when a slew of project clearances
in the mining/power sector were granted but never took off.
What Can Hold Growth over 7%? 12 Reforms for 2012
While global developments are out of India’s control, we think there is much in
today’s slowing growth scenario that is within the reach of policy makers. Indeed,
over the last year it has become a unanimously acknowledged fact that the
government has fallen severely short of expectations on the reform agenda, as the
current leadership framework has been challenged and corruption allegations have
tainted the incumbent UPA. In addition are supply-side bottlenecks that have
hindered investments. While the problems are now well-known (power and coal
shortages, policy hurdles, and fiscal slippages), these issues can, and should, be
remedied. As the Planning Commission points out,’ There is another urgent need to
translate the large outlays provided at the Centre to enduring outcomes on the
ground’. We think implementation of reforms should be focused on execution and
institutionalizing project management within specific time and cost frameworks. We
find 12 varied solutions that could be a starting point to revive India through 2012:
#1. Incentivizing Investments – Resolving Power, Mining, Land Issues
The sharp deceleration in investment growth has been the key factor behind
headline GDP growth expectations coming off to ~7% levels. As mentioned on
pages 8-9, growing policy uncertainty/inaction, coupled with rising rates, has stifled
fixed capital formation. To this end, key to reviving investments would be reforms in:
Power: Two key issues are (a) Addressing the losses of State Electricity Boards
either through restructuring or fresh equity infusion by the government. To ensure
that this does not become a recurring problem, necessary steps would be to
ensure timely tariff revisions and improve operational efficiency. (b) Mechanisms
for the passing through of prices of imported fuel. Given the current energy
situation, there is a need to use more imported fuel (coal/gas/LNG). However,
given the costs of imported fuel, power generated using imported fuel can not be
profitably sold in market on standalone basis currently. Thus, India needs to
devise a mechanism which ensures that either cost of imported fuel becomes
pass-through in tariff so higher cost imported fuel and cheap domestic fuel is
pooled, so that average price of power is reasonable for new projects.
Mining: Thermal coal production has grown at abysmal rates, trailing underlying
demand due to (a) delays in environmental/land clearance and (b) Shortages of
rakes. Given India's energy requirements, coal production growth should be
increased to 5%-10% levels. The coal shortage unfortunately cannot be fully
met by imports, given low power tariffs relative to seaborne coal prices and SEB
losses. Coal availability issues need to be resolved indigenously by - (i)
expediting clearances: environment, forest, land acquisition; (ii) improving rake
availability and (iii) allocation of coal blocks through competitive bidding.
Land Acquisition: Although India’s land area comprises 2.4% of the world’s total
area, it is also among the most densely populated countries in the world. Rising
industrialization has resulted in a growing struggle for land. A key step towards
resolving issues related to compensation and rehabilitation would be to pass the
recently tabled Land Acquisition Bill so that it becomes law.
#2. Foreign Capital – Measures to Attract Flows
Given the rise in India’s external financing needs, a key issue in 2012 would be
measures to augment capital flows. In addition to higher FII limits on bonds, relaxing
norms on non-resident deposits and infrastructure financing would provide the right
signals and be sentiment-positive. A ‘big-bang’ move, that was finally approved by
the Cabinet recently, was permitting FDI in retail (see p. 18 for details). Our
consumer analyst estimates this has potential to add US$15-20bn over the next ten
years. Another positive would be FDI in insurance, which has potential to the tune of
US$9-10bn over the next decade, based on the estimated incremental capital
needs of the industry (with foreigners taking up 49%).
#3. Inflation – Addressing Structural Issues
Inflation being sticky and averaging 9.7%+ for nearly two years, despite effective
monetary tightening to the tune of 525bps, is a clear indication that addressing
supply-side issues is key. An acknowledged fact is that this stickiness in inflation is
partly a consequence of structural changes, since agricultural production has failed
to keep up with rising per capita incomes and dietary changes. The Planning
Commission adopted the right approach when it called for increasing the production
of pulses last year (production has now doubled and pulse prices have been posting
a contraction). Such an approach should be adopted to improve the supply of other
agri commodities. Steps could include (a) improving the logistics chain –
transportation, warehousing and cold chain facilities, as almost a third of agricultural
produce is wasted due to poor logistical infrastructure; (b) Raising productivity by
emphasizing seed/irrigation and fertilizer related reforms; (c) unifying markets for
agricultural products within the country. A key aspect of this would involve making
amendments to the Agricultural Produce Marketing Commission Act (APMC) which
does not allow traders to trade through the main markets and facilitates collusive
pricing
#4. Fiscal – Some Efforts towards Consolidation
Following consolidation efforts through FY02-08 that resulted in the combined deficit
coming off from 9.5% of GDP to 4%, trends have seen a continued reversal.
Clearly, the deficit bugbear needs to be addressed – and fast.
Key structural steps could be (a) Implementation of GST and the Direct Tax Code.
The GST was slated for implementation in Apr-12. However, with the Constitution
Amendment Bill currently pending in Parliament and no agreement on the
rate/exempt commodities, this deadline is unlikely to be achieved. The Direct Taxes
Code (DTC) is also scheduled to come into force from 1 April 2012 with the Finance
Ministry currently awaiting the report of a parliamentary panel on the Bill. (b) Proper
auditing and monitoring of social welfare programs, such as NREGA, the food
distribution system, and de-regulation of diesel. To this end, the implementation of
the UID (Smart Card) program for direct transfer of subsidies would the first step to
sealing leakages.
#5. Politics – Current Model of Governance Needs a Revamp
The current policy gridlock is to a large extent attributed to poor governance. Recent
corruption allegations have resulted in a steady slide in popularity of the incumbent
UPA. There is growing awareness that the combination of Congress President
Sonia Gandhi, and PM Singh, that worked well in the past, has not proven
successful this time around.
Mrs. Gandhi’s long absence due to a medical condition, coupled with dissent within
the Congress and blemishes on PM Singh’s authority, have all weakened the party’s
position. With major state elections approaching, there is an urgent need to either
(a) appoint a popularly-elected leader, which would entail new look at the current
model of governance or (b) improve momentum on reforms under the current
leadership and prevent risks of a mid-term election.
#6. Battling Corruption and Electoral Reform
Allegations of corruption and a growing number of scams – both corporate and
political – have tainted the government and have stalled parliamentary functioning.
Following the campaign for a strong ‘Lokpal Bill (anti-corruption)
1
’ earlier this
year, passing this bill is now likely to be topmost on the government’s agenda during
the ongoing winter session of parliament. Another important aspect to rooting out
corruption would involve electoral reform. As per current laws, the maximum limit for
election spending for parliamentary elections is Rs4m, whereas for assembly
elections it is Rs1.6n (limits vary across states).
Low limits on election spending have resulted in lack of transparency, widespread
corruption, and the pervasiveness of ‘black money’. Indeed, a Consultation Paper to
the National Commission to Review the Working of the Constitution, 2001 notes that
“Electoral compulsions for funds has become the foundation of the whole super
structure of corruption”, and points out that “the campaign expenditure by
candidates is in the range of about twenty to thirty times the legal limits”.
#7. Improving Data Quality and Dissemination
Poor decision-making has also been complicated by unreliable statistical data. As
the RBI as well as other officials have pointed out, ‘policy has been handicapped by
the reliability of some of the basic data…used in policy calculations’’. In particular,
data on (a) poverty ratios, (b) wage statistics, (c) trade, and (d) industrial production
are most difficult to reconcile. The last in particular has been widely censured as
being ‘analytically bewildering’, depicting extreme volatility and counter-intuitive
trends. These key issues need to be addressed in order for policy makers and
observers to make well-informed decisions.
#8. Labor Reforms – Key to Avoid a Demographic Nightmare
Several instances of worker unrest seen in 2011, particularly in the autos and mining
sectors, have been due to higher wage demands, consequently impacting production
and taking a toll on growth. Moreover, due to rigid labor laws (i.e. high severance costs,
difficulties in hiring and firing workers), many firms are now opting for contract laborers
who fall outside the purview of regulation. However, this in turn is resulting in industrial
unrest, as seen with Maruti’s Gurgaon plant and other instances. Given that only 6% of
India’s total workforce of 506m is within the organized sector, this points to a need to
increase the number of formal jobs and a restructuring of the current labor policy.
#9. Employment - The National Manufacturing Policy Could Help
The share of the manufacturing sector in GDP (ex-mining/construction; currently at
16%) has seen little growth over the years. To this end, the government’s recently
announced National Manufacturing Policy aims to create National Investment and
Manufacturing Zones (NIMZ) that would function as large autonomous industrial
townships. This is estimated to create 100m new jobs and boost the share of
manufacturing from 16% of GDP to 25% by 2022.
#10. NREGA – More Productive Work; Putting Funding to Better Use
Although the National Employment Guarantee Act (NREGA) has been touted as
one of the UPA’s flagship reform programs, such a large scale social safety program
does present governance challenges. While NREGA does have special monitoring
and auditing mechanisms in place, key issues include (a) managing funds
effectively. Reports indicate that there has been an underutilization of funds, with
many states using less than 50% of the allocated amount. Efforts should be made
such that unspent NREGA funding is put to effective use; (b) enhancing the scope
of work could result in more long-term benefits for the economy.
#11. Urban Infrastructure – Key for Balanced Growth
The uptrend in urbanization has resulted in growing strain on urban infrastructure.
Given the fragmented nature of Urban Local bodies, the onus of development has
been on the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) which
was initialized in Dec 2005 for a period of seven years, with an outlay of Rs1trillion.
Key to sustaining balanced growth would be higher funding, further encouraging
public private partnership and upgrading ministry capacities.
#12. Vigil on NPLs – To prevent negative feedback loop
Lastly, as cautioned by the RBI, banks need to remain vigilant to the headwinds
from the prevailing inflation and interest rate situation. This could affect their asset
quality, as changes in the interest rate are found to have the most significant
(negative) impact on the slippage ratio of the banks. This in turn could result in
tighter lending standards and further dampen growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tough Times Bring down the Growth Trajectory — 2011 was tough: a cocktail of
domestic macro issues (inflation, rates), policy issues (government indecision-inaction),
and global (sub-par growth, advancement of debt restructuring). Tough times don’t
always last, but they can last long enough to do more damage to the economic
structure and momentum. As a result, we have seen India growth expectations come
off from 9% levels to 7%, with growing doubts on whether even a 7% rate can hold.
2012 will need 12 Tough Measures to Sustain Growth even at ~7%— India is, we
believe, not yet beyond repair; and the following 12 measures are key to keep to even
these 7% levels. Key among them include incentivizing investments, attracting FX
flows, addressing structural issues on inflation, executing proposed fiscal reform, revamping the current model of governance, and battling corruption along with electoral
reform, etc. While one may argue that most of this has been on the agenda a while,
historically India has been quick to react in difficult times. This time is no different –
execution and institutionalizing project management is key (see pages 4-7).
2012 Brings Additional Vulnerabilities on FX/Funding — India’s FX dependence,
the need to finance its current account deficit and meet debt repayments, remains. This
needs a domestic/global market risk-on mood. An added worry in 2012 is the impact of
global bank de-leveraging. To meet capital requirements, there are risks of tighter
lending measures and a pull-back in bank lending. Moreover, with sub-par growth in
the US, EMU and UK (jointly 43% of world GDP), export growth could splutter.
BUT…One could see potential gains on inflation / rates and policy making —
While global developments are likely to remain volatile. India should see inflation /
interest rates peaking. We expect the RBI to begin easing rates by mid-2012. This,
coupled with some determined decision-making from policymakers, could provide
economic and investment gains and keep growth from falling below 7% levels
A Year On: The Global and Domestic Overhang Continues
2011 has proven to be an unfortunate cocktail of domestic policy issues (high
interest rates, infrastructure constraints) and a slowing global environment. As a
result, we have seen growth expectations for India come off from 9% levels to 7%,
with growing doubts as to whether even a 7% level can hold.
What’s worrying is that prospects do not seem sunny for 2012 either. Our global
team expects the hangover from the pre-recession credit boom to continue to cast a
deep shadow on global growth in 2012 and beyond. Another recurring theme in the
coming years is expected to be European bank deleveraging. Following shocks
from the eurozone debt crisis, many EA banks have announced plans to shrink their
balance sheets. Our regional economist (See Asia Macro and Strategy Outlook -
Prospects for 2012) believes this could have important capital flow implications.
Consequently, our team has again cut the 2012 global growth forecast, the sixth
consecutive monthly downgrade, and now expect global growth will slow from 4.2%
in 2010 and 3.0% in 2011 to 2.5% in 2012. (See Global Economic Outlook and
Strategy - Prospects For Economies And Financial Markets In 2012 And Beyond).
As regards India, in addition to global factors, domestic issues should take a toll on
growth in India. Taking into account the above, we are further reducing our FY12
GDP estimates from 7.6% to 7.1% and for FY13 from 7.5% to 7.0% (see p. 8-9
for details).
Risks to sub-7% growth: A key point to note is that, besides growth holding up on
the global front, our team does not expect the euro area to break up in 2012 or the
following years, nor do we expect the disorderly default of an EA sovereign. Risks to
a sub-7% number could also emerge if the recent momentum on the policy front is
once again derailed. Over the last fortnight, there have been a number of project
announcements, steps to encourage capital flows, including cabinet approval on
multi-brand retail. Given the recent deliberation over FDI, we hope that this is not
another false start, similar to that seen in Apr-11, when a slew of project clearances
in the mining/power sector were granted but never took off.
What Can Hold Growth over 7%? 12 Reforms for 2012
While global developments are out of India’s control, we think there is much in
today’s slowing growth scenario that is within the reach of policy makers. Indeed,
over the last year it has become a unanimously acknowledged fact that the
government has fallen severely short of expectations on the reform agenda, as the
current leadership framework has been challenged and corruption allegations have
tainted the incumbent UPA. In addition are supply-side bottlenecks that have
hindered investments. While the problems are now well-known (power and coal
shortages, policy hurdles, and fiscal slippages), these issues can, and should, be
remedied. As the Planning Commission points out,’ There is another urgent need to
translate the large outlays provided at the Centre to enduring outcomes on the
ground’. We think implementation of reforms should be focused on execution and
institutionalizing project management within specific time and cost frameworks. We
find 12 varied solutions that could be a starting point to revive India through 2012:
#1. Incentivizing Investments – Resolving Power, Mining, Land Issues
The sharp deceleration in investment growth has been the key factor behind
headline GDP growth expectations coming off to ~7% levels. As mentioned on
pages 8-9, growing policy uncertainty/inaction, coupled with rising rates, has stifled
fixed capital formation. To this end, key to reviving investments would be reforms in:
Power: Two key issues are (a) Addressing the losses of State Electricity Boards
either through restructuring or fresh equity infusion by the government. To ensure
that this does not become a recurring problem, necessary steps would be to
ensure timely tariff revisions and improve operational efficiency. (b) Mechanisms
for the passing through of prices of imported fuel. Given the current energy
situation, there is a need to use more imported fuel (coal/gas/LNG). However,
given the costs of imported fuel, power generated using imported fuel can not be
profitably sold in market on standalone basis currently. Thus, India needs to
devise a mechanism which ensures that either cost of imported fuel becomes
pass-through in tariff so higher cost imported fuel and cheap domestic fuel is
pooled, so that average price of power is reasonable for new projects.
Mining: Thermal coal production has grown at abysmal rates, trailing underlying
demand due to (a) delays in environmental/land clearance and (b) Shortages of
rakes. Given India's energy requirements, coal production growth should be
increased to 5%-10% levels. The coal shortage unfortunately cannot be fully
met by imports, given low power tariffs relative to seaborne coal prices and SEB
losses. Coal availability issues need to be resolved indigenously by - (i)
expediting clearances: environment, forest, land acquisition; (ii) improving rake
availability and (iii) allocation of coal blocks through competitive bidding.
Land Acquisition: Although India’s land area comprises 2.4% of the world’s total
area, it is also among the most densely populated countries in the world. Rising
industrialization has resulted in a growing struggle for land. A key step towards
resolving issues related to compensation and rehabilitation would be to pass the
recently tabled Land Acquisition Bill so that it becomes law.
#2. Foreign Capital – Measures to Attract Flows
Given the rise in India’s external financing needs, a key issue in 2012 would be
measures to augment capital flows. In addition to higher FII limits on bonds, relaxing
norms on non-resident deposits and infrastructure financing would provide the right
signals and be sentiment-positive. A ‘big-bang’ move, that was finally approved by
the Cabinet recently, was permitting FDI in retail (see p. 18 for details). Our
consumer analyst estimates this has potential to add US$15-20bn over the next ten
years. Another positive would be FDI in insurance, which has potential to the tune of
US$9-10bn over the next decade, based on the estimated incremental capital
needs of the industry (with foreigners taking up 49%).
#3. Inflation – Addressing Structural Issues
Inflation being sticky and averaging 9.7%+ for nearly two years, despite effective
monetary tightening to the tune of 525bps, is a clear indication that addressing
supply-side issues is key. An acknowledged fact is that this stickiness in inflation is
partly a consequence of structural changes, since agricultural production has failed
to keep up with rising per capita incomes and dietary changes. The Planning
Commission adopted the right approach when it called for increasing the production
of pulses last year (production has now doubled and pulse prices have been posting
a contraction). Such an approach should be adopted to improve the supply of other
agri commodities. Steps could include (a) improving the logistics chain –
transportation, warehousing and cold chain facilities, as almost a third of agricultural
produce is wasted due to poor logistical infrastructure; (b) Raising productivity by
emphasizing seed/irrigation and fertilizer related reforms; (c) unifying markets for
agricultural products within the country. A key aspect of this would involve making
amendments to the Agricultural Produce Marketing Commission Act (APMC) which
does not allow traders to trade through the main markets and facilitates collusive
pricing
#4. Fiscal – Some Efforts towards Consolidation
Following consolidation efforts through FY02-08 that resulted in the combined deficit
coming off from 9.5% of GDP to 4%, trends have seen a continued reversal.
Clearly, the deficit bugbear needs to be addressed – and fast.
Key structural steps could be (a) Implementation of GST and the Direct Tax Code.
The GST was slated for implementation in Apr-12. However, with the Constitution
Amendment Bill currently pending in Parliament and no agreement on the
rate/exempt commodities, this deadline is unlikely to be achieved. The Direct Taxes
Code (DTC) is also scheduled to come into force from 1 April 2012 with the Finance
Ministry currently awaiting the report of a parliamentary panel on the Bill. (b) Proper
auditing and monitoring of social welfare programs, such as NREGA, the food
distribution system, and de-regulation of diesel. To this end, the implementation of
the UID (Smart Card) program for direct transfer of subsidies would the first step to
sealing leakages.
#5. Politics – Current Model of Governance Needs a Revamp
The current policy gridlock is to a large extent attributed to poor governance. Recent
corruption allegations have resulted in a steady slide in popularity of the incumbent
UPA. There is growing awareness that the combination of Congress President
Sonia Gandhi, and PM Singh, that worked well in the past, has not proven
successful this time around.
Mrs. Gandhi’s long absence due to a medical condition, coupled with dissent within
the Congress and blemishes on PM Singh’s authority, have all weakened the party’s
position. With major state elections approaching, there is an urgent need to either
(a) appoint a popularly-elected leader, which would entail new look at the current
model of governance or (b) improve momentum on reforms under the current
leadership and prevent risks of a mid-term election.
#6. Battling Corruption and Electoral Reform
Allegations of corruption and a growing number of scams – both corporate and
political – have tainted the government and have stalled parliamentary functioning.
Following the campaign for a strong ‘Lokpal Bill (anti-corruption)
1
’ earlier this
year, passing this bill is now likely to be topmost on the government’s agenda during
the ongoing winter session of parliament. Another important aspect to rooting out
corruption would involve electoral reform. As per current laws, the maximum limit for
election spending for parliamentary elections is Rs4m, whereas for assembly
elections it is Rs1.6n (limits vary across states).
Low limits on election spending have resulted in lack of transparency, widespread
corruption, and the pervasiveness of ‘black money’. Indeed, a Consultation Paper to
the National Commission to Review the Working of the Constitution, 2001 notes that
“Electoral compulsions for funds has become the foundation of the whole super
structure of corruption”, and points out that “the campaign expenditure by
candidates is in the range of about twenty to thirty times the legal limits”.
#7. Improving Data Quality and Dissemination
Poor decision-making has also been complicated by unreliable statistical data. As
the RBI as well as other officials have pointed out, ‘policy has been handicapped by
the reliability of some of the basic data…used in policy calculations’’. In particular,
data on (a) poverty ratios, (b) wage statistics, (c) trade, and (d) industrial production
are most difficult to reconcile. The last in particular has been widely censured as
being ‘analytically bewildering’, depicting extreme volatility and counter-intuitive
trends. These key issues need to be addressed in order for policy makers and
observers to make well-informed decisions.
#8. Labor Reforms – Key to Avoid a Demographic Nightmare
Several instances of worker unrest seen in 2011, particularly in the autos and mining
sectors, have been due to higher wage demands, consequently impacting production
and taking a toll on growth. Moreover, due to rigid labor laws (i.e. high severance costs,
difficulties in hiring and firing workers), many firms are now opting for contract laborers
who fall outside the purview of regulation. However, this in turn is resulting in industrial
unrest, as seen with Maruti’s Gurgaon plant and other instances. Given that only 6% of
India’s total workforce of 506m is within the organized sector, this points to a need to
increase the number of formal jobs and a restructuring of the current labor policy.
#9. Employment - The National Manufacturing Policy Could Help
The share of the manufacturing sector in GDP (ex-mining/construction; currently at
16%) has seen little growth over the years. To this end, the government’s recently
announced National Manufacturing Policy aims to create National Investment and
Manufacturing Zones (NIMZ) that would function as large autonomous industrial
townships. This is estimated to create 100m new jobs and boost the share of
manufacturing from 16% of GDP to 25% by 2022.
#10. NREGA – More Productive Work; Putting Funding to Better Use
Although the National Employment Guarantee Act (NREGA) has been touted as
one of the UPA’s flagship reform programs, such a large scale social safety program
does present governance challenges. While NREGA does have special monitoring
and auditing mechanisms in place, key issues include (a) managing funds
effectively. Reports indicate that there has been an underutilization of funds, with
many states using less than 50% of the allocated amount. Efforts should be made
such that unspent NREGA funding is put to effective use; (b) enhancing the scope
of work could result in more long-term benefits for the economy.
#11. Urban Infrastructure – Key for Balanced Growth
The uptrend in urbanization has resulted in growing strain on urban infrastructure.
Given the fragmented nature of Urban Local bodies, the onus of development has
been on the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) which
was initialized in Dec 2005 for a period of seven years, with an outlay of Rs1trillion.
Key to sustaining balanced growth would be higher funding, further encouraging
public private partnership and upgrading ministry capacities.
#12. Vigil on NPLs – To prevent negative feedback loop
Lastly, as cautioned by the RBI, banks need to remain vigilant to the headwinds
from the prevailing inflation and interest rate situation. This could affect their asset
quality, as changes in the interest rate are found to have the most significant
(negative) impact on the slippage ratio of the banks. This in turn could result in
tighter lending standards and further dampen growth.
No comments:
Post a Comment