economy: There’s a mindset change towards pragmatic reforms

“Faced with crisis, the man of character falls back on himself. He imposes his own stamp of action, takes responsibility for it, makes it his own.” What Charles de Gaulle, former president of France said about an individual, holds true for our nation as well. Faced with crisis, India did it in 1991, and now again in 2021, taking responsibility for the economy and growth. Indian economy witnessed a tipping point in 1991 with growth accelerating to 6.2 per cent per annum in the ensuing 30 years compared to 4.2 per cent per annum in the 30 years prior. I think India is now ready for double-digit growth in the next decade.

A crisis presents the opportunity to pump-prime the economy without worrying about fiscal deficit and inflation. The finance minister has seized the opportunity with both hands. The government infrastructure spending push, with allocation for roads, railways and water — unprecedented but warranted under the circumstances. Although the government was under pressure to announce welfare spending measures for immediate relief, it has rightly chosen to prioritise capital spending. Public spending for infrastructure would not only support investments and jobs in the near term, but also improve the physical infrastructure – a key drag on manufacturing competitiveness of India. The government has taken more and meaningful measures to simplify compliance process, eased tax law processes.

Besides, for sustained investment in infrastructure and resuscitating ailing banks, government has decided to set up a Development Financial Institution (DFI) to finance infrastructure projects and an ARC to take over stressed assets.

A confluence of factors including – improving business environment due to easing compliance, infrastructure spending push and resolution of legacy NPAs with the setup of ARC – should drive private sector capex, which is a key driver for sustained economic growth. The government efforts to deepen the bond markets and rationalise multiple capital market laws into a single code should improve access to funding for private capex revival.

Even as the government remains focused on the longer-term goal of reviving growth momentum and improving infrastructure, it has not lost sight of the near-term needs. Hence, it has more than doubled the allocation to healthcare to 2.2 trillion in FY22 for funding vaccination and also to improve water and sanitation facilities in India. It has also widened the coverage of Ujjwala scheme to include 10 million more beneficiaries for improving access to cleaner cooking fuel.

What has been a pleasant surprise is no new taxes or cess in the name of Covid. Also, improved transparency of government finances and credible FY22 estimates are welcome changes in the budget.

The government has set a disinvestment target of 1.75 trillion, which in the present environment, is quite achievable. Besides, privatisation of two banks and a general insurance company and monetisation of land indicate mindset change towards pragmatic reforms.

(The writer is founder & chairman, IIFL)