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How Nirmala Sitharaman can come to the rescue of stressed sectors


Union budgets that follow economic crises tend to emphasise policy support for growth, especially for stressed sectors. The upcoming budget, too, is expected to prioritise growth over fiscal concerns. Some landmark reforms introduced last year in agriculture, manufacturing and services are clear indicators of GoI’s commitment to reforms. This process must continue in 2021 with equal vigour.

First, the agricultural reforms are potentially transformational. For long, economists and policymakers have lamented the lack of political will to reform this sector. But that changed last year. Even with GoI’s proposal that it suspends the three farm laws for a year-and-a-half, the fact remains that these reforms can help create a national market for farm produce, catalyse opportunities in food processing, propel investments in cold-chains and warehouses, and create avenues for higher farm incomes.

Such outcomes can be achieved with efforts to strengthen the collective bargaining power of farmers. For instance, State-support to farmer producer organisations (FPOs) can enable farmers to leverage economies of scale. Farmers also face large deficits in access to institutional capital. A remedy is to define FPOs as MSMEs. GoI can help farmers get better prices for their produce through redoubled support for development of commodities markets. Forward markets for agricultural products can help farmers hedge prices and manage seasonal risks.

Farm productivity — the Achilles heel of Indian agriculture — can also benefit from focus on digitalisation. For instance, an agriculture information stack that can collect, process and disseminate crucial information on the farms and crops, can prove useful.

Second, a competitive manufacturing sector is a critical pillar for economic revival. Innovative policy frameworks such as the production linked incentive (PLI) and phased manufacturing programme (PMP) are steps in the right direction.

Efforts to improve ease of doing business (EoDB) must now be accompanied with focus on reducing the cost of doing business (CoDB). States may be ranked on CoDB parameters, and goals for reduction of such costs be set.

For instance, cross-subsidy in power and railway freight should be minimised. Land should be made available at reasonable costs through creation of land bank corporations at the Centre and states. Investments in industrial and logistics infrastructure should be accelerated.

Projects under the National Infrastructure Pipeline (NIP) should be front-ended, with a target of 50% completion in the next two years.

As per a December 2020 Federation of Indian Chambers of Commerce and Industry (Ficci)-Dhruva Advisors survey, 69% of respondents foresee a sizeable shift in global manufacturing from China to India in the near future. However, scale is a prerequisite for Indian firms to account for a greater share of value in global supply chains. Low-cost credit can drive such expansion.

The cost of financial intermediation in India is prohibitive, and the banking sector must become more competitive. A national asset management company, or ‘bad bank’, for one-time resolution of large non performing assets must be considered. The time is also ripe to convert well-governed non-banking financial companies (NBFCs) into full fledged universal banks and let large corporate and industrial groups to enter banking.

GoI may also consider setting up a development finance institution, similar to the National Investment and Infrastructure Fund (NIIF), to finance mid-sized companies. Such an institution can raise money from sovereign wealth funds and other long-term institutional investors.

Finally, services —tourism, hospitality, retail, media and entertainment —were among the worst-affected by Covid-19. They need urgent State support, too. While the vaccination drive is expected to reinvigorate demand in these sectors, the Union budget should include targeted fiscal interventions to support discretionary spending by citizens.

Education and healthcare need radical transformation. The roll-out of new National Education Policy (NEP) is an important foundation that can encourage private participation. Additional interventions should include reform of fee structures at higher educational institutes (HEIs), in line with marketdetermined rates. Healthcare infrastructure can also undergo a revamp with State support.

Public spend on healthcare must be stepped up to at least 0.5% of GDP every year for the next five years. Tax benefits can be provided to the private sector on capital expenditure and skill development spends to mitigate Covid’s fallout.

The writer is president, Federation of Indian Chambers of Commerce and Industry (Ficci)

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