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Welcome continuation of the reforms thrust

Arun Jaitley has announced a new package to help recapitalise public sector banks (Rs  2.1 lakh crore)  and highway construction (Rs 6.92 lakh crore). This is in continuation of  Modi government’s thrust for reforms. 

GST is a major reform. Naturally this reform involved a good deal of compromise in regard to the rates. As pointed out by Revenue Secretary Hasmukh Adhia, rejig of the GST rate structure will be required to rationalise the burden on different sections. A welcome feature is the frequent communication exertions made by Jaitley and his team after frequent meetings of the GST Council. It took over two years for a developed country like Australia with a small population of 25 million to stabilise on GST. It is not going to be quicker for India.

Declining economic growth and lukewarm interest of the private sector to invest are matters of concern. PSU banks suffering non-performing assets, estimated over Rs 9 lakh crore, are not enthusiastic to lend. Implementation of bankruptcy laws also deterred large industrial houses to borrow for new projects. Importantly, infrastructure projects have not been able to meet the repayment obligations to banks. In 2014 around Rs 800,000 crore worth of projects were stuck with environment and other clearances. Many of the projects had borrowed large sums from banks which had turned into NPAs. 

In this background the decision of the government to announce a Rs 2.11 lakh crore package to recapitablise PSBs will help them lend more resources for businesses. This support includes Rs 18,000 crore from the budget, issue of recapitalisation bonds for Rs 1.35 lakh crore, as funds to be raised by banks amounting to Rs 56,000 crore. The last item indicates going ahead with another reform touted for long: reducing the government’s share in the equity of PSUs to 50 percent. 

IE has been pointing to the absurdity of commercial bank forced frequently to look to government for capitalisation. Large private banks like ICICI and HDFC don’t need this. Such support leads to denying spends on important social sectors like education and health. A larger share in equity to the public will also lead to greater accountability on the part of the management and employees of PSBs to operate the banks efficiently. Such a step will also help the government garner more resources through disinvestment. 

In the absence of large investments by the private sector the government has been stepping up investments on new projects by the government sector. Massive investments have been proposed on railway development (Rs 750,000 crore); on the Sagar Mala project for coastal shipping and inland waterway development; on the expansion of steel, fertilizers, coal and other PSUs. Continuing this, Jaitley had announced a Rs 6.9 lakh crore investment for road construction -  the  Bharat Mala Pariyojana.  These measures would address the issue of job creation. 

Secretary, Economic Affairs, Subash Garg, supplemented the announcement of the finance minister by pointing to strong economic fundamentals: a 7.5 percent average annual growth during 2014-17; of fiscal deficit reduced from 4.1 percent of GDP to 3.5 percent and moving towards 3.2 percent targetted for the current fiscal; inflation dropping from 6 percent in July 2014 to 1.1 percent in July 2017 and containing it to less than 4 percent during the current year and current account deficit dropping from 1.3 percent to 0.7 percent to be maintained at less than 2 percent for the year. 

Such major reforms are due in equal measure for the primary sector of agriculture. The thrust for liberalization is even more urgently needed by this sector with low average annual growth of less than 3 per cent, continuous fall in the sector’s contribution to the GDP and to poor rural incomes. The major affliction relates to fragmented landholdings that deny the benefits of high productivity possible through the application of science, technology, mechanization, and management. In Tamil Nadu, the average of the size of land holdings is two acres leading to poor average productivity and to farmers leaving land fallow or selling these at distress prices.  There are the imperative to agglomerate the small land holdings permitting lease for 15 years without alienating ownership.

These changes have the potential to achieve quantum jumps in food production and make India a food bowl of the world. 

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