A former governor of the Reserve Bank of India, and a research fellow at the Centre for Advanced Study of India (CASI) at the University of Pennsylvania, Duvvuri Subbarao recently gave a talk at the university, titled, Will the Indian Elephant Dance Again?
Although mystifying at first, when juxtaposed against the “tiger” economies of Korea, Singapore and Hong Kong; the “cub” economies of Thailand, the Philippines and Indonesia, and the “dragon” economy of China, it is an apt metaphor, especially with Subbarao’s explanation. “It is a strong animal with enormous potential, but it moves at a lumbering pace. The hope is that it will start dancing to deliver the next growth miracle.”
Indians who are familiar with elephantine pirouetting will readily agree that there is immense potential associated with their nation’s economy, but they are also having to draw upon large reserves of hope — and fortitude — before it can come.
While pundits and prophesiers have multiple opinions on how low the economy has dipped or how long it will take to rise, there are soothsayers with clearer understanding of why things are at a standstill, and what factors will propel it towards a merry dance. Both in the country and outside it, there is no shortage of suggestions and strategies on how India can improve her economy, and even the quickest summation shows a staggering diversity of views.
2020: Year of the rebound?
In late December, industry body Confederation of Indian Industry (CII) announced that India’s economy will rebound in 2020, on account of measures taken by the government and the Reserve Bank of India, alongside an easing of global trade tensions. “Nascent signs of recovery are noted in improved PMIs (Purchasing Managers’ Index) of manufacturing and services, jump in passenger air traffic, and sharp moderation in the decline in sales of passenger cars,” said CII President Vikram Kirloskar at a press conference. Although the economy may continue to be subdued in the third quarter, the quarters thereafter are likely to see a rebound, he added.
The CII’s suggestions for the government include a more expansionary fiscal policy, and reduction and simplification of GST (Goods and Services Tax) rates.
Headquartered in the UAE, with clients across the Middle East, Europe and Asia, Apex Advisors DMCC is closely glued to the monitor. Principal Consultant Ram Narayan says a deep correction is underway in India’s value system and the way business is conducted, as it moves from the license raj era to a free market economy that brings more transparency, honesty and compliance. “This will take its course of time and only the best will survive,” says Narayan. “But once this phase of accepting new realities is complete, it will lay down a firm runaway for the economy and for people to take off towards higher goals.”
Ahead of the budget, scheduled to be presented on February 1, Narayan joins many others in wanting a clear and detailed map of the Indian government’s proposed $1.5-trillion (Dh5.5-trillion) plan to build infrastructure over the next five years to shore up economic growth.
First, we dreamt about the agriculture sector, and then the manufacturing sector, but it is time to acknowledge that India will be a services-driven economy, he opines. We must look at fiscal stimuli for new sectors such as food, hospitality tourism, retail and e-commerce to fuel growth.
Service-led recovery
“The service sector will also be the quickest to recover as people consume more new services, with online food ordering as our burgeoning evidence. Contrarily, the automobile sector will have to adjust to lower demand and fine-tune their offerings according to market requirements.” Narayan says the telecom sector will emerge as the biggest winner with higher revenues, on the back on delivering world-class technologies and products.”
Many Indians also nurse keen hope that aspects of the annual budget will reignite investment momentum. “Businesses want a reduction in the corporate tax rate that was promised a few years ago but implemented only for smaller firms in last year’s budget,” says Abdul Kader Khan, an entrepreneur who straddles trading and real estate in Dubai and Mumbai.
“There is a global trend of reduction in corporate tax rates, and India has to move in that direction. The overall tax burden on the Indian corporate sector is among the highest in the world and a reduction will create a more investment-friendly environment.
Khan says while it is also critical to increase and improve public investment in housing and agriculture, new private sector investments should be brought in to sectors where the players are likely to earn greater returns.
“For the economy to recover, investment must revive, which is why the government recently announced a major infrastructure initiative,” writes Arvind Subramanian, former chief economic adviser to the government of India, in an opinion piece for the Financial Times.
“The government can pull the economy out of the slowdown. But two ingredients are essential: recognising the true extent and nature of the problem and instituting reliable data systems for good policy navigation.”
Subbarao adds, “We need structural reforms addressing the real sectors of the economy, and governance reforms to improve the ease of doing business. It is time to stop treating public sector banks as holy cows, and own up to the fact that at least some public sector banks need to be privatised. And finally, now that the ambiguities in the bankruptcy code have been resolved, the process must be expedited so that confidence revives and new investments come on stream.”
