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A Sharper 4-L Strategy To Convert India Into A Global Force

If PM himself can drive the reforms on these fronts, India can come out of this pandemic relatively unscathed and return on a high growth trajectory by attracting investments. That would also pave the way for fructifying PM’s vision of creating an ‘Atmanirbhar Bharat’.

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When the world is busy grappling with the economic damage that the COVID-19 pandemic is inflicting, India’s PM Narendra Modi believes that this is an opportunity to build a new India which is more self-reliant, self-assured and a global force to reckon with. His “Atmanirbhar Bharat Abhiyaan” is a grand vision to lead India out of the grim economic scenario that the country finds itself in today. To break the shackles of a dual contraction in consumption and investment, PM Modi has declared a composite economic package of Rs. 20 trillion (equivalent to almost 10% of GDP) and emphasized the need to carry out certain key reforms. 

To strengthen the future of India, PM Modi has outlined a 4-L strategy which involves addressing the structural bottlenecks in the areas of Land, Labour, Liquidity and Laws, all of which have a direct bearing on infrastructure creation. Building a world class infrastructure has always figured high on this government’s agenda and it is indeed the key to building a strong, vibrant India. Thus, the decision to address the limitations in these areas is very timely, especially if we wish to attract some of the MNCs who are relocating their manufacturing units out of China. 

In this regard, I would like to take this opportunity to share a few thoughts on what specific steps can be taken on each of these areas.

Land 

Although it is a crucial factor of production, land acquisition has been a major irritant for industrialization and infrastructure projects. The land market has been most distorted because of archaic legislations which do not meet the nation’s changing needs. Lack of clear titling and rigidities regarding land use conversion have hindered the growth of a well-functioning land market thus creating an artificial scarcity. The following are some suggestions:

  • Land being a subject on the State List, the state governments must proactively undertake reforms to allow land use conversion so that both farmers and firms can realize greater value from sale and use of land. States would also be able to attract investments. Centre may create suitable incentives for the states to implement this and also provide an overarching guidance in terms of a framework.

  • As dispute regarding land ownership is a major problem in India, the creation of a consolidated national land database would help immensely. Just like the AADHAR initiative which has been able to capture the details of India’s human resources, a pan-India exercise to capture the details of all land resources in India can be initiated. If all land records can be documented with each parcel of land correctly mapped with its rightful owner and all these records get digitized, this will go a long way in promoting agriculture, industry and infrastructure creation. 

  • Land should be brought under the coverage of GST so that the stamp duty can be subsumed within GST with a lower GST rate of 5%. That would greatly simplify taxation implications in case of sale of land. Land should be VAT-able so that on every stage of transaction the value added portion gets taxed. This will keep adding to the government’s revenue and at the same time will usher in greater transparency by enabling systematic maintenance of land records. 

Labour

India’s inability to attract large-scale global corporations for setting up their plants here has often been attributed to the extant labour norms. This is also the reason why India has a large informal sector and mostly small sized companies which are unable to scale up and become more competitive. The following are some suggestions:

  • All labour laws must be reviewed and simplified. As Centre has already tried to compile 44 such laws into 4 draft labour codes, the state governments must be encouraged to embrace those.

  • ‘Hire and fire’ policy can be promoted if it is aligned with the 100 day minimum guaranteed work scheme under MGNREGA. 

  • The compensation should be on the basis of working hours and not number of days in order to eliminate any possibility of exploitation.

  • Centre has to communicate to all stakeholders how working in the formal sector by embracing labour reforms is far more advantageous than the working conditions and possible health hazards in informal sector.

  • An ecosystem for skill upgradation for workers should be an integral part of the labour reforms. Government and industry need to join hands for this. This can emerge as a major incentive for workers to join the formal sector as they will be able to upskill themselves at regular intervals.

Liquidity

The pandemic-induced lockdown has prolonged for two months and it has severely disrupted the cash flow of most entities. The government and the central bank have intervened to provide adequate liquidity support to the struggling enterprises. RBI has allowed banks and NBFCs to extend a six-month moratorium on term loan repayments to their borrowers. While this can provide some temporary relief, the cash flow mismatch is likely to continue for an extended period. So, there is a need to think beyond the moratorium. The following are some suggestions:

  • A more structural way to address the cash mismatch problem would be for RBI to allow a one-time restructuring of stressed loan accounts. Banks and lending institutions need to sit with their stressed borrowers and work out a revised repayment schedule based on the future cash flows and value of assets and collaterals. 

  • RBI can further strengthen this process by not letting any degradation in the asset quality and by doing away with the practice of making provisions for such restructured loans. 

This being an extraordinary situation, allowing forbearance at this juncture would be a pragmatic approach, otherwise there will be an avalanche of non-performing assets (NPAs) pushing banks and lending institutions towards bankruptcy.

Laws

Even before the pandemic, the Indian economy has been on a slowing trajectory. It has been observed that in the last one decade or so, the rules and regulations in every sector have become so cumbersome that it is adversely impacting the spirit of entrepreneurship. Laws are becoming over-protective, so much so that instances of mid-way change in rules have led to huge uncertainty in certain sectors. This, in turn, has vitiated the investment climate in India as well. The following are some suggestions:

  • The regulators in every sector must don the hat of a ‘developer’ apart from monitoring and controlling the actions of the various players. That way, they would be in a position to frame rules and regulations that would facilitate an orderly development of the entire sector.

  • Our law makers should frame rules which can provide a broad guidance, instead of being too much descriptive by focusing on the nitty-gritties. Too many firms are not even in a position to strictly adhere to such rules as they do not even have the wherewithal to do so.

  • Laws, while being framed, should not just cover the academic angle. There should be a focus on the execution angle too. Thus, feedback and involvement of actual practitioners from each sector is a must while framing the policies and rules.

  • No amendment in laws should be made with retrospective effect as that can unsettle the business model of existing players and make investments, already made, unviable.

What is needed now is a strong focus on the implementation of the reforms on all these four L-s. That would comprehensively address most of the limitations that have stymied the growth of our nation and would also help in reviving the ‘animal spirits’. If PM himself can drive the reforms on these fronts, India can come out of this pandemic relatively unscathed and return on a high growth trajectory by attracting investments. That would also pave the way for fructifying PM’s vision of creating an ‘Atmanirbhar Bharat’.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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land labour liquidity law COVID-19

Sunil Kanoria

The author is Vice Chairman, Srei Infrastructure Finance

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