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How Narendra Modi Is Putting Reforms Back On Track
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Certainly, the Bihar election debacle did not deter the Narendra Modi-led National Democratic Alliance (NDA) government from firing all cylinders. The recent decision to relax foreign direct investment (FDI) limits and conditionalities for investment in industries ranging from defence and plantations to single-brand retail and private banking is likely to offer investors and existing promoters in these businesses significant new opportunities. Prime Minister Narendra Modi hopes the measures, most of them aimed at cutting red tape, will help bypass Parliament, where his reforms have run into political opposition.
Analysts say the government gave an unambiguous hint to investors — both domestic and abroad — that it has the political will to push ahead with reforms regardless of a few electoral setbacks, and sets the tone for the forthcoming Union Budget.
"An extremely welcome step which will go a long way in reviving the investment cycle which is the real need of the hour if India has to be placed firmly back on the high growth path. Some of the changes could go a very long way in promoting ease of doing business and creating an environment to support job creation," Pranav Sayta, tax partner, EY India, told Mint.
Among measures on the cards are single-window clearance for multi-storey buildings, a monetary policy framework, a new bankruptcy law and subsidy reforms as the Modi government seeks to maintain the momentum on policy change, according to an article in The Economic Times.
The finance ministry has also put the rollout of a bankruptcy code to dramatically speed up decisions on whether to save or liquidate ailing companies, in a move to curb asset stripping and ensure higher recovery rates for creditors — both key to fostering a modern credit market and increased investment in India.
Under current rules, even deciding whether to save or liquidate an ailing company can take years, leaving it in the hands of managers who can — and do — strip assets with impunity. Under the proposed changes, a decision would have to be reached in 180 days — even 90 days for fast-track applications, T K Viswanathan, chairman of the Bankruptcy Law Reform Committee, told Reuters.
The government is also likely to stop supply of subsidised cooking gas to customers with an annual income of Rs 10 lakh and above. Direct benefit transfer for kerosene is expected to be taken up on a pilot basis in five districts of each state. Petroleum Minister Dharmendra Pradhan has already written to chief ministers on this.
According to several reports, the government is clearing the decks for passage of the crucial real estate bill in the winter session of Parliament. The urban development ministry has accepted all the amendments proposed by a parliamentary committee and is readying to move the amended legislation for Cabinet approval and finally push it through Parliament.
By getting back to business with a big bang reforms push, Modi has shown his sincerity in improving the ease of doing business in India and making it a more attractive destination for foreign investment. The NDA government's real reform test will be on the GST and labour laws. Quite a few columnists and media commentators are of the view that the Centre must carry this momentum by articulating its agenda for important pieces of legislation in the upcoming winter session, such as those relating to the Goods and Services Tax or labour reforms.
During the period from January to June, FDI flows into India rose to $19.4 billion, up 30 per cent from a year earlier, a sign of what the government called investors' growing confidence in the country.
India's economy, which grew at 7 per cent in the first quarter of 2015/16, is projected to expand at around 7.5 per cent this year.
At present, Modi must ensure that the reforms momentum is sustained over the coming weeks and months. Experts say that when more private funds flow into key business sectors, public investments can be more optimally utilised in social sector projects that are critical to a developing country.