India's double digit growth projections for FY 2021-22 made by various organisations are inspiring. Plethora of economic reforms along with stimulus package of more than Rs. 30 lakh crores during the last 18 months have pulled the economy from the extreme lows of 2020-21. The strong pace of vaccination and demand recovery indicate that the economy will resume normal growth curve very soon with the diminishing uncertainty caused by pandemic covid-19. At this juncture, continuation of the accommodative monetary policy stance would be crucial to strengthen demand and factory activity. Though significant rise in input prices have drastically impacted the price cost margins of the producers, the production possibilities are expected to expand further with the support of demand activity with the adequate availability of liquidity to the businesses, particularly to the small businesses.
There are certain crucial aspects which are significantly crucial to address for the sustainability of economic recovery and futuristic growth trajectory. The reduced costs of doing business such as logistics costs, compliance costs, costs of capital, costs of power, costs and availability of land and skilled workforce are crucial to make our enterprises more robust and competitive in the domestic and global marketplace. Over the years, although the time involved in transportation of goods has reduced significantly, however, the cost of logistics still remains very high thereby leading to an increase in the overall costs of doing business. So, there should be further improvement in the logistics infrastructure; remove bottlenecks at ports to reduce costs. The current logistics cost of India is 14 per cent of GDP, while in the US, Europe and other developed countries, it ranges between 8-10 per cent. The efforts should further focus to lower its logistics costs to 7-8 per cent of the GDP to remain competitive in the international market. Increase in railway freight volumes, upgrading the water transportation system, regulating highway freight transport and speeding up multimodal transport would go a long way to improve the logistics network and rationalize the logistics costs.
Further, there is a need to focus on reducing the costs of compliance burden as a number of mandatory regulatory compliances cascade the costs of doing business. Simplification of compliances would help in making the policy environment more industry friendly, allow firms to focus on their core business and keep compliance costs low. All regulatory bodies must ease the regulatory procedures and must have lenient view on the policy environment during this difficult period. A robust single window clearance system about the mandatory compliances would go a long way to reduce the human interface, effective ease of doing business and overall reduced costs of doing business.
The costs of doing business are the high costs of capital vis-à-vis availability of financed to the businesses without collaterals and at lower interest costs particularly for the MSMEs. The banking sector should always transmit the full effect of cut in repo rates by the RBI and lower the lending rates to reduce the cost of capital for the businesses.
In the crucial segment of utilities, although the costs associated with getting electricity has reduced significantly over the years as the Government has taken many steps to get electricity easier, faster and cheaper. However, the per unit charges of power are still significantly high which cascade the overall costs of production and costs of doing business. There is a dire need for ground touching reforms in the energy sector for (1) rationalization of the energy prices and (2) availability of adequate energy which is hassle free and uninterrupted.
Last but not least among the costs of doing business are the availability of land and the skilled work force. Obtaining land is one of the most important parameters of ease of doing business. The procedure to acquire land should be free from complex and costly procedural bottlenecks. Land reforms such as increase in the lease period and creation of land banks for the use of industry should be strengthened and made more robust and user friendly. The government has already taken significant steps for the adequate availability of land for the industry, however, percolation of above steps at the ground level and spread of awareness about such reforms would help the industry particularly the small business to expand their business horizons.
Going ahead, more and more reforms for the manufacturing sector would strengthen the pace of economic growth to attain and sustain a higher growth trajectory. The recent reforms such as Production Linked Investment scheme hold a significant potential to become global manufacturing champion, drive double digit growth in manufacturing and generate significant employment opportunities for the growing young workforce. Several measures have been undertaken by the government to create a conducive environment for investments, development of modern and efficient infrastructure, opening up new sectors for foreign investments and forging a partnership between Government and Industry to strengthen the manufacturing sector and to enhance its share in the GDP.
During the Make in India’s six-year journey, significant achievements have been witnessed across different domains as India’s Foreign Direct Investment inflows have increased to a remarkable US$82 billion in FY2021 from US$36 billion in FY2014. Further, there has been a significant improvement in the Ease of Doing Business in the country as the ranking on World Bank’s Doing Business Index has improved remarkably from 142nd in 2015 to 63rd rank in 2020. However, such a significant improvement in the ease of doing business should be well synchronised with the reduced costs of doing business to make the businesses more competitive and to create a level playing field in the country.
Going ahead, robust and state of the art infrastructure will enhance manufacturing competitiveness and export performance in the highly competitive world. More Public-Partnership Projects (PPP) for infrastructure development in the country will go a long way to strengthen state of the art infrastructure in the country and to enhance the competitiveness of the enterprises. Undoubtedly, the robust growth of infrastructure is the key ingredient to realize the vision to become Atmanirbhar Bharat. More and more reforms in the infrastructure segment would boost the economic growth trajectory of the country and take the size of the economy to the level of USD 5 trillion.
In a nutshell, growth of manufacturing sector would be crucial not only to increase the share of the manufacturing in the GDP but also to create employment opportunities for the growing young workforce in the factories. Time is most opportune to connect with the global value chains with increased efficiencies of manufacturing supported by robust infrastructure, improved ease of doing business and reduced cost of doing business. More and more focus on such reforms will not only help the economy to return to normal growth trajectory but also to attain a higher and sustainable growth in the coming times which is needed at this crucial juncture to create employment for the growing work force and to attain a size of US $ 5 trillion.
(Dr. S.P. Sharma is Chief Economist & Director of Research • PHDCCI (PHD Chamber of Commerce and industry, India)
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