The performance of India’s economy during the past few quarters has been good, despite the considerable uncertainty created by the second wave of Covid-19. Notwithstanding these continuing challenges, the country looks set to register impressive growth this year. As the second wave wanes, vaccination drives accelerate and states gradually unlock, an all-round optimism is reemerging.
Policies and Reforms
India will keep attracting investments and advancing steadily to become the manufacturing hub of the world as it continues with broad structural reforms to ease policy and infrastructure bottlenecks. The Centre’s emphasis on rural development and employment generation are well supported by programmes such as ‘Atmanirbhar Bharat’ (self-sufficient India), ‘Make in India’ and ‘Digital India’. It is no surprise that the latest Union Budget has included measures to support micro, small and medium enterprises (MSMEs), which are indispensable to generating jobs, manufacturing and growth in non-metros.
Over the coming months, a sustained rise in consumption and a revival in investments will give a further fillip to economic growth. Simultaneously, demographic drivers such as an increasing workforce and urbanisation will constantly fuel the need for greater infrastructure development. Consequently, one expects to see a sustained focus on infrastructure, transportation and power. The plan for 300 million tonnes steel capacity by 2030, Rs 111 lakh crore investments earmarked for National Infrastructure Pipeline projects from 2020-25, Rs 5.54 lakh crore of budgeted capital expenditure for 2021-22, the roll-out of electric vehicles, production-linked incentive (PLI) schemes for manufacturing, as well as reforms in the power sector, all augur well for a rise in demand for indigenously produced metals, both ferrous and non-ferrous.
There is enormous scope to increase India’s per-capita consumption of zinc, aluminium, copper, steel and other metals, which is low vis-a-vis the global average. Furthermore, the country’s per-capita oil consumption stands at less than a third of the global average, indicating the immense growth potential for domestic producers.
In this context, the Centre’s proactive approach to major policy reforms in the technology and manufacturing sectors will help create a conducive business environment. Metals, mining, and oil companies will benefit from the National Mineral Policy (NMP) 2019, the Open Acreage Licensing Policy (OALP) and the Hydrocarbon Exploration and Licensing Policy (HELP).
The NMP will introduce effective regulation and also address the problems of those impacted by mining. The progressive policy aims to liberalise the industry by giving private players opportunities that were previously reserved solely for state-owned companies. The policy measures envisage that India’s mineral production will soar by 200 per cent within the next five years, while its trade deficit in minerals will reduce by half.
Moreover, steps will be taken to benchmark taxes and royalties — which are high in India — with those in mining geographies across the world to attract further investments while guaranteeing that statutory clearances are accorded on time. The amendments made this year in the Mines and Minerals (Development and Regulation) Act of 1957 will foster a more supportive, legislative ambience for monetary and technological investments in the fields of mining and mineral exploration.
Since its implementation, HELP — which aims to boost domestic oil and gas production — has helped attract significant investments and provide major employment opportunities in the industry. Similarly, OALP — a pivotal part of HELP — permits contractors to explore legacy and unconventional oil and gas resources on a revenue-sharing basis as well as gives them the freedom to market and price their production.
Against this backdrop, the Centre’s decision to scale up divestments is in the right direction. The Rs 32,845 crore raised from disinvestments of state-run firms in FY21 was barely 16 per cent of the Rs 2.10 lakh crore target and the lowest amount raised in the last five financial years. Undoubtedly, the pandemic marred the process. This fiscal’s divestment target of Rs 1.75 lakh crore, though ambitious, is quite achievable given the stock market’s revival to hit all-time highs.
The government plans to sell stakes in various entities, including one insurance entity and two public sector banks. For instance, the government is expected to pocket between Rs 90,000 crore and Rs 1 lakh crore alone from Life Insurance Corporation’s upcoming initial public offering (IPO). Likewise, its 52.98 per cent stake in Bharat Petroleum Corporation Limited (BPCL) is estimated to garner between Rs 75,000 crore and Rs 80,000 crore, or likely even more.
But, rather than divesting stakes in one company at a time, which means the government will take considerable time to hit its disinvestment targets, a speedier transfer of assets is essential. Accordingly, the Centre should target around 20 disinvestments annually to generate huge reserves. The disinvestment drive is in sync with the prime minister’s thought that the government has no business to be in business. Therefore, except for four sensitive sectors, the Centre’s decision to divest its stake in all listed public sector units is a sensible one.
As the prime minister has noted, disinvestment helps in monetising and modernising assets. When public assets are monetised, the vacuum is filled by the private sector, which brings the best global practices into play and helps the sector modernise and expand much faster than otherwise possible. This results in generating more jobs and entrepreneurial opportunities.
In all divestment cases, the government should reduce its stake to 50 per cent. The 50 per cent divestment is crucial because it will allow the company in question to have an independent board and chief executive officer even as it is treated as a regular corporate entity. It will also provide the management the much-needed operational flexibility and faster decision-making ability, all the while remaining under the regulatory framework of the country. Above all, the chance to operate with freedom is necessary for the company to head on the road to faster growth and profitability.
That being said, time is of the essence. The current market euphoria provides an excellent opportunity to fetch robust revenue from the disinvestment proceeds. The bureaucracy should be well oiled and motivated to grab this never-before opportunity.
The Trust Factor
All such initiatives will further boost the country’s tremendous entrepreneurial power, particularly in segments connected with MSMEs, the backbone of India’s economy. With 63 million enterprises creating 110 million jobs, MSMEs account for 30 per cent of India’s GDP and 48 per cent of its exports. Thanks to these factors, the country has all the elements to develop into the world’s third-largest economy within the next decade. The recent fiscal measures announced by Finance Minister Nirmala Sitharaman will facilitate a faster revival of MSMEs, which will contribute significantly to a post-Covid economic boom.
Backed by big-ticket reforms, India could beat the current slowdown more effectively. Towards this objective, the mining and natural resources segments can play a significant role in inviting large investments, substituting imports and generating greater employment across myriad roles in both public and private sector companies.
In the power segment, the recent coal sector reforms will trigger higher investments by bringing in major global mining players, boosting production and reducing imports, generating employment as well as moving the nation towards self-reliance, in line with the prime minister’s vision. As coal mining requires major machinery and human resources, the tremendous potential of commercial mining benefitting ‘Make in India’ and augmenting employment are apparent.
Concurrently, it will help build a strong foundation for the country to move towards energy security, with a focus on responsible mining. However, for all this to be achieved seamlessly, it is necessary to remove roadblocks.
Although the Ministry of Environment has recently come up with a host of initiatives that can lead to industrial development, certain clearances still take inordinately long, inflating project costs.
Here, the decision of the ministry to permit self-certification in certain cases must be applauded. The government needs to trust that private players using this mechanism won’t exceed permissible pollution limits and should impose hefty penalties on any company that breaches them. Such a practical framework will address the need for specific timelines to obtain clearances at the earliest, ensuring a project’s viability is unaffected. On the other hand, without such a framework, even if a company needs to simply increase production, an unduly long wait for clearances hampers its progress.
There have been efforts to improve the business climate previously, by boosting the ease of doing business. However, in many cases, they have been akin to taking two steps forwards and one back. To solve this logjam, it is imperative to establish environment norms that are practical and feasible for all stakeholders, balancing the need for growth and development alongside healthy lifestyles.
In such scenarios, there should be a certain level of trust between the authorities, entrepreneurs and the country’s citizens. Self-certifications along with stringent safeguards can serve this purpose, with the gains accruing to the exchequer, our people and the planet.
(The author is Founder and Chairman at Vedanta Resources Ltd)
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