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The Growth Recipe

The New Year raises new hopes, new expectations, new aspirations - even new anxieties. Finance Minister Nirmala Sitharaman has raised hopes by inviting ideas to spur growth with a promise to deliver "a Budget like never before"
twitter-logoRajeev Dubey | Print Edition: January 24, 2021
The Growth Recipe
Rajeev Dubey, Editor, Business Today

Welcome to new beginnings in 2021.

The New Year raises new hopes, new expectations, new aspirations - even new anxieties. Finance Minister Nirmala Sitharaman has raised hopes by inviting ideas to spur growth with a promise to deliver "a Budget like never before". Centre has shown an open mind to suggestions. That has given rise to the belief that the government will finally act on the biggest problem facing the economy - demand or consumption. Centre's attempts so far to accelerate supply-side economy, idolising the China model of investment-led growth has turned out to be a wrong diagnosis of the current state of Indian economy. It delivered neither investment, nor growth. Instead, it caused several quarters of unimpeded deceleration as demand collapsed on the back of slowdown, uncertainty and job losses. Covid only worsened the state of the economy.

Business Today invited a power-packed panel to suggest ways to accelerate the Indian economy. D.K. Joshi, Chief Economist, CRISIL; Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company; Mukesh Butani, Managing Partner, BMR Legal Advocates; Akhil Gupta, Vice-Chairman, Bharti Enterprises; Gopal Krishna Agarwal, National Spokesperson of the BJP on Economic Affairs; and Prof. Gourav Vallabh, Spokesperson, Indian National Congress recommend what to do to next for a high growth curve.

Even as the Centre readies Budget 2021, on page 44, Niti Kiran dives into some of the most prominent economic ratios to decipher what they portend. The risk appetite measure - market capitalisation-to-bank deposit ratio - which drives capital market's participation is currently over 100 per cent, suggesting risk appetite is high. The stock market valuations measure - Sensex P/E multiple - is trading at a multiple of 32.9, significantly higher than its five-year trailing average of 23.5, indicating market valuations are expensive right now. The measure of investment demand in the economy - Gross Fixed Capital Formation or GFCF-to-GDP ratio - indicates high activity when the share is rising. However, after contracting by a record 47.1 per cent in the first quarter, the GFCF has still fallen, though a much lower 7.3 per cent, in Q2FY21, its fifth consecutive contraction. Investment, it seems, is the last thing on the minds of entrepreneurs.

Business Today-C-fore's quarterly Business Confidence Index (BCI) has taken a sharp dip in the October-December period as the demand surge in the festive season failed to sustain. The survey of India's 500 top CEOs, CFOs and CXOs overwhelmingly expects Sitharaman to focus on demand generation (41 per cent) in the upcoming Budget. This was followed by new infrastructure for demand creation (4 per cent). Interestingly, only 3 per cent asked for supply-side policies and liquidity, the mainstay of the Centre's Atma Nirbhar Bharat package so far, while expectations from Covid-ravaged exports market are also realistically low with just 2 per cent, followed by an even lower 1 per cent from new private investments. But a substantial 47 per cent hope that the FM will focus on all these areas.

Meanwhile, as India embarks on widespread labour reforms, the trouble at Wistron's plant near Bangalore calls for introspection on the right balance between reforms and oversight. The company operated the plant in complete violation of labour laws. Karnataka labour department is torn between reform and Licence Raj. For instance, it had planned eliminating surprise labour inspections for ease of doing business. Next what? Rukmini Rao takes you through the lessons from the Wistron fiasco on page 74.

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