Winds of reforms are in the air. The change in the policy direction has provided a welcome relief to the market. The moves are expected to help realign the capital-flow balance in favour of a more reliable FDI.
This would assist in managing the Balance of Payment deficit more structurally and resurrect the lagging industrial demand. The economy can count on some assistance from FDI liberalisation towards stabilising the exchange rate, restricting the demand slide and inducing productivity in the economy.
Albeit, the above outcome is based on the belief that India continues to remain an attractive business destination for the foreign investors. The prolonged continuation of the present deficit levels above the tolerance threshold of the international ratings agencies may act as a limiting factor.
Therefore, it becomes necessary that a more prudent fiscal approach be adopted , especially with regard to the oil subsidy regime. In a politically sensitive climate, such an approach would require a more surgical delivery of the subsidies (especially fuel) in the system.
Thus, one of the immediate needs is to rein in fiscal deficit and a further de-regulation of petroleum product prices thereby bringing in parity between the subsidised price of diesel, kerosene and Liquefied Petroleum Gas(LPG).
Followed by this, is the use of a Unique Identification mapping of beneficiaries for social welfare schemes The implementation of the Goods and Services Tax may result in efficiency in the indirect tax accumulation system and may provide benefit to the economy by easing movement of goods, pricing and working capital.
De-regulation of the fertiliser prices (Urea) would enable building up of capacities. PSU disinvestment might not only augment government reserves but also bring about higher levels of productivity.
Insurance and pension sector reforms might also go a long way in building up a social security net for the citizens and would aid channelise financial savings into productive asset building.
In conclusion, the liberty to conduct one's business without hindrance is the core tenet of a genuine market economy. Reforms should provide a transition towards a liberalised legal framework that provides a more friendly business environment.
CEO, Kotak Mutual Fund
(This is a sponsored article)