While India may have been the world's fastest growing major economy for quite sometime now, the picture has not been that rosy on the domestic front. The growth in the number of new jobs has not quite kept pace with our GDP growth rate. Discontent amongst the farmers is on the rise in several pockets across the country. The entrepreneurs have struggled to cope with a series of changes, both disruptive and structural. The banking sector is saddled with growing amount of stressed assets, which has severely constrained their lending ability. The pace of infrastructure creation has moderated, and certain verticals, especially power and telecom, call for urgent comprehensive reforms.
Quite naturally, the growth has been, at best, uneven. To further complicate matters, the geo-political developments indicate a growing trend of protectionism amongst developed nations, which is not good news for export-reliant developing nations. In this backdrop, it would be prudent for our policy-makers to look inwards and bolster the domestic economy as this can be our insurance against any global turmoil. With a population of 1.2 billion, taking steps to fuel domestic demand should be our government's top priority. To make growth more inclusive in nature, the government may consider the following:
The first step should be to revamp the rural sector, especially agriculture. While two-third of our population relies on agriculture and allied industries, directly or indirectly, for their livelihood, this sector accounts for just about 17 per cent of GDP. Thus, there is huge urban-rural inequality. To address this, it is imperative to address the challenges this sector is confronted with, like primitive and unscientific farming methods, depleting and degrading natural resources of soil and water, energy crisis, colossal wastage of fresh produce (almost a fifth of the production) and much more. And I believe in each of these challenges there is an opportunity for entrepreneurship.
Modernisation of agriculture through mechanisation and introduction of scientific techniques like drip irrigation can go a long way in improving yield and managing natural resources. Promoting the concept of Agriculture Equipment Banks will help farmers embrace mechanisation as they can then access high-cost equipment on a pay-per-use basis, which works out to be far economical. The Equipment Banks can be developed through public-private partnership (PPP).
There is huge potential for unleashing rural entrepreneurship across the entire value-chain - from the point of production to the market-place. Setting up state-of-the-art warehouses and transportation services can do wonders in curbing wastage and in increasing incomes of rural households. However, unreliable power supply has emerged as a major constraint. Our state governments must realise that short-sighted populist measures like providing free or near-free electricity to farmers can only push the state power distribution companies towards bankruptcy. Electricity is a prerequisite for storage facilities and agro-processing units. The discoms' inability to supply stable power makes these ventures unviable. Thus, reforming power distribution can usher in a wave of rural entrepreneurship. India is already one of the top producers in the world on a number of agro commodities. With the right reforms, India can well position itself as the world's granary.
One of the determinants of inclusive growth is how a country nurtures entrepreneurship. Presently, India's entrepreneurs are going through a tough phase. A lot of private capital has got locked up in the stressed assets. The Insolvency and Bankruptcy Code, a landmark legislation, is playing a key role in the resolution of these stressed assets. But, the Code is still a work-in-progress and is gradually evolving. Section 29A, in particular, has emerged as an irritant as it disallows defaulting promoters and connected parties from bidding for their assets. While government's intent is to stop the handful of wilful defaulters from regaining their companies at sharp discounts, many genuine enterprises have become its unintended victims. As it is, most of the stressed enterprises are mainly victims of poor economic policies and judicial pronouncements. In most cases, without any bids, the companies will get liquidated. Such destruction of capital is severely impacting entrepreneurship and employment. We simply cannot afford this and Section 29A needs an urgent review so that this flaw can be rectified.
With the onset of the Fourth Industrial Revolution, disruptive technologies have started impacting every sphere of life. Many of the present skills will soon become obsolete. In this backdrop, the government must collaborate with industry and academia to evolve a dynamic model where emerging skills can be identified on a continuous basis and training modules be developed based on those. Massive skilling initiatives, both teacher-training and student-training, need to be undertaken to impart skills to the masses. There is huge scope for PPP on this front. Industry must take the lead on this front, while government must re-shape the entire education system with an emphasis on vocational training. The new skills will also determine the course of future entrepreneurship in our country.
Dedicated financing vehicles for infrastructure
Inclusive growth cannot happen without capacity addition in infrastructure. With the banks clearly not in a position to take fresh exposure in infrastructure projects, time has come for revisiting the Development Financial Institution (DFI) model. The role of the new entity, ideally modelled on the lines of other funding agencies in the developed world (KfW of Germany can be a very nice model to emulate), should be to provide medium and long term credit to manufacturing and infrastructure. This entity has to be fully or substantially owned by Government of India, but it must have full operational autonomy. More importantly, it has to be staffed with people with the right skillsets. As a specialised institution with expertise in project finance, this entity should be in a position to evaluate and appraise loan proposals better and mitigate risks. It should be allowed to finance green-field and brown-field projects.
This entity should have easy access to external commercial borrowing (ECB) and should be able to tap other multilateral and bilateral agencies such as World Bank, ADB, JICA, New Development Bank, etc. and should be able to raise funds from the market on its own strength. It should also be allowed to issue tax-free bonds and it can play a role in developing the dormant corporate bond market in India through credit enhancement and partial credit guarantees.
Universal basic income
Despite the best of intent and best of efforts, certain segments of the society will lag behind, especially those who are unable to pick up new-age skills. The government can consider initiating a scheme of targeted delivery of an Indian equivalent of a Universal Basic Income so that these segments of the society are not left behind. Steps like these will go a long way in strengthening the social fabric of the economy and will bring about inclusive growth which, in turn, will grow and expand the domestic economy, which will help India weather many a global storm in the future.
Sunil Kanoria is Vice Chairman of Srei Infrastructure Finance Ltd