Synopsis
of Economic Survey
Chapter
1: Introduction
A stable political
arena and a supportive external environment are showing a sign of double digit
growth for India. After a long time India get this rare opportunity because of
easy launch of reforms and challenges in various developed and developing nations.
This atmosphere is perfect to encourage investors to put their money though
there are some endurable challenges. This survey will mostly will talk about
two themes: creating opportunity and reducing vulnerability.
Government
is taking various measures like direct benefit transfer to provide growth
opportunity in rural India. Four issues which held back Indian private
investment are weak corporate balance sheets, an impaired banking system,
difficulty of exit, deficiencies of the public private partnership (PPP) model
in infrastructure.
Weak corporate balance sheet talks about
the higher debt to equity ratio, in which company has obtained the maximum
level of debts possible. So, they incur high finance cost and due to it, costs
of the goods or services increase. Apart from it, if they further need
investments, they will have to bring it through equity and raising capital
through equity is costlier compared to debt. This is so because cost of debt is
fixed and expected returns on the capital by shareholders (equity) is higher
than cost of debt.
An impaired banking system shows the
increasing percentage of NPA
(Non-Performing Asset, A classification used by financial
institutions that refer to loans that are in jeopardy of default. Once the
borrower has failed to make interest or principal payments for 90 days the loan
is considered to be a non-performing asset) for Indian banking
industry [Refer table 1]. Increasing NPAs lead to less investment as capital is
blocked up. This reduces the money circulation in the market and also impacts
the profitability of the company.
Easy
of exit is equally important as easy of entry. Slow processing of law and
judicial system of India obstruct the path of exit whereas other Asian
countries like Malaysia, China and Thailand are getting the advantage because
of ease entry and exit barrier. Business report of World Bank 2013 says that
time taken in years shown in bracket, is good indicator of ease of exit: India (4.3); China (1.7); Malaysia (1.5) and
Thailand (2.7). Though there is an improvement after Companies act, 2013, it is
still a way behind the competitive countries. The fact is that no other country
needs permission from government to close a business.
Government
is facing challenges to provide growing demand of better infrastructure
service. As available source of getting fund from traditional source to
implement many projects at a time is quiet impossible, Government is looking
PPP as alternative choice to improve infrastructure. But problems lies in some
generic issues like inadequate transparency of procedures, inappropriate risk
allocation, improper project appraisal, cost and time overruns, overlapping of
regulatory independence and dearth of good governance. The focus is more on
private sector investment because it will lead to high and sustainable growth
rate.
India
is following the growth path of major economies who were adopted manufacturing
and trade as the growth engine in era of post-war period. It is also
experienced that the employment
elasticity (Employment elasticity is a measure of the percentage change in
employment associated with a 1 percentage point change in economic growth)
of manufacturing sector is more than any other sector. This is the sole aim of
encouragement manufacturing sector.
