Even as the global economy stuttered in 2015, the Indian economy was characterised by resilience and strong fundamentals. At about 7.5%, India’s GDP growth stood out among peers, with most macro parameters, such as the current account deficit and inflation, having fallen into place. India has been rightly described as a ‘bright spot in an otherwise gloomy global economy’; and the time is now opportune to seize the opportunity to maximise the gains, enabling the transition from a bright spot to a shining star on the global horizon.
The transition from a state of crisis of confidence in 2013 to a bright spot in 2015 is not by chance but by design. The upcoming Budget Session will be important in the current scheme of things, to create short- and medium-term wins.
India must prioritise key pending structural reforms, including passage of the GST, rationalising direct taxes further and introducing reforms in terms of infrastructure, real estate, labour, financial sector and MSMEs, among others.
While micro measures will help, the banking and finance sector also needs the next generation of reforms to enable it to finance India’s aspirational growth of 9-10% on a sustainable basis. Legislative facilitation will be critical for this. One hopes that economic clairvoyance will triumph over political myopia in 2016 and the GST will see the light of day. This will enhance the growth potential in the medium term, but it is the Bankruptcy Bill that could turn out to be a game-changing reform for spurring economic activity and confidence in the near term.
The question is whether the government will need to dilute the pace of fiscal consolidation envisaged, given the additional payouts recommended by the Seventh Central Pay Commission. Commitment to lowering the fiscal deficit is critical, but not at the cost of spurring investments or growth.
Eventually, it will be important for the Budget arithmetic to rely on a realistic disinvestment target, subsidy outgo and tax collections, which will be encouraging from the investor’s perspective.
Last year was exceptional as the pace of decline in global commodity prices was unusually steep. Despite a sub-par monsoon, domestic food prices remained in check. This fortuitous situation is, however, unlikely to continue. While oil prices may remain subdued, the incremental decline and thereby the pace of further disinflation will be limited.
With the government’s thrust on programmes like digitisation and Start Up India, we are witnessing an entrepreneurial economy characterised by DICE — Design, Innovation & Creativity-led Entrepreneurship. The past year saw India becoming an active incubation centre for e-commerce, and as the economic recovery gathers pace, one foresees many more e-commerce success stories.
The primacy of economic development in governance and progressive reforms to facilitate investments has been the hallmark of the Narendra Modi-led government. The right mix of fiscal and monetary policy action, coupled with the gradual turnaround in the global economy, will boost India’s economic and industrial growth to the next level, and truly make 2016 India’s year.
Rana Kapoor is MD & CEO, YES BANK, and chairman, YES Institute.The views expressed are personal.