On June 2, Prime Minister Narendra Modi called for the corporate leaders to take an oath to make India self-reliant. PM Modi was addressing the annual session of the Confederation of Indian Industry (CII), through a virtual online meeting. PM Modi shared his vision on ‘Getting Growth Back’ with representatives of the India Inc.
Referring to the theme of this year’s annual session, the Prime Minister praised the Indian industry for starting the discussion of “Getting Growth Back” and said that his trust in India’s capabilities and crisis management, in India’s talent and technology, in its innovation and intellect, in the farmers of India, MSME’s, entrepreneurs makes him confident about getting the growth back.
Prime Minister listed five things which are very important to build a ‘Aatmanirbhar Bharat’ (self reliant India) and to bring India back on the path of rapid development, viz. Intent, Inclusion, Investment, Infrastructure and Innovation. These are reflected in the bold decisions taken by the Government recently and that many sectors have been made ready for the future.
In the perspective of bringing the economy back on track after COVID-19 restrictions, PM’s address to the India Inc came at a crucial time for India due to various reasons including 1) Modi govt’s completion of one year of its second term in the office and 2) Companies are resuming operations after the Ministry of Home Affairs allowed relaxations amid lockdown.
The Prime Minister said the Micro, Small and Medium Enterprises (MSME) sector is like an economic engine of our country and contributes around 30% of the GDP. He said that a long time demand of the industry to update the definition of MSMEs has been fulfilled. This will enable MSMEs to grow without any worries and they will not have to follow other paths to maintain the status of MSMEs. Global tenders have been scrapped in government procurement of up to Rs 200 crores to benefit crores of associates working in MSMEs of the country, he added.
Demand generation is one of the keys to bring back vitality to the economy and other than the necessities, demand is based on perception. The government has tried to pump liquidity in to the market; however, it is perceived that demand hasn’t come back. Demand will come back only when people feel that prices will go up, or they assume that they are getting an opportunity that they should encash lest it is missed.
Now, with the government pushing for liquidity and asking banks to lend, will this not bring the economy back on track? Liquidity will help industry to manufacture, but if industry doesn’t see demand, it won’t produce.
The government has been coming up with a lot of measures; however, we must agree with the fact that for an economy to revive, demand should be there. Reforms should be framed in such a manner that the industries are supported, so that employment continues. If employment continues, purchasing power will be sustained.
Once the government starts ‘give and take’, there are immense possibilities for reviving the economy, and the government will earn more revenue than it has to give up. Banks are averse to lending in this gloomy economy. The government, in consultation with banks and industry, should structure relations in such a manner that it is lenient for all and in benefit of general public.
RBI has created a perception that it will support mutual funds, and the government has given an assurance by way of guarantee to banks. Here, banks and the government together have to work for the same goal.
The Insurance Regulatory and Development Authority (IRDA) is aggressively thinking of reviving its credit insurance business. This will definitely help the banks, which will be safeguarded and, thus, encouraged to lend. The government is making a lot of effort, but money is not reaching the people on the street and purchasing power isn’t going up.
Two major sectors having the potential to drive growth are construction or real estate and automotive. Banks must form a scheme for real estate where they give loans for 35-40 years, with 2-3 years moratorium. Here, RBI support will be required for giving loans for 35-40 years as there will be no matching deposits that banks will have. In affordable categories, banks should not ask for more papers, but must get contribution from homebuyers or assurance from developers that banks will not be left in the lurch. In case homebuyers are unable to repay to the bank, then a bank can monetise the asset, or a developer will compensate to the bank. The real estate sector has a lot of NPAs. If the government pushes work, banks will be able to monetise their outstanding receivables.
Similarly, in the automobile industry, there can be new bank loans with margins of 25-35%, and banks must give loans up to Rs 2.5-3 lakh. It will help sales of small cars, two-wheelers and light commercial vehicles pick up. In this case, car manufacturers must give FLDG (first loss default guarantee) or will buy-back a vehicle from banks. Easy loans will help people buy vehicles as public transport will likely be avoided. Automobile manufacturers should develop attractive schemes to push demand.
The real estate and the automobile industry have more than 350 upstream and downstream linkages. Any revival here will release a cascading stream of benefits in all other interlinked segments. As a result, myriad employment and entrepreneurial opportunities will be generated, and this will be a key in driving a faster turnaround of the Indian economy.
Labourers have migrated, and in such a scenario the revival of real estate or automotive industry seems gloomy. A lot of action has been taken and labour laws are getting reformed. Everyone must contribute towards economic development, and extra labour must be suitably compensated.
In his address, the Prime Minister urged the industries to take full advantage of opening up investment and partnership with farmers in the rural economy. He said that the government considers the private sector as a partner for the country’s development journey and promised that every need of the industry related to the ‘Aatmanirbhar Bharat Abhiyan’ will be taken care of.
The PM also listed out the initiatives of the Government to make an encouraging ecosystem for the private enterprises like Insolvency and Bankruptcy Code (IBC), Bank merger, GST and Faceless IT assessment.
The government is a saviour, but it alone cannot solve all the problems of the people. Various stakeholders must come together to grind out the difficult period and bring the economy back on track.
Swakkhyar Deka is serving as a Liaison Officer in the Information & Public Relations Dept. Govt of Assam