needs to do much more to attract investments
July 05, 2019
By Pradeep S Mehta
Finance Minister Nirmala Sitharaman''s Union Budget 2019-20
presented the vision of India becoming a $5 trillion economy in
the next few years driven by the ''virtuous cycle'' of
If the government is serious about attracting investment, it
will need to do much more than just focusing on moving up on the
Ease of Doing Business Rankings. Cutting red tape, ensuring
policy consistency and predictability, bureaucratic reforms, and
time-bound dispute resolution will be pre-requisites.
While the government highlighted the need for Rs 50 lakh crore
to develop railway infrastructure between 2018 and 2030, no
announcement to increase capital expenditure in railways was
made. It is likely to launch public-private partnerships (PPPs)
for faster development of infrastructure, including completion
of tracks and passenger freight services.
India has had a checkered history with PPPs. The Kelkar
Committee on PPPs investigated the issue at length and presented
a roadmap for PPPs. Unfortunately, its recommendations are
languishing with the Finance Ministry for more than three years
The Government must follow through on its positive signaling by
implementing the Kelkar Committee recommendations and adopting a
People First PPP model. A PPP Project Review Committee and an
Infrastructure PPP Adjudication Tribunal for re-negotiating
concessions in cases of distress would be steps in right
The government has set an ambitious investment target of Rs
80,250 crore for phase three of the Pradhan Mantri Gram Sadak
Yojana, under which the government wants to build 1,25,000 km of
village roads. The government has rightly focused on enhancing
connectivity. Time-bound implementation of these initiatives
will be the key.
Several measures have been announced to empower micro, small and
medium enterprises (MSMEs) and promote start-ups. These include
interest subvention scheme and payment platform for bill filing
for MSMEs. In addition, e-verification is being launched to
establish investor identity and source of funds, and to resolve
tax issues relating to fund raising.
While these are steps in right directions, the challenges faced
by MSMEs and start-ups are much more complex. There is the need
to ensure availability of factors of production through
persistent economic and bureaucratic reforms to foster MSMEs.
The government has proposed to permit 100 percent foreign direct
investment (FDI) in insurance intermediaries sector, and ease
local sourcing norms FDI in single brand retail.
It would be a folly to assume that these moves would
automatically result in investment. Lot of sectors like
insurance suffer from uneven playing field with government
preference to public sector entities. Unless such inherent
deficiencies are addressed, these moves may not have desired
The government hopes to raise finances through disinvestment and
sovereign external debt. While disinvestment proceeds have
witnessed steady decline over the years, several experts have
already cautioned about the sovereign external debt route, which
needs to be evaluated carefully.
For employment generation, the government intends to boost
agro-rural industries through cluster based development with a
focus on bamboo, honey and khadi clusters. It intends to set up
100 new clusters for helping 50,000 artisans during 2019-20.
While focusing on clusters is the step in right direction, a
top-down model in this regard might not work. A bottom-up
approach for cluster identification and development through
stakeholder engagement and focused on resolving unique cluster
specific problems is needed.
Similarly, a top down model to prepare youth for new age skills
might not have desired results without other related reforms.
The government should have boosted investments in health,
education and social sectors to help individuals to prepare
themselves for changing nature of work.
Pradeep S. Mehta is the Secretary General of CUTS
International. The views expressed are personal.
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