Government needs to do much more to attract investments

Outlook India, 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 investment.

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 now.

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 direction.

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 impact.

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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