(R)evolution !!!

It has been quite some time since I wrote about our country and its economy. Right now, it is raining heavily here (Ahmedabad) and I have things to do which can wait. So, let me do a round up of things that have happened in India during last six months.

The thing about Dr. Manmohan Singh's current government is that it is making path-breaking changes in the country. In a sense, it is almost a revolution. However, democracies are generally not very amenable to revolutions. In democracies, and particularly ours, things "have to" change slowly - almost imperceptibly. It seems that given the fractured nature of our polity, things can change given that you change them slowly and cleverly enough. And this is what Dr. Singh has mastered. He is making a revolution look and feel like evolution - gradual, unthreatening and irreversible.

Consider the recent deregulation of petrol prices. With diesel prices also set to be deregulated, this constitutes one of the biggest and boldest reforms in the last decade. What is most note-worthy is that even the “aam admi” recognizes the need for reforms. To be sure, there was a hue-and-cry by the opposition and a strike after the petroleum hike. But it all fizzled out very quickly indeed. Also, the government has made significant changes in the fertilizer policy during the last six months. Such policy initiatives will definitely reduce the subsidy burden and will help the country reduce its deficit. The recent Greek crisis abundantly demonstrates the perils of high deficits resulting from populist policies.

Goods and Services Tax (GST) is all set to become a reality from 1 April 2011. The finance minister is determined to implement GST from the next fiscal. In the recent meeting between the finance minister and the states, a broad consensus has been reached about GST rates and its implementation. This, along with the adoption of a new Direct Tax Code (DTC)

will be of enormous help to the country in the long run. With introduction of GST, the long cherished goal of India becoming a huge seamless market with uniform taxation will be accomplished in a period of 2 to 3 years. Also, with such tax reforms the cost of compliance for the tax-payer will decrease and it should lead to an increase of Tax-to-GDP ratio of our country.

On the social sector front, initiatives like NREGS are having a real impact on rural India. Places like Surat are facing acute shortage of labourers. The reason is that earlier rural poor people from states like Orissa and Bihar provided abundant cheap labour. But with NREGS, such people are getting employment at good wages and are opting to stay back in their villages. Even FMCG companies are finding out that the purchasing power in rural parts of the country is increasing. In the coming years, the game changer is going to be the UID project that the government has launched. With Mr. Nandan Nilekani heading this project, I am very optimistic about its implementation. If this project is even 50% successful, it will change India for ever. The success of this project will have far-reaching positive implications for areas such as security, public distribution system, tax administration, health care and many more.

As far as the investment climate is concerned, the primary market has revived owing to a return of risk appetite among investors and a supply of good quality issues in the recent weeks. Recent IPOs like Engineers India Ltd. and SKS Microfinance have done well. The government has announced an ambitious disinvestment plan and it will mean that there will be steady supply of IPOs from quality PSUs. The recent regulatory changes made by SEBI in areas of mutual funds (ban on entry load) and M&A (new take-over code) will serve the average investor very well. The government’s intentions of allowing FDI into retail sector and decontrolling sugar sector have added to the positive sentiment on Dalal street.

In the area of infrastructure, at long last some real progress is visible. The swanky new terminal (T3) at New Delhi’s airport is an example of how well a public-private partnership can work in building world-class infrastructure. It also seems that under Mr. Kamal Nath, the highway construction programme is gaining momentum. In states like Gujarat, a big push is being given to port-building and ship-building. Urban infrastructure is slowly improving because the local civic authorities are being pressurized to match up to the growth that the cities are witnessing.

In spite of an erratic start, the monsoon has progressed well this year. With this, the recent spurt in food inflation should ease out. A good monsoon will also mean a healthy rural demand. As per RBI’s most recent projection, the economy should grow by 8.5% in 2010-11. I am tempted to opine that GDP growth rate will be closer to 9.0%. With this kind of growth, India will be a very fertile ground for new ideas, new products and new enterprises. New wealth will be created. As usual, the private sector will take the lead but unlike past, even the government and the public sector might surprise us pleasantly!

- Mikin Shah
  foresight school