The economy is huffing and puffing. Its health report indicates a serious infection. The economy has been inflicted with two rounds of disruptions which have caused it to sputter; Demonetisation and GST. Before the GDP numbers were recalibrated, the GDP numbers had turned in sub six percent figures. Post adjustment, they looked rosier and now they have come back even worse than they were before they were adjusted. Whether demonetisation broke the economy's back or whether GST will give it its fillip, currently all problems that are looming namely bank NPAs, high unemployment, low capital investment; all were the same afflictions which were hurting the economy when the current regime came into power. A new hope emerged and the new government went to work. In the last 40 months, it has improved national pride, international image, laid down long term vision statements and schemes, eliminated middle men in the distribution of subsidies, disrupted corruption, strengthened accountability in the bureaucracy among others, however, it has not made the environment-friendly for business. No private capital has broken ground, the credit disbursals are at an all time low, employment opportunities are dismal and retrenchment is the order of the day. A Unfortunately, even though economic development was the agenda of the current government, very feeble attempts have been made in that direction. The biggest reform has definitely been GST but its timing, right after hitting the economy in the gut with demonetisation, caused it to convulse. The SME industry has been hit badly and is still grappling with the increase in the cost of labour and regulation with a decline in business. The informal economy has had the air sucked out and is in shambles.
Organised players clearly have the advantage as the unorganised sector has lost its key differentiator, the cost advantage.
The increase in momentum due to a seamless tax regime across states will create the case for an improvement in the economy. However, that will take some time.
Meanwhile, can we put our unfinished assets or distressed assets to work? Can we not inject some resources into completing 'nearly finished projects' for e.g. our dams in Maharashtra which have suffered neglect due to siphoning off the funds?
Further, while the 'Insolvency & Bankruptcy Code' has brought in a mechanism for debt resolution, it would be important to observe the extent of distressed values that get a new life. They would be contributing to the GDP without much gestation. So the principle should be to encourage those initiatives that could put already invested money to work quickest. Our cover story has dealt with this subject in detail as at stake is Rs 8 lakh crore!
The national agenda stands motivated more towards elections than the fixing of the economy. It is time to change the order of priority. According to CMIE, announcements of new industrial & infrastructural projects remained muted in the first quarter of 2017-18. Only 448 projects were announced during the quarter. This is the lowest quarterly project announcement seen since June 2014, the time when the last capex cycle bottomed out. Further, the completion of projects has dipped over previous consecutive quarters. Lower project initiation and a falling commissioning rate will be a double whammy-the only way to change this situation is to enhance the rate of commissioning of the project pipeline and, at the same time, improve the launch of new infrastructure projects.