By Viviek Pattanayak in Bhubaneswar, October 28, 2016 : After elapse of six months of the financial year a review of the Indian economy is desirable to know the trends and consider what measures need to be taken for better results. Although the Mansoon picked up its momentum in the Khariff season, one should wait for the results of agricultural output as the rains did not take place on time. Crops are sensitive to timeliness of rainfall.

The index of industrial production (IIP) has fallen, wholesale price index (WPI) continues to be high although there is some calming effect on agricultural products. The iconic Tata Steel has made loss. Profit of government’s prestigious National Aluminium Company Ltd (NALCO) has gone down. Senior central government official lamented that since power generation has fallen, there is no off-take of coal. The central government asked Jharkhand to improve law and order while reviewing mining sector’s stagnation. There was fall in import reflecting no demand for capital goods, not a very encouraging sign in terms of growth.

Organization of the Petroleum Exporting Countries’ (OPEC) decision to cut oil production has pushed up oil price. For import dependent in oil sector India has to watch its foreign exchange reserves if price continues to rise. Export continues to be disturbingly on downward slope although gross foreign investment has gone up by 23% in 2016. Anti-dumping measures against Chinese steel could have dampening effect on production of electrical equipment. Fitch anticipates many public sector banks would not meet Basel III norms on capital adequacy ratio. World Trading Organisation (WTO) predicts that global trade would have 1.78% growth as against previous forecast of 2.8%.US growth rate has fallen to 1% as previously estimated at 2.6%. Globalized economy would have its impact on India. Unemployment rate is five years high.

Stocks and currency suffered immediately after surgical strike reminiscent of Kargil times and Pokhran. Volatility would continue as the international market would remain choppy with global political and economic uncertainty. Unrealistic optimism expressed in certain quarters that it would spurt growth is a phantasm which would only misguide the credulous denizens not hard headed global businessmen who go by phlegmatic analysis. Moody’s rating of India at BBB3 will be reviewed only after two years although some in government have asked for greater transparency in the rating. One rating agency takes an adverse view of low private investment.

What effect rate cut recently announced by newly appointed Reserve Bank of India (RBI) Governor under a novel regime of Monetary Policy Committee would have on economy needs to be watched in the context of unpredictability of rate change by Federal Reserves which possibly would consider in December with conclusion of US Presidential election.Investment in any case is not created by cosmetic rate reduction however euphoric media may be. “A central bank is neither god nor magician” as the famous central banker said.

In this background with regard to World Economic Freedom index based on regulatory frame work, India’s position is 112 which is an improvement of ten positions since last study with Hong Kong, Singapore, New Zealand, Switzerland, Canada, Germany, UAE, Australia and UK in the top bracket. Interestingly, Bhutan, Nepal, and Sri Lanka are ahead of India. Ease of doing business has improved according to the World Bank reckoning although both seasoned economists, pragmatic Basu and optimistic Panigariya feel that there is room for further improvement. What matters is praxis which would generate cross border business not bluster of politicians and panegyric of some putative media.

JP Morgan Chairman, Jamie Dimon sees India as the sole bright spot in the horizon of “tepid global economy” using IMF expression. He sees good prospects in next twenty to twenty-five-year horizon. What Mark Hurd, CEO Oracle Corporation said about India’s prowess as an economy of services, and China, as a global hub of manufacturing, men in helm of affairs should heed. Rafael deal hopefully yields something under the banner of Make in India although Hindustan Aeronautics Limited (HAL) and Space Technology Center (STC), not a private sector should have joined hands for downstream, offset and counter trade.

What should be done now and in immediate future? Vivek Kaul’s alarming analysis about the job market, number of daily entrants and actual availability of jobs needs to be given the gravitas it deserves by policy makers,economists, politicians, bureaucracy, bankers and corporate honchos as everybody has not only stake but also has responsibility of contributing, materially or intellectually, towards orderly and sustainable political economy in the Indian society. Nobody wants demographic dividend becoming demographic demon.

Meanwhile, there have been some interesting developments worth mentioning at this stage. Recent decision of Employees’ Provident Fund Organisation (EFPO) to allow mortgage of EPF to take bank loan for housing is a proactive step. More housing for poor would mean consumption of cement, steel and aluminium which would in turn propel the sluggish economy. To increase the kitty of EFPO decision to invest in stocks and not in bank fixed deposits is the most progressive step as against dogmatic opposition by the left leaning trade unions with their antiquated thoughts.

Trend towards chain restaurant which would grow to reach an investment of Rs 51,000 crore as against Rs 31,000 crore in next five years should be supported. This would create jobs in service sector. Investment in mobile pods on rope ways to facilitate transportation through driver less vehicles in metros should be encouraged to cover all state capitals to reduce traffic congestion. This has great possibility of creating jobs.

India is endowed with ultra rich people, their names finding place in the list published by Forbes and high net worth individuals with enormous wealth. It is also blessed with new phenomenon of rising middle class willing to have luxuries of life which their parents could not imagine. The so-called “disruptive technology” through affordable smart phones has given hopes to poor to join the mainstream of middle class at least in the lower rung within a few years of their ambition. It is also unfortunately saddled with very poor people, almost two hundred million, living on one dollar and half a day as the latest World Bank Report reflects.

Few suggestions will show some paths to follow: The helmsmen should create an atmosphere in the country so that ultra rich and High Net-worth Individuals (HNI) spend their money or invest without fear and favour which would have trickle down effect to reach the poor and very poor. Less regulation and less oversight would create a climate of investment. One sector which can rekindle economy is tourism and hospitality industry with minimum investment and maximum employment. When Modi got massive mandate in 2014, even before being sworn in as the prime minister he had very rightly called for investment in the tourism sector. His clarion call for Swatch Bharat can complement tourism sector stupendously. Start Up India and Stand Up India can be dovetailed to hospitality sector. In India, however laudable it may be, the flagship programme Make in India would need some gestation period. In the interim under tourism programme approach should be to set up hotels (small, medium, big, functional or luxury), resorts in sea front, and cottages hill stations. India after the British left has not set up a single hill station worth the name.

The next question is how can government spend money on creation of long term infrastructure like roads, especially rural roads, highways, railways, airports, ports, power plants, irrigation projects, (small, medium and big), water harvesting structures, agricultural warehouses and cold storage. This would create enormous employment opportunity and restart the dormant industries. Even if there is comparatively less demand for electricity now it will pick up in five years as other sectors of economy will pick up.

For all these ambitious programmes, the government needs money. Taxes are not the only source although most traditional one. To augment its base, massive effort need to be made to bring more people, entities, activities and business, whether organized and unorganized, into the system, not necessarily through heavy hand but through education, persuasion, and using technology to create consciousness among the citizenry. Recent success in this domain should encourage the government to attempt more innovative measures.

Public debt should be explored. Saving rate in India is high in comparison to other emerging markets. Retail bond market needs to be created and developed. Financial literacy should be the government programme through now defunct regional stock exchanges for investment in government bonds rather than in Ponzi schemes.

Bureaucracy should be trusted and encouraged to take risky decisions. Too many nagging investigating agencies, frivolous audits, and unproductive vigilance sap initiative. What has happened is not policy paralysis but gridlock in decision making. The gamut of civil society including media and judiciary must remember an expression – once beaten twice shy. Political executive simply cannot deliver without responsive and vibrant bureaucracy. More decentralization both at the central and the state government should be the aim. Cooperative federalism should be practiced in letter and spirit and not left in theory with academia.