Expectations from Dr. Manmohan Singh’s Government:

Reform: (v) make changes in (something) so as to improve it

All economic and political pundits on NEWS channels are so optimistic about the new government at the centre. According to them, the government is free from the communist burden, and hence they are going to take some hard decisions regarding reforms in some of the key sectors. I hope the government doesn’t flatter to decieve now that it has got a strong mandate for governance. There is this game of prophecy being played with all these experts on television egged on by NEWS Presenters. They seem to be playing “If I was the PM”, “If I was the Finance minister”. The same questions are asked to the same experts on different news channels.

I think I need to join in this game and have some points written regarding the same.

The most pressing matter at hand for the govt. is to revive the economy and get India on the growth path. This is easier said than done primarily because India’s performance is linked to the global conditions as India isn’t decoupled from the developed west.

Priority sectors need to be earmarked by the govt. as the first step. The list would consist of Insurance bill, pension reforms, Infrastructure (roads, railways, aviation, shipping and power), reforms in Banking, education and telecommunication.

As soon as the election results came out, the following Monday, the Equity markets jumped by 20% and the market had to be shut for the day. the euphoria was due to the election results of a stable govt. for next five years. But this upward movement can be stopped if some sudden changes are seen in the western developed world. The rating for UK has been downgraded due to there critical fiscal position. A similar case can be though of for the US. If this happens, we do not know how the financial world will react and how will our markets react. However in all this euphoria, the fundamentals have not changed. So it is better to be banking on the fundamentals rather than the ‘sentimental premium’ and the feel good factor.

Let us start with the requirements in the Infrastructure sector. India seems to be primitive, a sort of an exaggeration, compared to China in infrastructure when we compare our cities with Shanghai, Beijing among others. Although China's villages are in very bad state compared to our but there growth is fueled by industry. India’s growth, on the other hand is fueled by agriculture and industry alike. Imagine if India becomes equivalent to china in industry, the Chinese cannot compete with us in agriculture, and then India would truly be an Asian tiger prepared to take on the world. We also have the added advantage of English which the Chinese don’t have. Skilled labour in the form of engineers who can do innovation which the Chinese cannot boast of. China can only imitate others, it cannot innovate.

Roadways need to be tarred in the interiors for efficient movement of goods and services. Shipping and logistics have been such as weak area for India. In spite of having such a long coastline and boasting of being the largest peninsula, we have Dubai, UAE as the International port in the region. A port development authority needs to be setup to expedite the matter. If we make the western coast of India i.e. Mumbai and Gujarat, as the international port, India can stop the potential attack on this area from Pakistan due to political and economic compulsions from the world.

The job opportunities would be so large for the Indian economy. This isn’t possible immediately but a roadmap for it to happen in the coming 5 years is needed especially since the govt. is free from any political or coalition pressures.

Same issues are for the aviation sector. The previous aviation minister, Praful Patel was chiefly instrumental in starting the process of improving the India airports and the infrastructure with improvements in the Mumbai and Delhi airports. The MIHAN cargo hub at Nagpur should be built on a war footing for its impact to be felt on the India economy soon. Development of regional airports should be high on the agenda too. New airport at Navi Mumbai to supplement the international Mumbai airport is an immediate necessity. If this is fructified India can have its own F1 track near Mumbai. This would give a boost to the Indian economy year on year.

Just 5% of the Indian population travels by aeroplane according to the pioneer of low-cost carriers in India Capt. Gopinath. This is due to the dearth of infrastructure i.e. airports in all cities. If this 5% could increase by another 5% in the next 5 years, more jobs will be created and efficiency and effectiveness of Indian business will increase.

The golden quadrilateral project of connecting the 4 metros and some other important cities by roads started by the NDA govt. hasn’t been completed in the 5 years of the UPA govt. Is anything needed to be said in this case…

The railways have seen a surprise turnaround by the charismatic Lalu Prasad Yadav. It has become a case study in some of the premier B-schools in India and abroad. We have reached here, but sustaining it is necessary. Railways are the veins of the Indian economy and if they are kept in good shape, India will continue with its growth story.

To do all these infrastructural work, it requires massive funding and the burgeoning fiscal deficit due to the stimulus packages announced last fiscal isn’t making things easy for the finance ministry. S&P has already downgraded India’s sovereign rating. Thus a plan has to be chalked out to keep a balance between growth and increasing fiscal deterioration.

Banking sector: The financial markets expect Banking sector reforms which includes foreign banks increasing there stake in Indian banks. The reason for this wish is that this will increase the capital inflows. The govt. won’t have to spend on it will be financed by private capital thus reducing the fiscal burden. The rationale in this case seems a bit incorrect because India can anyways build up capital from the country with the huge savings. Moreover the capital in developed countries has to flow to the developing countries if they want handsome returns.

The present downturn has resulted in mass exodus of money which primarily has been FIIs from the stack market. Some FDI which was to be invested has been postponed just till the downturn nears its end which will happen within the next two quarters especially since some big ticket reforms are on the anvil with the govt. free from the left’s shackles.

The India PSU banks and even the private Indian banks have done well in spite the downturn because of the strict restrictions regarding the conditions for lending by the RBI. There isn’t a hurry to allow foreign banks here. Rather this is an opportunity to strengthen the balance sheets and asset base of the Indian banks. All major banks in the US and Some in Europe have taken govt. help in sustaining themselves. So why should we open up when there isn’t an immediate need to do so.

If the six associate banks of the state bank merge to form a single entity, it will have a customer base to rival foreign banks. It would be a mammoth entity to take on any foreign bank if and when they come. Imagine if the reverse merger of HDFC bank and HDFC takes place into HDFC bank. The only reason it isn’t happening as of now is because the asset base of more than Rs. 50000 crore (conservatively speaking) of HDFC will be subjected to CRR and SLR which would amount to almost Rs. 5000 crore kept with the RBI for no interest and hence no returns on it.

The pension bill if passed will allow the pension money to be invested in the capital markets. This should be done in a conservative manner. Initially through debt instruments such as corporate bonds followed by the equity markets and the currency markets.

Power sector: the govt. wants the economy to grow by 8-10%. How is it possible if you have power cuts in the industrial belts? Some of the companies have to shut shop for a three day weekend owing to shortage in power.

How do you expect that Indian agriculture will lead the growth story if there isn’t electricity to pump water from the irrigation facilities i.e. if they exist in the first place .

Power projects take 3-5 years to generate electricity. It is the most urgent need to look at power generation.

Telecom: India is second only to china when it comes to mobile penetration. In India, about 400 million people are connected through mobile phones. This leaves a growth potential of about 60 plus crores if they have the paying capabilities. This sector too has infrastructural problems. There is lack of telecom towers compared to the total customers. This leads to lot of pressure on the exiting infrastructure and hence connectivity and clarity of voice problems ensue. This problem is more pronounced in the congested metros where there is high population density.

The 3G spectrum allocation auctions have been going on for more than two years and yet they haven’t been finalized. This has resulted in a heavy loss of money for govt. treasury. The auction process needs to be expedited immediately.

Broadband services also lack due to infrastructural problems. Internet connectivity improves the quality of business decisions and the efficiency. This is amply clear from the ITC’s e-choupal initiative for the farmers. The farmers get the best possible deal for there harvest and can even hedge there positions with respect to the market. This shows the wonders IT can do for an emerging economy to sustain itself and grow exponentially.

Education sector: reforms in the education sector means throwing open the doors for foreign universities to set shop in India. This will not only change the education system in India but also make behavioral changes in the perception and outlook towards research which forms the bedrock of a developed economy.

Post-graduation courses need to be liberalized towards the open markets and need not be subsidized. There is enough funding from banks to finance the tuition fees of the needy and deserving candidates.