If we look at the reasons for the slowdown in the economy, it’s mainly because of a slowdown in investments by the corporate sector. This is primarily on account of weak sentiment because of a host of issues which can be turned around by sustaining a series of key positive reforms and supporting it with sound execution.
One, if the recently constituted cabinet committee on investment can reach out across key stakeholders and resolve outstanding issues, we can fast-track large investments and have a significant positive impact on sentiment.
Two, the recent cabinet approval on land Bill is a crucial first step towards leveraging land for economic development. While there is an argument that procuring widespread consensus among landholders and high minimum guarantee prices could stymie investment climate, I think with suitable safeguards this will clear the decks of uncertainty and bring transparency.
The third key factor is introduction of the goods and services tax, which will be a huge step towards creating a common market pan India.
Certain categories of capital equipment and investment can be given a higher tax break over the next couple of years like what the West did. We can do that for our commercial vehicles for example—similar to the cash for clunkers scheme in the US—because it will have an impact on multiple industries while improving productivity and turnaround time in transportation, impact inflation positively and also have a downstream effect on steel and auto component companies.
We also have to find a solution to the projects that have got stuck. We have to look at supporting them to get projects up and running, like refinancing their debt at a competitive rate. That will have a big impact because it will improve their financials immediately and increases their ability to go out and raise fresh money. Sectors such as power, which have many projects stuck, also need special attention in terms of fuel linkages and environmental clearances.
We can also address the concerns on the export side. We will have to ensure that we encourage the flow of bank finance to this sector. The Reserve Bank of India (RBI) has taken a good step by increasing the refinancing for exports but I think more can be done like coming up with a package for exports.
If we are not going to reduce rates aggressively, I think the liquidity can be improved so that it can be lent at a competitive rate because it can have a big impact on big-ticket purchases on the retail side like housing and auto finance where even a 1% reduction can make a significant impact. This will also have a very positive second order impact on related industries like steel, cement, etc.