As the Narendra Modi government completes four years and enters its lastand its most crucialyear in government, Kayezad E. Adajania asks experts what is the one big pending economic reform?
As the Narendra Modi government completes four years and enters its last- and its most crucial year- in government, what is the one big pending economic reform it needs to undertake?
Ganti N Murthy, Fixed Income Fund Manager, Former Head of Fixed Income, IDBI MF
Bolstered by a majority in Parliament, the Modi Government implemented a series of reforms. Some of these were expected (like goods and services tax), but some were out of the blue (demonetization). Some of the other major reforms which went through are increasing foreign participation in insurance companies (from 26% to 49%), deregulation of oil and gas pricing, direct benefit transfer (DBT) of cash and good subsidiaries, allowing of foreign participation in defence and most important the setting up of the National Company Law Tribunal and passing of the Insolvency and Bankruptcy Companies Act.
The pending economic reform of this government, in my opinion, has been incomplete withdrawal of the government from the management of state-owned banks. The Indradhanush Scheme can be construed as a half-hearted scheme for giving independence to banks. The government should have transferred full operational control of state-owned banks to the Board which would have all control over the banks. The Bureau should have had appointed the chief executive officer of banks and the Board members unlike the recommendary nature in the current scenario. The Bureau in that situation should have gone ahead with the state-owned bank’ mergers, which was another reform much discussed but ignored by the powers that mattered.
Jimmy Patel, Managing Director & Chief Executive Officer, Quantum Asset Management Co Ltd
We believe the Modi government should work towards drafting and implementing a new Direct Taxes Code. A good starting point would be the blue-print which was formulated in 2008 which unfortunately never got implemented. A new and simple Direct tax code will help ease taxation worries for individuals and business, aid in ease of business, vastly improve tax compliance and also lower the needless tax litigations that individuals and business are subjected to by the Indian tax department. Now, the Salaried Class (which are hit the most) and the Professionals deserve a simplified and lower taxed regime. If drafted and implemented well, it can also turn out to be a major draw for the Modi government in its re-election from its core voter base – the middle class.
Although the GST design and implementation has been complicated but the GST as an indirect tax code as against separate excise, customs, service tax is a vastly simplified tax system for business. We should now learn from the Malaysian fiasco on GST and ensure to further simplify the implementation of GST.
A simple, transparent, stable and long term focused tax system can be a big economic driver by re-kindling animal spirits and boosting consumption.
Vetri Subramaniam, Head-Equity, UTI Asset Management Company Ltd
The government has done a good job of executing its policy agenda over the course of its first four years. Issues have been tackled in mission mode with a sense of purpose and defined targets. In my opinion there are two areas that call for attention. First on my list: the poor health of power generation and distribution sectors. This calls for a collaborative approach with the states; they are part of the problem and the solution.
Next: the larger issue of privatisation. The weakness in the running of public sector enterprises has placed a burden on the exchequer ; in effect transferring the risk and cost to the tax payer and arguably on every citizen – present & future. The problem is not new but the opportunity to address it is now. The test case for privatisation that is being pursued at this moment is Air India and it is hopefully one that will mark the beginning of a much wider agenda. We need a comprehensive re-evaluation of why the government owns & manages ‘for profit’ entities in sectors which have healthy levels of competition, wide private sector participation and market regulators.
Indian Banking sector, especially the state-owned banking segment, is under severe stress with mounting bad loans and an increase in bank fraud, among other issues. More than half of the listed state owned banks that account for about 20% of overall system advances are already under Prompt Corrective Action (PCA) framework, and a few more are expected join the list soon.
The non-performing assets (NPA) situation in the banking sector is alarming. At least 15.8% of the total loans in the banking sector are tagged under the stressed asset category. The nudge from RBI to clean up the system has shown the actual depth of the trouble on the books of Indian banks (hidden bad loans).
State-owned banks have already reported record level of bad loans resulting in huge cumulative losses of about Rs.55,000 crore in financial year (FY) 18 (reported thus far). Recent capital infusion of about Rs.88,000 crore was too little and too late.
The passage of the bankruptcy law was definitely a major step in the process of overhauling the banking sector. But the task is half-done yet. It needs to be well-supported by other comprehensive reforms in the sector such as adding more judicial muscle to NCLT; incentivizing faster resolution of NPAs through ARCs; reviewing ownership, control and governance issues of state-owned banks in the long run.
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