India has a good post-crisis opportunity to secure long-term growth if the Centre refocuses policy
In less than a week, India will be looking forward to emerging from the lockdown that covid-19 forced upon it. Having persuaded a country of over 1.3 billion people to lock themselves indoors, with admirable success, the government now has to do an about-face. It has to cajole and encourage millions of Indians to cross the Lakshman rekha (do-not-cross line) so that millions of others can continue to stay safely and sustainably indoors. For that, I would suggest the following:
First, the government should announce a package to provide cash to businesses without many restrictive eligibility criteria—soft loans with a repayment schedule starting a year from now—but impose other long-term quid pro quo terms such as large businesses mandatorily using the Trade Receivables Discounting System (TReDS) to discount suppliers’ bills. Government departments must set an example and encourage their suppliers to discount their invoices through this system.
The KV Kamath Committee report on the financial architecture of the micro, small and medium enterprises (MSME) sector had recommended that the fulfilment of Know-Your-Customer requirements by firms registered with the TReDS be deemed as recognition of their MSME status. This is essential so that a corporate entity is not able to escape the penalty for a payment delay on the plea that it did not know the MSME status of a payee firm.
Further, Mani Iyer, working with TVS Investments, makes an excellent suggestion in his personal capacity. As soon as an MSME is registered on the platform, a notice shall go to all companies to which it supplies materials of its registration. Once this is done, even if the MSME does not wish to factor its bills, payment in full by a corporation can be effected through the TReDS platform. This creates a documentary trail, which can be used to establish an operational and financial track record of MSMEs. Suitable provisions are available on the platform. Currently, more than 100 public sector enterprises (PSEs) are registered on the Receivables Exchange of India Ltd (RXIL), a TReDS platform, but invoices are discounted/factored for only 14 PSEs.
Second, ways must be to found to lock in the current price of oil for the next few years. Entering long-term contracts at negotiated prices with select supplier countries will confer an economic advantage and offer political leverage. The information gains of knowing India’s oil import bill and customs duty receipts for two years will be inestimable. Simultaneously, construction should begin to create extra oil storage capacity for up to six months. This activity would also serve as a stimulus.
Third, set up a special purpose vehicle (SPV) like Temasek of Singapore to park all government stakes in PSEs and begin monetizing it by issuing securities against them. The proceeds from the sale of such stakes could be invested in important sectors (See Thinking Big About Covid-19 And Monetizing Public Debt by Andy Mukherjee). First in line for this investment should be healthcare and health infrastructure.
Fourth, there is much talk of attracting companies looking to diversify out of China. More important than getting a few things right is not doing anything wrong. For instance, the standard approach of promising plug-and-play facilities, unless they already exist in special economic zones, is unlikely to be effective. Also, one arm of the government should not undermine the efforts of another. Take the case of India’s phased manufacturing programme (PMP) for mobile devices. By all accounts, it is a remarkable success. The number of units making mobile phones and accessories rose from just two in 2014 to over 260 in 2019, turning India into the world’s second-largest mobile phone manufacturer. Some 95% of these units are assembled locally. Progress further up the value chain, however, has not been satisfactory.
Even as the government was pursuing PMP, India signed free trade agreements with Vietnam and the Association of Southeast Asian Nations, which did not account for the PMP’s goals. The agreements offset the differential duty on components and led to a 33% jump in component imports from Vietnam to $800 million in 2018-19, a figure that topped $1 billion in just the first half of 2019-20. Such lack of coordination needs to be avoided.
Fifth, tech billionaire Sridhar Vembu, who founded Zoho Corp, suggested this for the long-term: “The Government of India should think of an autonomous body like the Election Commission headed by a strong and competent individual that identifies the 100 or so strategic technologies and industries and annually ranks Indian vendors against the global best and if this body is not corruptible, then companies will start to take the ranking seriously. India must benchmark itself against the best in the world." Any government concession or incentive, including any of the fiscal kind, must be linked to the performance of businesses on these benchmarks.
Post-lockdown, if the Indian government could re-imagine and relaunch itself thus, then the hardship caused by the virus could become a distant memory soon.
V. Anantha Nageswaran is a member of the Economic Advisory Council to the Prime Minister. These are the author’s personal views
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