Reforms and more reforms expected in 2015

 Reforms and more reforms expected in 2015 

 

Stock markets are surging and bonds have rallied. Investment worth billions of dollars is expected and one might be tempted to think happy days are here again. A reality check is warranted, however. Sustained recovery depends on deep reforms and a lot remains to be done.

 

India languished at a downgrade of ‘negative’ for more than two years. That was until September 26, 2014 when the credit ratings agency S&P gave India a ‘stable’ rating. However, the agency warned that much depends on government reforms.

 

Here is a lowdown on what has been achieved and what needs to be done to speed up growth.

 

Recent reforms:

 

1.FDI in infrastructure: To attract foreign direct investments into infrastructure projects, the new government has not only approved 100% FDI investments in railway project and 49% in defense projects, but also relaxed rules to facilitate investments in other sectors.

 

2.  Labour reforms: The government changed some of the cumber labour laws like employment compliance rules. Many of these have been changed. Powers of labour inspectors have been curbed. Manufacturers can now file a self-certified single compliance report for 16 labour laws online. Labour inspections would now be based on a computerised list of units that are picked up from a database.

 

3.Diesel price de-regulation: The government subsidizes goods like fuel and fertilizer. This increases the government’s expenditure. To cut down expenditure, there were calls to link prices of petrol and diesel with market prices. This is called de-regulation or de-control. Petrol prices were de-regulated in 2010. Recently, as global oil prices fell, the government decided to free up diesel prices. It was a much-awaited market reform. Now, the government, by withdrawing from regulated fuel pricing, will be able to reduce its subsidy bill, contain fiscal deficit and spare funds for meeting development goals.

 

What is pending?

 

1.Competitive banking: The government needs to increase competition in the banking sector. It can do so mainly through the reduction of government’s interference in the running of public bank, making them more competitive like private banks and the establishment of differentiated small-scale banks.

 

2.  Power sector reforms: To usher the country into a high growth path, the quality and availability of power needs much improvement. Power is also a state subject. Hence, the government needs to work with the states to bring make power generation and transmission efficient. 

 

3  PSUs made accountable: Inefficiencies of the public sector need to be brought to book. The government role in running businesses such as operating airlines and hotels needs to be done away with. Loss-making units have to be privatized and profit-making ones should be made more competitive in the market.

 

4.  Auction of natural resources: The fall of GDP growth can be attributed largely to the sluggish growth of manufacturing in India. Further, in states where manufacturing drives growth, the economy is in shambles, thanks to the artificial shortage of resources. For example, there has been no large bauxite mining in India in more than 35 years. Gold and copper mines are awaiting exploration. This is despite the Supreme Court judgment to open up the sector. Having our own reserves and resources and then spending billions on their import makes no sense. As much as 3,000 million tonnes of bauxite remains unutilized in India.