COME September, the blues will lift and the economy will get on to a revival phase. So says finance minister Yashwant Sinha. True to his words, the government is going ahead with the second phase of economic reforms in top gear. Already, economic peripherals have started showing signs of a recovery. With the monsoons being better than expected and indications of the business cycle turning up, Sinhas predictions may well come true by the end of the year.
According to the governments own estimates, most of the sectors are showing promise. Growth in industrial production in the first quarter of 1998-99 has risen to 5.4 per cent compared to 3.7 per cent in 1997-98, agricultural production has been extremely good, thanks to a good monsoon, and is all set not only to cross its targets but also to set up a comfortable buffer, and direct tax collections have grown 41.1 per cent in April-June 1998 with corporate receipts increasing by over 120 per cent.
The government asserts that there was never a recession in the sense it has been touted so far. Says Sinha: "What we are seeing is just a slowdown and not a recession as it being widely perceived. The same conditions are visible throughout the world. There is a slowdown in the world economy and India cannot be an exception. On the contrary, we are doing rather well given the limitations." Says Mohan Guruswamy, advisor to the Finance Ministry: "The slowdown and despair is being felt more strongly in India because there is a general mood of pessimism in the economy which is totally unwarranted. Investor confidence on the system is totally lost."
Which, the government feels, is unfair because most of the problems have been inherited by the ruling BJP coalition. Says Sinha: "The economy was not in an excellent shape when I took over. There were problems everywhere." And he and his team had to start quite from scratch. Says Guruswamy: "We inherited a legacy of incompetence from our predecessors. Since the days of Manmohan Singh, individual investor confidence, which is the basis of any market and economy, has been totally lost and this is what we seek to revive first." To correct this, the finance minister and his team is conducting extensive road-shows all over the country to mobilise opinion from all sectors. In the last 10 days or so, Sinha and his team have gone through more than 20 roadshows before the chattering classes and industry.
But why is September being cited as the turning point? Guruswamy feels that with economic peripherals moving upward, the time was just right to make structural readjustments in the economy and improve productivity. It was also a good time to push through bold growth initiatives. Experts also point out that the winter months are always good for the economy when the manufacturing sector growth is at its highest. "The upswing picks up from September and stays vibrant till March. This is the right time to embark upon bold strategies and take risks."
Economists on the other hand, feel that even with the less than satisfactory growth rates, India was better off than most other countries in Asia. Says economist S.L. Rao, who has been recently appointed Electricity Tariff Commission chairman and also member of the Economic Advisory Council to the prime minister: "While most of the countries in Asia, with the possible exception of China and Taiwan, will record negative growth in this fiscal, India is thinking in terms of a 5 to 5. 5 per cent growth. Even if we fall short of this target, we will fare better than the rest of Asia. Even China and Taiwan are expected to see their growth shrink by 35-40 per cent". Growth of the world economy too is expected to fall by at least 50 per cent from its current level of 4 per cent in the current year.
Sinha feels that India with its slow pace of growth was in an advantageous position vis-a-vis other countries which found it difficult to sustain their higher rate of growth. "This helps us fight crises and absorb shocks better than others and this also clicks well with foreign investors who look for relative stability rather than extreme highs and hopeless lows." Experts too agree with this viewpoint. Says Rao: "India with a relatively low exports to GDP ratio of 8 percent was unaffected in the Asian turmoil while countries like Thailand with a ratio of 35 per cent and China with 25 per cent are in deep trouble now."
Judging the mood of revival, the BJP government has already lined up an impressive fare for the coming months which is expected to take the economy out of its present miserable state. The measures planned from this month have been spread over different areas: public sector expenditure, clearance of private sector projects, including fast-track projects, the pending disinvestment, finance sector restructuring including tax reforms and insurance sector reforms, review of foreign investment norms to increase investment flow and company law reform.
For the government, the process of reviving the economy began with the Union Budget. The coming months will only see the implementation of the revival proposals. One of the areas where the government is doing fast work is in clearance of pending projects. Says a top official in the Finance Ministry: "We are taking care of problems right from their roots. We will clear cases from where they are stuck and see that very soon nothing remains pending or gets held up. There is clear instruction from the government in this regard as about Rs 85,000 crore worth of projects are bogged down in delays and hold-ups."
THE main engine of Sinhas September revolution will be the kicking off of the much-delayed disinvestment process. The nitty-gritty of this exercise has already been studied and the approach modified with a more outward looking, market-oriented strategy. The government aims at netting Rs 5,000 crore through this exercise. If the Resurgent India Bond (RIB) experience is any indication, the coming months could well bring more cheer for the government.
At the same time, a fast-track strategy for a rather radical privatisation of public sector enterprises (PSEs) through a special purpose vehicle has been scripted by the government under the guidance of the new finance secretary, Vijay Kelkar. The strategy suggests the privatisation route for not only ailing PSEs but also blue chips and navaratnas.
Earlier last week, in a serious attempt to tackle the vexing problem of tax arrears in cases locked up in various stages of dispute, the government launched the Kar Vivad Samadhan scheme. At present, over Rs 30,000 crore worth of taxes in about 6.5 lakh cases are held up in different stages of dispute and litigation. The scheme attempts at getting out of this impasse by offering incentives in the form of payment of outstanding tax arrears at reduced rates, waiver of interest and penalty as well as immunity from prosecution.
While this was the first step towards finance sector reforms, income tax reforms, changes in excise rules, a favourable review of foreign investment norms to increase the net inflow and bringing in the insurance legislation proposing a 26 per cent foreign stake in Indian companies will follow shortly. Also in the wings are corporate legislations including the companies bill and a measured intervention in the foreign exchange market.
The government has also begun the process of increasing public sector investment, the decline in which had led to a recession in a lot of supplementary industries. Says Sinha: "We have promised to increase public sector expenditure in the budget by 58 per cent and have taken the first step. The coming months will see us go further to increase demand in the economy. We are speedily clearing fast-track projects."
Indeed, in the last few weeks alone, the government has pushed over 14,000 MW worth of projects in the power sector and signed counter-guarantees for three fast-track projects with three more almost ready for signing. It has cleared pending decisions regarding projects and proposals in telecom, housing and construction and social sectors. "We are basically trying to generate hope and clear the mood of despondence that has settled in the mind of Indians," says Sinha.
And slowdown or not, Indias chances of staging a smart recovery are extremely favourable as, despite all its troubles and problems, it is being held as one of the most promising markets of the world. Says a top official from international brokerage house and foreign institutional investor DSP Merrill Lynch: "The eyes of the entire world is on India. It is considered the most happening economy in the world now. While the global economy is facing a downtrend and Asia is in turmoil, all the worlds interest is pegged on India and not on Korea, Taiwan or Singapore." Sometimes, it takes only a small push, an insignificant policy announcement to revive the investment climate and put the clock ahead. And, with Sinha and his team intending to fire from several barrels, the elusive recovery may be finally here to stay.