June 04, 2019|
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Financial and Industrial Reforms
Niti Aayog, the primary think tank for policy making headed by PM Modi, has suggested several structural reforms in labour laws, privatization and creation of land banks for new industrial development.
Labour reforms will aim to combine 44 central laws into four codes – wages, industrial relations, social security and welfare, the fourth being - occupational safety, health and working conditions. This is targeted to facilitate companies avoid getting entangled in tortuous disputes with their workers and officials concerning regulations set by authorities at different levels of government and can lead to extended, drawn-out adjudication in various parts of the legal system.
Source: Trading Economics
Privatisation: The government is expected to focus on privatising or closing more than 42 state-controlled companies in the coming months. The government is even mulling lifting the foreign direct investment cap on Air India, the loss-making state-owned flagship carrier, to make it easier to sell. It is also expected that an autonomous holding company will be set-up that would control all state-owned firms and wouldn't be answerable to several different ministries. This would speed up decision making for asset sales, by-passing central government bureaucracy.
Land banks: The government is expected to build an inventory of government land from unutilized land controlled by public sector enterprises and offer large parcels of this land to foreign investors. Getting access to some of the large amounts of unutilised Indian government land would reduce major risks for foreign companies as there would be a lot less risk of legal challenges over ownership and development. A lot of the sites they have used in the past were previously farmlands, opening them up to protests and court action by local communities over land rights, the environment and other issues.
Banking reforms: The government is likely to adopt the recent model of merging Dena Bank and Vijaya Bank with Bank of Baroda on to other public sector banks. This consolidation along with privatization will bring back volume efficiencies and discipline and accountability in lending activities.
India’s new government is expected to renew its focus on infrastructure. Constrains on the supply side are beleaguered public sector banks and private banks reaching their limits on infra lending. NHAI tendering in FY19 has fallen to Rs. 45,000 crore which is a decrease of 63% YoY. The NDA manifesto promises construction of 60,000 KM of National Highways in 5 years and the launch of Bharatmala Phase 2.0.
In respect of Railways, electrification and conversion of all tracks to broad gauge by FY 2022 and expanded connectivity of high-speed trains across India is expected. The government is also bound by its manifesto to launch an extensive railway station modernization programme. The proposed Mumbai-Ahmedabad Bullet Train project is also likely to gain traction.
In terms of air connectivity, the number of functional airports is expected to be doubled. The government is also likely to make a move towards privatization of six airports. Under the Navnirman policy, the focus of the government would be to cater to 1 billion passengers by year 2040.
There are plans to build metro networks in 50 cities and the focus on building inland waterways for shifting cargo movements to be continued.
For the power sector, NDA promised to achieve a cumulative installed renewable energy capacity of 175GW by 2022. In aggregate, the goal is a USD 1.4 trillion infrastructure spend by the incoming government.
India currently spends 1.15% of its GDP on healthcare. The government has the target of spending 2.5% by 2025. Increasing expenditure on healthcare would be a significant step by the government. These funds would be used towards strengthening the primary healthcare infrastructure and building up the secondary and tertiary public healthcare model.
Ayushman Bharat has already been launched by the government and is targeted at providing secondary and tertiary care to India’s poor (forming 40% of India’s population). At the same time, India urgently requires institutional level reforms in the pharma, medical and healthcare sectors. This would require creating better regulatory oversight of these sectors. In terms of individual sectors, India is a generic giant and the largest provider of such drugs to the world. The country’s pharma sector was valued at USD 33bn in 2017 and expected to reach US 55 billion by 2020.
The government has already given the go-ahead for amendment of Foreign Direct Investment (FDI) policy in pharma to allow FDI up to 100% under the automatic route for manufacturing of medical devices.
Going forward, government’s push towards health will have cascading effect as schemes like Ayushman Bharat will increase health insurance penetration in the country from 34% to 50%. The scheme is hailed as a gamechanger and will likely change the nature of health insurance itself.
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