Building blocks for a “New India”

The goal of a $5 trillion Indian economy by 2024-25 may be an ambitious target but it is eminently achievable, minister of state for finance and corporate affairs Anurag Singh Thakur said while addressing a gathering of leaders of India’s largest midsize companies and wealth creators at Fortune India’s The Next 500 event in New Delhi on Friday.

Thakur, who was the chief guest at the event, laid down the road map for achieving Prime Minister Narendra Modi’s grand vision of a $5 trillion economy in the next five years, describing it as a step towards building a “New India”.

The goal of $5 trillion economy, he said, will not come only from the big players itself but from across sectors and industries. “Nearly $1 trillion will come from the agricultural sector,’’ he said, adding that the government’s focus is on developing all sectors, from the rural agro-based industries to big corporates to mid-sized companies and startups. A large part of his speech was dedicated to the startup players, who he believes can be the new growth engine creating wealth and employment in the country.

Thakur’s speech was in sync with the suggestions and proposals laid down in the Economic Survey 2019 and the Union Budget of FY20. Drawing examples from the high-growth East Asian economies, he stated that a sustained high level GDP growth— 8% year-on-year—is only possible through a “virtuous cycle” of savings, investment and exports. “Investment,” he argued “especially private investment is the key driver that drives demand, creates capacity, increases labour productivity, introduces new technology, allows creative destruction, and generates jobs.” He added that exports must form an integral part of the growth model, and that jobs can only be created through this virtuous cycle.

The government, he said, was conscious of the need to bring down taxes and has already done so to an extent, by bringing companies with an annual turnover of ₹400 crore in the 25% corporate tax bracket in the latest budget. “Now nearly 99.3% of the total industries are the 25% tax bracket. Earlier, this tax rate was only applicable to companies with an annual turnover of ₹250 crore ,’’ he said. On further reducing the goods and services tax (GST) rates he pointed out that nearly 700 items have already been brought in the zero to 5% bracket. The government has also created a payment platform to eliminate delays in its payments.

There have been other benefits to the industry too. “In a single fiscal year we have given tax incentives of ₹93,000 crore to companies along with a 2% interest subvention on loans for GST-registered SMEs,” he said. All these showed the government’s effort to convert India into a manufacturing and innovation capital of the world.  “Regulatory roadmap for making India an aircraft manufacturing and leasing activity, is in the works,’’ said the minister.

There is also a concerted effort to attract foreign capital to augment declining domestic financial savings. These include increasing FDI limits in insurance, aviation and media, reducing domestic sourcing requirements for single-brand retail, and allowing foreign portfolio investments in real estate investment trusts. He also spoke about the government’s decision to infuse ₹70,000 crore to recapitalise public sector banks, which is seen ensuring greater credit flow to companies. The government had also stated in the Budget that it will set up a sovereign wealth fund like China to tap into a broader international investor base; it also plans to borrow in the international market to take advantage of lower interest rates and ensure that both private and public sector enterprises are not starved of funds.

To ensure greater avenues of funding, the government has initiated steps towards creating an electronic fund raising platform—a social stock exchange—under the regulatory ambit of Securities and Exchange Board of India (SEBI) for listing social enterprises and voluntary organisations working for the realisation of a social welfare objective. The point is to allow these organisations to raise capital as equity, debt, or as units like a mutual fund.

The other major push of the government will be in the area of increasing digital and physical connectivity. “Öur vision is to create a digital economy that runs on inter-connected roadways, highways and waterways. The physical connectivity among the people is being enabled through the Prime Minister’s Gramin Sadak Yojana, industrial and freight corridors, Sagarmala and Bharatmala projects.”

The minister also spoke about how the government was using advances in behavioural economics in the last few decades to “nudge” behavioural change in individuals. He believes that the government’s flagship initiatives like Swacch Bharat Mission, Jan Dhan Yojana and the Beti Bachao Beti Padhao have already resulted in some behavioural change in India.

The minister also said that the government has moved from the “ease of doing business” to “ease of living’’ through simplification of income-tax returns, e-assessment, interchangeability of Aadhar with pan card etc.  The plan is not just to move to a higher growth path but also to a better life.