In 1991, Finance Minister of the Narsimha Rao led Government Manmohan Singh architected reforms version 1.0 addressing issues of inefficiencies and protectionism, resulted in catalysing entrepreneurship generating, employment and increasing income across India’s socio-economic pyramid. As a result, the Indian economy has been galloping ever since, securing a seat in the list of BRIC nations, the breakout or emerging economies, call them what you will; India has arrived.
However, despite the growth in the past two decades, certain licensed sectors demonstrate exclusion. Sample this, despite India’s insurance industry, comprising 24 companies in the life insurance business and 27 in the general insurance category, the penetration of insurance cover is a mere 4.4 per cent in life and 0.71 per cent in the non-life business, respectively. As far as the pension sector goes, a mere 12 per cent of India’s working population has some form of retirement benefits. Despite having 80,500 bank branches spread across the length and breadth of the country, only 5 per ent of India’s over 600,000 villages have a bank branch. The task of inclusive growth is indeed herculean and the challenges infinite.
Socio-economic inclusion and inclusive growth are the cornerstones of the incumbent United Progressive Alliance (UPA) government’s manifesto. Just as hackneyed reports and done-to-death discussions highlighting corruption in telecom and coal, non-performance, ensuing policy paralysis, weakening rupee, falling stock indices and the threat of downgrades by global credit rating agencies were peaking, some adrenalin has rushed into the economy, the investment sentiment booming, with the Sensex hitting a 18-month high, and the rupee strengthening against the dollar by a massive 10 per cent. Phew!
Prime Minister Manmohan Singh and Finance Minister P Chidambaram recently unleased version 2.0 of the reforms, which began with taming fiscal indiscipline, including shaving of subsidies on fossil fuels by hiking diesel prices and limiting supply of subsidised domestic cooking gas to six cylinders per annum, sending out the message that the Government would no longer compromise on fiscal stability, upping FDI in the insurance sector from 26 per cent to 49 per cent, allowing overseas investors to own up to 49 per cent stake in domestic pension fund managers, and enabling multinationals to have 49 per cent stake in multi-brand retailing. The Government also approved multiple legislative proposals, including the new Companies Bill; amendments to the Competition Act; and, Forward Contracts (Regulation) Act.
A Prime Minister’s Office Tweet soon after reforms 2.0 were announced reads: “The Cabinet has taken many decisions today to bolster economic growth and make India a more attractive destination for foreign investment. I believe that these steps will help strengthen our growth process and generate employment in these difficult times. I urge all segments of public opinion to support the steps we have taken in national interest.”
While more reforms lie ahead in the sphere of infrastructure, change of tax regimes (including the draconian retrospective General Anti-Avoidance Rules (GAAR), and financial services, including implementation of the Goods and Services Tax (GST).The key concern for the Government is now the passage of these bills in Parliament, with a fractured opposition ambiguously stating reservation and publicising their intent on offering substantial resistance.
Global rating agencies like Fitch, S&P and Moody’s have all hailed the Government’s reforms initiatives but await evidence of implementation of the measures on the ground and how the economy reacts. While the Government has demonstrated gall and courage, is the Industry excited? Or will they still love to continue fence sitting? The need now is for urgent stakeholder participation from farming to manufacturing and services to execute the second generation of reforms that ought to bring the economy back on the 9 per cent growth path.
Well, India Inc is welcoming and defending the reforms process, urging the Government not to give in to opposition.
Anand Mahindra, Chairman, Mahindra & Mahindra, tweeted: “Again, we urge the Government to stand its ground. Right-thinking Indians will be less than amused by partisan politics in a fragile economy.”
Anil Agarwal, Chairman, Vedanta Resource: “Global investors are looking for stability to invest in India, as the country remains a top choice for them. Government’s reforms have created inflows.”
Adi Godrej, President, Confederation of Indian Industry (CII): “I am glad that we are increasing FDI in insurance and that we are bringing in FDI in pension plans. Opening up FDI will ensure long-term investment. This is a positive move, keeping in with the fact that we need large investments in infrastructure in the next five-year plan.”
Dhirendra Swarup, Former Chairman, Pension Fund Regulatory and Development Authority (PFRDA): “The move will bring in greater fund management expertise and will bring in competition. The consumer is going to gain to a large extent.”
R V Kanoria, President, Federation of Indian Chambers of Commerce and Industry (FICCI): “The country needs reforms, it needs to grow, it has potential, talent and entrepreneurial skills. I will urge those who are not supporting the reforms to think carefully.”
On Facebook, Mamata Banerjee posted: “Sometimes speech is silver and silence is golden. We are not party to it. We are not supporting these anti-people decisions. We are very much serious about these developments and ready to take hard decisions if these issues are not reconsidered. In a democratic set-up, reforms must reach the poor and common people and the beauty of democracy lies on realising its responsibility towards the common people.” India’s youth have just ‘un-friended’ her.
Vibhu Arya is an independent financial inclusion consultant.
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