provider] Business Cycle Indicator (BCI - based on components in four broad categories: capital market, foreign trade, policy and the real economy]. The business environment in the country improved in May, 2013 enthused by rising output of intermediate goods as well as tourist earnings and the government’s reform initiatives. Accordingly, the Indian economy is growing at a faster rate than in the previous year. The growth has been aided by improved production of intermediate commodities such as pig iron and aluminium, rising tourist earnings, easing liquidity conditions and strengthening capital markets. It said specifically that the government has been instrumental in boosting infrastructure investments, generating a consistent improvement in the production of intermediate commodities such as pig iron and aluminium, along with prudent management of non - Plan expenditure. 

 

In spite of the facts and circumstances prevailing-indicating a downward tilt of the economy-the writer holds a positive view that the situation is going to change steadily and a better show is just a matter of time,especially considering the latent talent,quality techno-savvy manpower ably backed by poor but efficient farmers.

The need is very much there to bolster the exports wing. Foreign exchange and international trade continue to be a concern despite a slowdown in gold and oil prices and a decline in domestic inflation.  Among others, the immediate task is to move quickly towards Special Economic Zones’ reforms which seek to ease the land requirement norms and provide for an exit policy – implementing the announcement on this score made in the supplementary Foreign Trade Policy (FTP). For multi-product SEZs, the minimum land requirement has been brought down from 1,000 hectares to 500 hectares and for sector-specific SEZs, it has been brought down to 50 hectares. Also, there would be no minimum land requirement for setting up IT/ITES SEZs, besides easing of the minimum built-up area criteria.

The reality is that once a major attraction for investors, SEZs actually lost their sheen following the imposition of MAT (minimum alternate tax) and DDT (dividend distribution tax), including certain provisions in the proposed Direct Tax Regime (DTC), besides the global slowdown. There are acute difficulties in aggregating large tracts of uncultivable land lying vacant to set up SEZs. The importance cannot be belittled: as of now about 390 SEZs in different parts of the country have been notified by the Government. The 170 functional SEZs – export - oriented enclaves - have attracted an investment of over Rs 2.36 lakh crore and exports from them totalled Rs 4.76 lakh crore in 2012 - 13, [a growth of over 2,000 per cent over the seven - year period providing employment to about one million people!].

It has been estimated that India will require around $1 trillion in the next five years to overhaul its infrastructure sector such as ports, airports and highways to boost growth.

And then what about the gold which is always in the news right at this juncture telling upon the import front in particular? A surge in domestic gold demand is hindering effective management of the current account deficit. It is good to note that the Reserve Bank has now extended the restrictions on gold import to other agencies in addition to banks. Accordingly, any import of gold on consignment basis by both nominated agencies and banks shall now be permissible only to meet the needs of exporters of gold jewellery - a good move aimed at curtailing demand for the precious metal for domestic use amid widening current account deficit.

Undoubtedly, the sharp decline in FDI inflow causes concern.  Undeniably, the Government’s efforts to promote India as an investment destination do not seem to be giving fruit as foreign direct investment inflows registered a 38 per cent decline at $22.42 billion in the financial year 2012 - 13 compared to the previous year. FDI inflows were worth $35.12 billion in the financial year 2011 - 12. Decline in foreign investments puts pressure on the country’s balance of payments and may also impact the value of the rupee.

It is also a fact that the government has taken a number of policy decisions in the past few months to attract foreign investments - allowing FDI in multi - brand retail and civil aviation sectors and seeking legislative approval for increasing FDI cap in the insurance and pension sectors.

It has been estimated that India will require around $1 trillion in the next five years to overhaul its infrastructure sector such as ports, airports and highways to boost growth.

The reality is that once a major attraction for investors,SEZs actually lost their sheen following the imposition of MAT (minimum alternate tax)and DDT(dividend distribution tax),including certain provisions in the proposed Direct Tax Regime (DTC),besides the global slowdown

The crucial need is there to improve the business environment.

Of course it is good to note that FY’13 fiscal deficit is now down at 4.89 percent - helped by higher revenue mop up, fiscal deficit for 2012-13 worked out to be at 4.89 per cent of GDP, down from revised estimate of 5.2 per cent. Yes. if fiscal policy stays restrained, and monetary easing continues at an accelerated pace, a genuine economic recovery is very much possible.

So far as the financial sector is concerned changes are visible. Worried over the rise in the number of non-performing assets, the Reserve Bank has tightened rules for restructuring of most types of loans in line with global practices.

As per the latest RBI notification, provisioning on the newly restructured account has been raised to five per cent from 1 June, 2013 from two per cent now. However, for the old restructured account, it will be done in a phased manner and that existing “regulatory forbearance” will no longer be available from 1 April 2015.  Accordingly, no such incentive would be available on withdrawal of regulatory forbearance on restructuring with effect from 1 April 2015, except in cases of restructuring by change of DCCO (date of commencement of commercial operation) of infrastructure and non-infrastructure project loans.

As per the new norms, restructured account would be treated as NPA.

The same may be made applicable with immediate effect in cases of new restructuring, but in a phased manner during a two - year period for the existing standard restructured accounts.

So, the banks will have to do higher provision which will, in turn, also have a negative impact on bottom lines. Simultaneously, banks are also advised to correctly capture the reduction in fair value of restructured accounts as it will have a bearing not only on the provisioning required by them but also on the amount of sacrifice required from the promoters.

Nevertheless, the farm sector needs special care if the 12th Five Year Plan target of 4 percent is to be materialised. Research work / findings must be made use of in an extensive manner ensuring that the actual beneficiaries are not deprived of legitimate dues and attention. The Government has to take the lead role on this score.

The immediate need is to conduct tough audit / confidential high - level enquiries to locate huge wastage / misuse / misappropriation of funds / nepotism / image shattering activities. Exemplary punishment should be given to those found guilty of these charges so as to protect the interest of public funds.

Dr. B K Mukhopadhyay