By Sumit Kr
Last week, Moody’s upgraded India’s sovereign bond rating after a long thirteen years. It cited the reform measures that has been taken and the reforms that are in pipeline. It praised the initiatives like Demonetization and G.S.T and asked the government to continue with it’s reform ideas. The rise in credit rating, comes at a time, when the World Bank, in it’s recently released index of the Ease of Doing Business laddered up India’s ranking by 30 points testifying the fundamental changes that the Indian Economy is witnessing. Economy is a highly complicated issue. The more you understand it, the more it gets complicated. There is no doubt that disagreements and dissent have grown regarding the position of Indian Economy, in a general debatable perception, but one thing that holds together all this talk is the idea of reforms.
Demonetization, one could argue, was an absolute failure. Loss of jobs, reverse migration, decrease in demand, lump in growth, massive inconvenience, and other tangible and intangible damages to the economy, could be argued from the pessimist side. Transfer of money from the rich to poor, the increase in the base of taxation, the closure of shell companies that were running illegally and being used to hoard loads of black money, cleansing of the parallel cash economy, junking of the duplicate currency, massive surrender of naxalites at the end of last year, increase in cashless transaction, or at least, a rise in awareness and knowledge about cashless transactions could be the counterarguments that could be put forth by the optimist side. The plan and motive was good, but the implementation was shoddy could be argued from the neutral side. The decision was objective but the effects of the intent will always be subjective depending upon the perception of an individual. But, the fact remains that from a macro-economic point of view, demonetization was lauded by many, including Richard Thuller, the Nobel laureate in Economics. The Moody’s also mentioned the act of demonetization as a reformative move.
N.P.A, the menace of Indian banking system, which I often call as the Economic Ebola, as it is spreading it’s wings and rotting the economics just like Ebola does to a human body has been on a continuous rise plaguing the balance sheets of banks. N.P.A cuts down the profit of banks, reduces it’s ability to lend, creates a slowdown in the economy, downgrades the shares of banks, and make it difficult for the corporate sector to take loan. To fight this, there has been three gradual and serious attempts, which in a medium run could fetch huge dividends in the form of resolution of the stressed assets. Insolvency and Bankruptcy Code, that fixes a time frame, for the resolution of assets is one of the very important reforms that was needed. As the Economic Survey 2015-2016 pointed about the Chakravyuh in the corporate sector, where entering the arena was easy but difficult to exit, the I&B code offers a solution. It fixes the time limit, and calls for recruitment of special appointees, called as Insolvency and Bankruptcy professionals, to aid the process of resolution. The board is still at it’s nascent stage and it’s success would purely depend on the resolution of assets in the given time as mandated by the act. If successful, it could be one of the path breaking economic reforms, akin to the vaccine, that cures Ebola. The government has recently announced the recapitalization of the banks to the tune of 2.11 lakhs crore. This will do two things at parallel, boost growth, and allow banks to take large haircuts to deal with the N.P.A mess. The good thing is that most of the money that would be infused will come through the recapitalization bonds that will not put pressure on the fiscal target of the government.
The inflation is in control, forex reserves have soared and crossed dollar 400 billion mark, the share market have made record this year by touching an all high of 31,000, the fiscal deficit is in control and in target, and the infrastructure allocation is up to the mark. The improved credit rating is important for India as it could translate into cheap and easy loans to the country, as we need more and more resources for all sort of things. A good ranking in the Ease of doing business index will ensure a greater flow of technology and investment in India and will aid growth and employment. The Modinomics, despite some glitch has performed good and one hopes that the set of reforms taken by Mr. Modi continue to take place so that a prosperous, better, more inclusive and a robust economy can be built.
Cover Image Courtesy : News18