Operation Reboot

Over the past five quarters, most economic indicators have been on a slide. In the first quarter of 2019/20, GDP growth slumped to a six-year low of 5 per cent. Private consumption decelerated to an 18-quarter low of 3.1 per cent in the June quarter. Then, the Reserve Bank of India trimmed the 2019/20 GDP growth projection from 6.9 per cent to 6.1 per cent. To provide a booster shot to the economy, Finance Minister Nirmala Sitharaman announced a series of measures, including cutting the corporate tax rate to 22 per cent. Yet, sentiment is weak. Private investment has slowed considerably while exports are on a slow track. In the first half of 2019/20, exports, at $159.6 billion, were 2.4 per cent below the $163.5 billion achieved in the first half of 2018/19.

So what should the government do to revive growth? Sixteen CEOs and economists lay out the roadmap. Here's what they prescribed.

Make Divestment Top Priority

Anil Agarwal, Chairman, Vedanta Resources

The divestment process should be top priority for the government in the absence of which the fiscal deficit is expected to widen in the next couple of quarters. The government must play its role as a facilitator and enabler of big-ticket projects to attract investment from private players. It is critical that a sector like mining is opened up for private investment so that India starts producing a lot of metals, minerals and oil, cut its import dependence, generate lakhs of jobs and create an ecosystem of ancillary industries.

The string of recent decisions such as sharp cut in corporate tax rates is expected to give impetus to investments and propel the economy to attain its true potential of 8-9 per cent growth. The sustained growth in the Indian economy, amid the sluggish global outlook, has made the country an ideal destination for copious investment flows. The recent World Bank's Ease of Doing Business ranking, where we have jumped 14 places to 63, will further cement India's position on the global investment destination map. Further, despite the pressure on revenue, the government has shown strong commitment to reducing the fiscal deficit by deciding to strategically divest its stake in various public sector companies.

India has emerged as among the fastest growing economies in the world under the leadership of Prime Minister Narendra Modi and is on course to be among the top three economies of the world in the next decade. Backed by strong fundamentals, robust policies and seamless partnership between government and private players, India is well on the way to becoming a $10 trillion economy by 2030.

Fire Up All Cylinders of Growth

Amitabh Chaudhry, MD & CEO, Axis Bank

The global growth environment has been challenging. Multiple factors have resulted in deceleration of growth in the Indian economy: many manufacturing sub-segments slowed due to slowdown in private sector capital expenditure. Goods export growth has been low and financial services have seen erosion in confidence.

Challenges in banking and non-banking finance companies require calming of markets to restore trust. Authorities have responded. Both fiscal and monetary levers have been put into action to give confidence to market participants. The sharp cut in corporate tax rates has boosted sentiment. The Monetary Policy Committee has responded with large cuts in the repo rate, has kept system liquidity in surplus and shown readiness for further rate cuts.

Any financial dislocation requires capital to come from 'strong' hands to give confidence to 'weak' entities. An active market for corporate control can allow leveraged promoters to exit. Takeover of financial institutions may be constrained by shareholding restrictions for financial institutions. Regulatory provisions, which create a caveat for concentrated holdings for some time, can offer opportunities for large private equity funds or strategic investors to commit capital to troubled financial institutions.

The key lies in firing all cylinders of growth: consumption, investment and exports. If tax cuts result in new investments and lowering of rates brings back consumer and business confidence, growth in jobs and consumer confidence is likely. India has a low share in global exports. It should identify industries that can benefit from global trade-wars and aim to increase export market share.

Put More Money in Consumers Hands

Anil Rai Gupta, CMD, Havells India

Consumption has sustained the Indian economy in recent times despite slow growth in other segments. India represents an enormous opportunity with a favourable demographic profile and aspirational consumers. The consumer is value conscious, well informed, and willing to experiment with new ideas. The slow growth in industrial and service sectors has left its imprint on consumer sentiment as well. The consumer is conscious of conserving capital and is delaying purchases until clarity emerges on overall growth. The government may consider, subject to fiscal commitments, putting more money in hands of the consumer through direct relief or similar interventions. India holds tremendous potential to attract investments owing to its skilled manpower, democratic governance, independent institutional mechanism and vast market.

The infrastructural bottlenecks require streamlining to facilitate movement of goods. The contractual framework and its legal protection could be further strengthened through time-bound disposal of commercial disputes.

Go for Asset Monetisation

Ashu Suyash, MD & CEO, CRISIL

When India's GDP growth slumped to 5 per cent in the first quarter of this fiscal, the government stepped in with a slew of measures, the most significant of which was slashing of the corporation tax rate. CRISIL surveyed 850 companies after this. While most foresee benefits, a chunk intends to retain savings to reduce funding constraints and strengthen balance sheets. That could prime them for fresh capex once demand revives. The cut will bring medium term, rather than immediate, benefits. In such a milieu, and given the political capital enjoyed by the government, the current crisis can be used to execute divestments and asset monetisation to relieve fiscal pressure.

We see a gradual uptick in growth, and not a 'V' shaped one, given that a direct fiscal stimulus is unlikely and monetary easing will impact with a lag. Medium-term prospects are promising as strong consumption demand will play out because of demographics and technological facilitations. Deleveraging and the clean-up of the financial sector will support investment recovery over the medium term. Disruptive digitalisation, too, augurs well, as it promises benefits for the government, companies and citizens.

Need to Increase Liquidity

Ashwani Mahajan, National Co-Convenor, Swadeshi Jagran Manch

As demand has slowed in some sectors, economic sentiment has been badly affected. Many economists are averse to terming it a recession. However, they feel that to get out of this slowdown, serious efforts are needed. We can improve sentiment by increasing private consumption, investment, government expenditure and exports. Developed countries do it by giving bailout packages and tax concessions. In India, it is not possible to give bailout packages to households and firms. Banks and non-bank financial institutions can do that by increasing liquidity in the system.

The government can encourage consumption and investment by tax concessions. It has done that by reducing the corporate tax rate. But this cannot be done on a very big scale as it may hit the fiscal balance. Much depends upon banks and the Reserve Bank of India to improve sentiment by creating more liquidity in the system and reducing borrowings costs.

If we look at consumption demand in India in recent past, we do not find any big slowdown in the fast moving consumer goods sector. Sales of refrigerators and air-conditioners have grown; the automobile sector has been an exception. In the last three decades, the new economic policy of liberalisation, privatisation and globalisation has resulted in gross inequalities and unemployment. These problems cannot be solved overnight. We need to change the mindset of policy makers. The reason why demand is not picking up is that income of the poor and, therefore, their purchasing power, is not increasing.

State Spending Needs to Rise

C.P. Gurnani, MD & CEO, Tech Mahindra

There is no 'one-stop' approach to reviving the current economic sentiment. Government and public sector spending has to increase. There is a need to define a big-bang approach to leverage new technologies like 5G, Network of the Future, Artificial Intelligence and Quantum Computing to accelerate growth.

But much more needs to be done to boost consumer confidence. While the government has been focusing on the supply side (increased thrust on manufacturing), it needs to ensure there is enough demand to achieve the right economic balance. There are two growth drivers - consumption and investment. The key to boosting consumption is putting more disposable income in hands of consumers. Urban areas have a higher propensity to consume, therefore, a comprehensive policy on urbanisation would enhance the consumption function.

The government needs to devise an economic stimulus package for SMEs. It needs to continually invest in improving existing infrastructure to drive future growth. Additionally, social security schemes can increase the productive capacity of the economy and purchasing power of people.

The recent cut in corporate tax is a welcome move. The government needs to address industry-specific issues on priority. Digital has the potential to transform India's economy. Digitalising sectors, including agriculture, education, energy, financial services, healthcare, logistics and retail, as well as government services and labour markets, could each create $10 billion to $150 billion of incremental economic value in 2025 as digital applications in these sectors will help raise output, save costs and time, reduce fraud, and improve matching of demand and supply.

Don't Take Too Many Radical Measures for Growth

Esther Duflo, Winner of the 2019 Nobel Prize in Economics

India should not worry about the slowdown in economic growth. It is caused by two phenomena - worldwide circumstances and the impact of the fast growth in recent years. While you cannot do anything about global conditions, India's fast growth for many years was the result of a lot of catching up. Now that low hanging fruits have been picked up, growth is expected to slow down. It does not mean India is going to become poor, as it's still growing. One shouldnt take too many radical measures to have growth come back.

You need to find a way to say growth is going to come at a slower rate but we need to make sure that the standard of living of people is up. One should make sure not to create huge demand and induce a crisis. The point now is not to be too concerned about growth but to manage consequences. India should not raise taxes as it could have a multiplier effect. Slashing taxes is risky because, if you do so, where will the money you need to spend on public expenditure come from? Cutting public expenditure in the middle of a crisis is not a good idea. I dont see any quick solution. There are two issues. One is slowdown, which I dont think we need to worry about. The other is that today there is something close to a crisis and we have to learn from what weve done in the 2008 crisis. The key is to manage, keep public expenditure right. Our book (Good Economics for Hard Times) will tell you that when growth goes down, you need to be effective at how you spend the money you have. Its not just about public expenditure but increasing effectiveness. Universal Basic Income could be tried out. It gives people assurance. That, I think, will give people confidence to do new things to improve their lives. We should give it a try.

Macro-level Growth Will Drive Consumption

G.V. Prasad, Co-chairman and MD,Dr Reddy's Laboratories

If there is a slowdown, it is a global phenomenon. What is important is to recognise it and take some corrective action. While the government has rolled out some stimulus measures, the industry outlook could get vastly positive if these are followed up with steps to address some industry-specific pain points. In pharmaceuticals, the industry where we operate, the move towards price control and the uncertainty around it are hurting. What the industry needs today is a greater enabling environment with suitable policies to encourage investments in research and development. All these could go a long way to improve business sentiment. If the macro takes care of itself, consumption will also pick up because consumption is a function of confidence, and it grows when the economy is doing well. Investments, however, are driven by growth opportunities. But in the pharma sector, we are not bound so much by macro-cycles as medicine consumption does not fall under discretionary spending.

Mega Sentiment Boosters Needed

Kiran Mazumdar-Shaw, Chairman and MD, Biocon

The economic slowdown in India has been driven by lack of demand and consumption. Until that is squarely addressed, any effort to revive market sentiment may not work. Investment and consumption sentiment took a beating at the time of the Union Budget as some expectations were not met. Since then, the government's efforts to course correct have been welcomed, but are yet to move the needle. Had these measures been embedded in the Budget, it would have created a feel-good factor. Besides, a few good measures announced post factum had been negated by several scams such as IL&FS and PMC Bank. The middle class needs to be assured that their money will be safe when they invest in registered banks and the ecosystem will not be fraught with high risks which will wipe off their savings. As for the industry, measures should be taken to help create a more enabling atmosphere for investing. This is crucial, especially when IIP numbers are pointing towards a decline in industrial production that may kick-start a vicious cycle of layoffs and job losses. Right now, the economy needs mega sentiment boosters. We should seriously look at putting money in consumers' hands. For instance, the government can consider lowering personal income tax and ensure that people have more money to spend. This also calls for doing away with the 'rich tax'. A further reduction in GST is required. These measures cannot be incremental. So, the only challenge before the government is to do these while ensuring that tax revenues continue to support its social welfare schemes. The government should look at improving revenue collections and correct cost inefficiencies.

As for industry, the trust deficit needs to be bridged so that investments can happen.

In exports, the only thing that can be attempted is to strike as many free trade agreements as possible to benefit India.

New Businesses Will Drive Job Growth

Kris Gopalakrishnan, Chairman, Axilor Ventures, and Co-founder, Infosys

There are issues with business and consumer sentiment and a growing concern over short-term and long-term growth, job creation and NPAs. A slew of reforms took place within a short period, and there are change management and implementation issues in the short term as companies modify their systems accordingly. The movement from a cash economy to a digital economy is a major transition for the country.

These changes have an impact on people and organisations. Some companies have addressed it quickly - like those in the IT services. Even start-ups have managed the transition much better than other sectors. So, if you want good jobs to be created, new business creation must be the single focus in the medium term. New businesses are faster, better and cheaper and bring innovative products to the market.

In addition, the government has to clean up the financial system so that credit flows are available, especially for the MSME sector. A deep dive into sector-specific issues, with a focus on real estate, construction and automotive sectors, would also help. Then again, our agriculture should be export-driven and must cater to the world value-added produce.

Incentivise Domestic Firms

Manish Sharma, President and CEO, Panasonic India and South Asia

The festive season is crucial for consumer durables companies. The industry passed on the benefit of reduced GST to consumers. This helped revive sentiment to a certain level. NBFC schemes are growth drivers for consumer durables. The decision to continue funding sound NBFCs will create more liquidity.

India is among the largest growing electronics market in the world. The industry has seen a slowdown over the last two years due to poor consumer sentiment and high import duties and GST tax slabs. The ensuing rupee depreciation, uncertain climatic conditions and increase in input costs also resulted in a slowdown. Along with this, the drop in consumer demand owing to lesser purchasing power also affected consumption patterns.

The government has been working towards reviving consumption and there have been some positive developments. There is an urgent need for the Appliance and Consumer Electronic (ACE) industry to minimise cost of operations, create local demand and increase economies of scale. A dedicated (government) department can help address these challenges.

The rural market is becoming a key growth driver. With growing internet connectivity, rural markets have seen a surge in demand for better products.

To improve India's export performance, it is essential to incentivise local firms and establish an ecosystem for domestic manufacturing while establishing beneficial trade agreements with consumption economies. It is essential for the government to reduce basic customs duty for essential components and strengthen a component-manufacturing ecosystem.

Induce good NBFCs to lend

Mohandas Pai, Chairman, Aarin Capital and Manipal Global Education

The most important reason for the current crisis is the lack of liquidity in the system. At the time of the IL&FS crisis, around 40 per cent of consumer spending used to be financed by NBFCs, but it has come down drastically. NBFCs used to raise funds through mutual funds or bonds. Banks also lent them money. But everything has stopped now. Many NBFCs are staring at bankruptcy due to short-term liquidity concerns. The government must make sure that good NBFCs are induced to lend and banks should refinance them. NBFCs know how to lend, they market credit, but most banks have lost their ability to lend to consumers. They have expertise in rationing credit, not marketing it. Earlier, many banks were over-generous to crony capitalists, and they are now paying the price. Some private banks have done well, but overall, the government is living under a delusion, thinking it can tell banks to lend, and that will solve the current crisis. Moreover, the RBI should reduce interest rates. The real interest rate is very high - MSMEs are paying 13-14 per cent. How can they compete when they pay such high real interest rates and that, too, without enough credit?

The Prime Minister should meet industry leaders, listen to their concerns and help ease their burden. There have been too many shocks and changes to the system. It started with demonetisation. Then came GST, IBC, RERA, the NPA and the NBFC crises, the auto slowdown and the shift to Bharat VI. Tax terrorism is another big issue. Companies are no longer able to respond to changes. The industry is in a state of shock and needs healing. Of course, reform is necessary, but there is only so much change that the industry can absorb without growth coming down. Stalled reforms such as coal linkages and power plants stuck due to approvals have to be restarted as well.

Consumer sentiment can be revived when there is adequate liquidity in the market. The real estate sector is a huge job creator, but now it is in deep trouble. Why can't states cut registration charges for a couple of months to improve sales? Also, the Modi government must be more proactive because this is the first year of his second tenure.

Good Monsoon Should Improve Rural Demand

M.M. Murugappan, Executive Chairman, Murugappa Group

The government has held many consultative meetings and announced stimulus measures across various fronts. Since overall demand in India has declined, we need to wait for some months to see the impact of such announcements. With good rains we expect a good kharif crop and indications are that rabi will also be good. This should improve rural demand and sentiment. Since global markets are not buoyant, export growth will be muted. There are many dimensions to this and we need to focus on working closely with customers. Across our businesses we are focused on building efficiencies and enhancing capabilities, particularly with the use of interdisciplinary technologies. These are challenging times but we remain positive and focused on the long term as far as investment is concerned.

Simplify Tax Regime, Improve Compliance

Motilal Oswal, Managing Director and CEO,Motilal Oswal Financial Services

The Indian economy weakened in the past few quarters. Real GDP growth decelerated to 5 per cent in the June 2019 quarter, marking the slowest growth in past six years. While a slowdown in investment has been there for over five years now, the recent softness in consumption has made the slowdown broad-based.

A revival in consumption is essential for a quick economic recovery because investment revival could be long drawn. One way would be to rationalise the personal income tax structure. There are about 80 million personal income taxpayers in the country, accounting for less than 15 per cent of the total working population. Since a large section of our society is in entrepreneurial activities, it is important to simplify the tax regime and ensure compliance.

The government must also look at employment. The economy is dominated by informal employment. Tax incentives could help these small companies to shift to the formal sector. It is a win-win for all - companies take advantage of lower borrowing costs and government gets taxes from legitimate businesses.

In investments, the government has been leading by example. Fiscal investments in roads, railways and incentives to the housing sector are just some examples. But without the private sector, the investment cycle is unlikely to revive.

Encouraging long-term foreign and domestic capital into equities helps companies raise risk capital, which is essential for investment cycle as well. A re-look at capital gains and dividend taxes will enable positive sentiment. A positive capital market enabling wealth creation plays a key role in driving demand for consumption.

Lastly, real interest rates in India remain high. Effective transmission of rate cuts by RBI has been very limited. Any steps to lower the cost of capital will be a welcome move.

S.N. Subrahmanyan, CEO & Managing Director

R. Shankar Raman, CFO, Larsen & Toubro

The Indian economy has been facing stress for the past few months. Many infrastructure projects were halted. If these alone are revived, it can provide employment to at least one lakh people.

A few things need to be done urgently to revive overall economic activity and business sentiments. The government has to prioritise allocation of funds for various projects in the infrastructure sector. The need is to rediscover credit flow to companies to keep momentum going.

Banks and other financial institutions have a liquidity surplus, which if brought into the system, can support in creating another $2 trillion economy. NPAs are part of business and can happen any time in the business cycle. Credit on hold fearing NPAs is not the answer. The government and banks have to be enablers in reviving the business sentiment and consumption.

In the last few months, we have seen a noticeable slowdown in economic activity, mainly in private consumption and industrial capex. Private sector investments were less in areas of industrial capex, private sector projects, construction, etc.

If we look at infrastructure, the revival of commercial and real estate sector is important. Projects like new hospitals as part of Ayushman Bharat, new IITs or new AIIMS have to happen to revive construction projects. In the EPC road sector, there is a slowdown and if projects are pushed and funds are released on time, it can ensure more employment.