Category Archives: economy

Learnings from tale of two neighbours – India and China

Tapan Misra

The source of military conflict with China is complex. It is part military, part Chinese desire of redrawing of Chinese territory, commensurate with their perceived and concocted historical Chinese sway and probably more importantly, Chinese desire to restrict India to low end manufacturing and dominantly consumer market. Both the countries, with their similar population (India 1.3 billion and China 1.44 billion) and burgeoning and wealthier middle-class, are lucrative markets to each other and also other industrial nations.

I have sourced from World Bank data the growth of per capita GDP of both the neighbours, presented in equal footing of US$2010. If we have a look into per capita GDP of both the neighbouring nations, both countries were almost at par in poverty status in sixties and seventies. Both the countries, China under rigorous communist regime and India with hybrid of democratic and socialistic framework, established quite strong scientific base in terms of academic institutions since their independence, following second world war. But no amount of investment in scientific institutions and academia could bring prosperity to their populace. Both countries started their improvement in their lot only when they liberalized their economy, shrugging off restrictive hold of apparatchik and bureaucratic stranglehold on industrial, commercial, banking, marketing and regulatory policies.

Deng Xiaoping, unleashed opening of Chinese economy in early eighties, after consolidating his power base in post Mao transition, following demise of Mao Zedong, Chairman of PRC, in 1976. He rationalised the conflict between communistic ideology and market economy with his famous rationale: “No matter if it is a white cat or black cat; as long as it can catch mouse, it is a good cat.” India followed the path of market liberalization from license raj and era of selective patronage of businesses, in early nineties.

From the plot of growth of per capita GDP of both the countries, we see the inflection point almost took a decade after initiation of liberalization. In case of China, it was early 1990s and in case of India, it was early 2000s.

The architect of China’s liberalization could witness early fructification of his risky policy. Deng passed away in 1997. Afterall, it is no easy task to shake off the shibboleth of well entrenched political system, accustomed to sense of supremacy in everything. But one thing is clear, once a policy environment is established, successive rulers of both countries augmented their GDP in their speeds.

One interesting point is to be noted. Chinese economy got one more inflection point within almost a decade after the first inflection point, at early 2000s, accelerating their growths further. In fact, second inflection ushered in dominance of China in world economy and surprising growth in high tech, capital goods, space technology, military prowess. In case of India the second inflection point seem not to be arriving even after two decades or so after the first inflection. Our growth rate remains moderate and stagnant. We seem to be losing out in high tech and capital goods industry. Our telecom industry has huge ingress of Chinese equipment, our auto industry has less and less of India designed product, our mining industry is importing more and more heavy Chinese equipment, we do not have any respectable presence at all in semiconductor and electronics market. In space our neighbours and friends in Asia are just moving too fast. A look at our trade reveals, raw materials dominate our export against import of finished goods, naturally pushing our trade deficit upwards. You look around. We are moving but we are facing more and more catching up to do. We are good at many things, but we can hardly claim to be too good for a few things.
In my view, the first inflection is because of liberalization of overall economy, which triggered proliferation of livelihood industries with moderate technology but large job creation. This in turn fuelled higher income, and more service industries. But they do give fillip to GDP as they create present day technology base and widen job employment. But continuation of business leadership in future, high trade advantage and accelerated growth can come only when we create technology of future in todays environment. That is where innovations and innovation friendly environment play a decisive role. My presumption is: China’s second inflection is mainly due to harnessing of their large innovation potential.

One of the broad-indicator of innovation environment of any country is the number of patents granted per year. In last decade, India’s share has jumped by a factor of five. Latest number is hovering around 10800, a miniscule contribution by billion plus population. For China, the numbers jumped in almost same proportion. Only difference is Chinese numbers are around 40 times that of India, latest number hovering just a notch below 400,000, to be precise at 399,878. That is stratospheric difference. Data show, if we have to achieve the second inflection to push up the GDP trajectory, we need to rethink what urgent steps, we have to climb, in vastly pulling up our innovation environment and support system.

I believe there are a few main ingredients of innovation culture: namely, imagination, knowledge, interpersonal communication and ethical value system. We have invested considerably in knowledge system. We have rapidly expanded AIIMS, IIT, IIM, NIT, Science institutions, Engineering and Medical colleges. But we made the entry system so difficult that private tution-shops are probably having more turnover than the funding in IITs!

We created a competitive rote culture, instead of learning culture, leaving imagination to backbenchers of college classrooms.

Actually, all children are born imaginative. But society, parents, education system and knowledge accumulation gradually kill imagination. It is high time we should focus on primary and secondary schooling, quality of teachers and their remuneration. We are not able to attract bright minds for teaching, precisely because of very lopsided investment. Still our country is progressing forward and this is because of dedication of individual teachers, in spite of hardships they face. We should remember, if you give peanuts, you get monkeys. We need to refashion our education system so that learning and imagination, both are fostered.

We also need to dispense with assessing the college teachers in terms of only publications. Patents, copy rights, design rights should be given much stronger emphasis for career growth. In fact, we give away many of our hard-earned knowledge and learnings, just for free, by insisting on publication without legally securing the knowledge for future monetization.

From my long experience and being holder of reasonable number of quality patents and copyrights, I can vouch that our scientists and engineers, many times, are not able to streamline their analytical thought processes, because they lack soft skills like expressing and communicating in succinct and coherent fashion. Somehow, an idea has invaded our minds that if you want to pursue a career in science, it is ok to not to pursue language and arts courses. This phenomenon is adding to killing of the spirit of innovation.

I had an encounter with Intellectual Property Right (IPR) lawyers. I am sorry to say, interaction with them, many times kills patent initiative. They have the uncanny ability to convert a scientific phenomenon to a legalistic draft, killing the patent at the outset. I remember, in Germany I could file a patent in 15 days flat, that is the general time limit awarded there, for converting a demonstrated idea or product to patent. But in India, I find that even filing takes a year or more. By then, your patent gets leaked, as it travels through many hands and somebody else in some other country, files a patent. Patent offices also take their own sweet time.

My experience says, many institutional heads, including the top men, do not believe in patenting or pursuing an innovation to the logical ends. More often they are guided by ignorance and lack of conviction. Also, many of them have not written a single patent to their credit. Many times, our systems believe that contributing scientists and innovators are best managed by technical and scientific managers, who turn out to be more often than not expert system manipulators. The price is being paid by the country. But I must say there are some exceptions. You will find those leaders from the innovation environment and products from their institutions.

I am not telling that patents are be all of innovation. Patents ensure that the idea or product has originality and its practicability is demonstrated. Bringing an idea to a logical end and demonstrating it as a product or software is a great trainer in discipline required for innovation. All of us know, publications need not ensure originality. Even replication of an existing idea also finds avenues for publication. But patents generally ensure originality in thinking and the implementation process.
Everything is fair in love, war and international commerce. The pinpricks in different forms will be expected from our international competitors of all hues. These pinpricks may include unnecessary military engagements, cyber-attacks, currency manipulation, trade embargo, unfair tariff, one sided global institution regimes, encouragement of social and political discontent. We need to deal with them as and when they appear. We can plan for avoiding or minimising them in future. But sustaining rebuttal of these adventures is possible when we jack up our GDP and well-being of our population. Only way out is a concerted effort and conviction of seizing future economy, by building technologies and processes for future only through the sustainable route of innovation.


Tapan Misra is a distinguished scientist, who contributed immensely to India’s space programme. He has headed the Space Application Centre and was also Advisor Department of Space.

Rising fuel price, hole in the commoner’s pocket and national goals

Newsroom24x7 Network

When there is so much sound and fury on rising fuel prices that have hit the ceiling, we did some calculation on the basis of rising petrol price in a real time frame by breaking it into two distinct segments.

First, lets consider the period between 2004 and 2014 when Manmohan Singh was heading UPA-1 and UPA-2 as Prime Minister and Congress chief Sonia Gandhi was Chair of the UPA. And then we have Narendra Modi as Prime Minister, continuously since May 2014.

In June 2004 price of petrol was Rs 35/litr
In May 2014 it was Rs 71 (Manmohan regime)
2014 May to 2021 March (7 years of Modi regime) the price of petrol has gone up from Rs 71 to 100.

To put it on a lighter note, if we take into consideration Manmohan’s ten years in office, then Modi also should get the margin and be allowed to raise the price to Rs. 140 a litre by the time his second term ends in 2024.

Fuel price is also dictated by Central Excise, road cess and VAT charged by the State Governments and is a major source of revenue that supports the budgeted expenditure on welfare and development related activities. Modi government has the option of reducing Central excise but that would bring the massive initiative aimed at HRD, building the economic infrastructure for all round progress to a screeching halt. Credit goes to Prime Minister Modi that instead of taking a populist stand, his government has curbed corruption and is working with a futuristic plan focussing on education, skill development, health, industry and agriculture sectors, self-reliance, infrastructure, defence and security.

In sharp contrast, the 10 year UPA rule is known for rampant corruption, rise of crony capitalists, middle-men and fixers and a series of scams besides dismal showing on infrastructure front. Unfortunately, Manmohan Singh did nothing to address the concern expressed by Rajiv Gandhi, who had lamented at the Congress Centenary celebration event in Mumbai in 1985 that only 15 paise of each rupee spent by the government reach the needy.

On the same page, we thought it would go a long way towards educating the masses, so we are reproducing below a post doing the rounds on social media over the past few days:

All the petrol pumps should have a board like this so that people could understand who is responsible
Basic rate 30.50
Central govt tax 19.97
State govt tax 38.55
Distributor 3.50
————
Total. 92.52

Budget 2021-22 focuses on infrastructure & health for all-round economic growth and prosperity

Newsroom24x7 Network

New Delhi: Union Minister of Finance and Corporate Affairs Nirmala Sitharaman presented the Union Budget 2021-22 in the Parliament on Monday, February 1 2021 announcing that the Government shall work towards taking the country forward to the next level of health,
prosperity and well-being.

“We shall strive to bring Ease of living for every citizen,” Ms Sitharaman emphasised.

Regarding the Farm Sector, the Finance Minister underscored the central Government proposes to encourage those State governments who undertake implementation of following model laws already issued by the Central government:
a) Model Agricultural Land Leasing Act, 2016
b) Model Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act, 2017; and
c) Model Agricultural Produce and Livestock Contract Farming and Services (Promotion and
Facilitation) Act, 2018

Budget 2021-22 that provides a soothing touch to senior citizens above 75 and leaves the income tax slabs and exemptions untouched, reflects firm commitment of the Government to boost economic growth by investing in infrastructure development and disinvestment and strategic sale. This is substantiated by increase in capital expenditure by 34.5% (₹1,42,151 crore) over BE 2020-21.In RE 2020-21, the total expenditure has been estimated at ₹ 34,50,305 crore and is more than Provisional Actual (2019-20) by ₹ 7,63,975 crore.

Income Tax

Citizens, 75 years and above, who have only Pension and Interest income – will not have to file Income Tax Returns

Re-opening of Assessment to be reduced to 3 years from 6 years. Re-opening only with approval of Pr.CCIT can be made upto 10 years where there is evidence of concealment of Income of Rs. 50 lakhs or more.

Reducing Litigation for small tax payers – Faceless Dispute Resolution Panel will be set up for those with total Income not exceeding Rs.50 lakh and disputed income of Rs.10 lakh.

Income Tax Appellate Tribunal to become Faceless – There will be only electronic communication.

Relaxation to NRIs – Rules will be in place to remove hardship of Double Taxation

Tax Audit Limit to be increased to Rs.10 crores from Rs.5 crores for those having less than 5% cash transactions

Dividend will be exempt from TDS. Advance tax liability on dividend income will arise only after declaration or payment of dividend. For Foreign Investors – lower treaty rate benefit is proposed.

The total resources being transferred to the States including the devolution of State’s share, Grants/ Loans and releases under Centrally Sponsored Schemes etc in BE 2021-22 is ₹13,88,502 crore, which shows an increase of ₹74,565 crore over RE (2020-21).

Investment on Health Infrastructure increased substantially

PM AtmaNirbhar Swasth Bharat Yojana, will be launched with an outlay of about ₹ 64,180 crores over 6 years.

The outlay of about ₹ 64,180 crores will be in addition to the National Health Mission. The main interventions under the scheme are:

a. Support for 17,788 rural and 11,024 urban Health and Wellness Centers

b. Setting up integrated public health labs in all districts and 3382 block public health units in 11 states;

c. Establishing critical care hospital blocks in 602 districts and 12 central institutions;

d. Strengthening of the National Centre for Disease Control (NCDC), its 5 regional branches and 20 metropolitan health surveillance units;

e. Expansion of the Integrated Health Information Portal to all States/UTs to connect all public health labs;

f. Operationalisation of 17 new Public Health Units and strengthening of 33 existing Public Health Units at Points of Entry, that is at 32 Airports, 11 Seaports and 7 land crossings;

g. Setting up of 15 Health Emergency Operation Centers and 2 mobile hospitals; andh. Setting up of a national institution for One Health, a Regional Research Platform for WHO South East Asia Region, 9 Bio-Safety Level III laboratories and 4 regional National Institutes for Virology.


Infrastructure

The National Infrastructure Pipeline (NIP) was announced by the Finance Minister in December 2019 is the first-of-its-kind, whole-of-government exercise ever undertaken by Government of India. 

The NIP was launched with 6835 projects; the project pipeline has now expanded to 7,400 projects. Around 217 projects worth ₹1.10 lakh crores under some key infrastructure Ministries have been completed. The NIP is a specific target which this government is committed to achieving over the coming years. It will require a major increase in funding both from the government and the financial sector.

In this Budget, the Finance Minister has proposed to take concrete steps to do this, in three ways: Firstly, by creating the institutional structures; secondly, by a big thrust on monetizing assets, and thirdly by enhancing the share of capital expenditure in central and state budgets.

Infrastructure financing – Development Financial Institution (DFI) 

Infrastructure needs long term debt financing. A professionally managed Development Financial Institution is necessary to act as a provider, enabler and catalyst for infrastructure financing. Accordingly, a sum of ₹ 20,000 crores is proposed to capitalise this institution.

The ambition, according to the Finance Minister, is to have a lending portfolio of at least ₹5 lakh crores for this DFI in three years time.

Debt Financing of InVITs and REITs by Foreign Portfolio Investors will be enabled by making suitable amendments in the relevant legislations. This will further ease access of finance to InVITS and REITs thus augmenting funds for infrastructure and real estate sectors.

Asset Monetisation

Monetizing operating public infrastructure assets is a very important financing option for new infrastructure construction. A “National Monetization Pipeline” of potential brownfield infrastructure assets will be launched. An Asset Monetization dashboard will also be created for tracking the progress and to provide visibility to investors.

Some important measures in the direction of monetisation are:

a. National Highways Authority of India and PGCIL each have sponsored one InvIT that will attract international and domestic institutional investors. Five operational roads with an estimated enterprise value of ₹ 5,000 crores are being transferred to the NHAI InvIT. Similarily, transmission assets of a value of ₹ 7,000 crores will be transferred to the PGCIL InvIT.

b. Railways will monetise Dedicated Freight Corridor assets for operations and maintenance, after commissioning. 

c. The next lot of Airports will be monetised for operations and management concession. 

d. Other core infrastructure assets that will be rolled out under the Asset Monetization Programme are:

(i) NHAI Operational Toll Roads 

(ii) Transmission Assets of PGCIL

(iii) Oil and Gas Pipelines of GAIL, IOCL and HPCL

(iv) AAI Airports in Tier II and III cities,

(v) Other Railway Infrastructure Assets

(vi) Warehousing Assets of CPSEs such as Central Warehousing Corporation and NAFED among others and 

(vii) Sports Stadiums.

Sharp Increase in Capital Budget

In the BE 2020-21,  ₹ 4.12 lakh crores was provided for Capital Expenditure. The effort is in spite of resource crunch the government should spend more on capital and to end the year at around ₹ 4.39 lakh crores which has been provided in the RE 2020-21.

For 2021-22, a sharp increase in capital expenditure has been proposed and thus there’s a provision of ₹ 5.54 lakh crores which is 34.5% more than the BE of 2020-21. Of this, a sum of more than ₹ 44,000 crores has been kept in the Budget head of the Department of Economic Affairs to be provided for projects /programmes /departments that show good progress on Capital Expenditure and are in need of further funds. Over and above this expenditure, more than ₹2 lakh crores will be provided to States and Autonomous Bodies for their Capital Expenditure. 

The central government will also work out specific mechanisms to nudge States to spend more of their budget on creation of infrastructure.

Roads and Highways Infrastructure

More than 13,000 km length of roads, at a cost of ₹ 3.3 lakh crores, has already been awarded under the ₹ 5.35 lakh crores Bharatmala Pariyojana project of which 3,800 kms have been constructed. By March 2022, and government would be awarding another 8,500 kms and complete an additional 11,000 kms of national highway corridors.

To further augment road infrastructure, more economic corridors are also being planned. Some are: a. 3,500 km of National Highway works in the state of Tamil Nadu at an investment of ₹ 1.03 lakh crores. These include:

a. Madurai-Kollam corridor, Chittoor-Thatchur corridor. Construction will start next year.

b. 1,100 km of National Highway works in the State of Kerala at an investment of ₹ 65,000 crores including 600 km section of Mumbai-Kanyakumari corridor in Kerala.

c. 675 km of highway works in the state of West Bengal at a cost of ₹25,000 crores including upgradation of existing road-Kolkata –Siliguri.

d. National Highway works of around ₹19,000 crores are currently in progress in the State of Assam. Further works of more than ₹34,000 crores covering more than 1300 kms of National Highways will be undertaken in the State in the coming three years. 

The Budget proposes an enhanced outlay of ₹ 1,18,101 lakh crores for Ministry of Road Transport and Highways, of which ₹1,08,230 crores is for capital, the highest ever.

Railway Infrastructure

Indian Railways have prepared a National Rail Plan for India – 2030. The Plan is to create a ‘future ready’ Railway system by 2030.

Bringing down the logistic costs for industry is at the core of the strategy to enable ‘Make in India’, the Finance Minister said adding, it is expected that Western Dedicated Freight Corridor (DFC) and Eastern DFC will be commissioned by June 2022. 

The following additional initiatives are proposed:

a. The Sonnagar – Gomoh Section (263.7 km) of Eastern DFC will be taken up in PPP mode in 2021-22. Gomoh-Dankuni section of 274.3 km will also be taken up in short succession.

b. Future dedicated freight corridor projects would be undertaken, they are namely East Coast corridor from Kharagpur to Vijayawada, East-West Corridor from Bhusaval to Kharagpur to Dankuni and North-South corridor from Itarsi to Vijayawada. Detailed Project Reports will be undertaken in the first phase. 

c. Broad Gauge Route Kilometers (RKM) electrified is expected to reach 46,000 RKM i.e., 72% by end of 2021 from 41,548 RKM on 1st Oct 2020. 100% electrification of Broad-Gauge routes will be completed by December, 2023. 

For Passenger convenience and safety the following measures are proposed:
a. Aesthetically designed Vista Dome LHB coach will be introduced on tourist routes to give a better travel experience to passengers. 

b. The safety measures undertaken in the past few years have borne results. To further strengthen this effort, high density network and highly utilized network routes of Indian railways will be provided with an indigenously developed automatic train protection system that eliminates train collision due to human error. 

c. A record sum of ₹1,10,055 crores, for Railways of which ₹1,07,100 crores is for capital expenditure. 

Urban Infrastructure

The Government will work towards raising the share of public transport in urban areas through expansion of metro rail network and augmentation of city bus service.

A new scheme will be launched at a cost of ₹18,000 crores to support augmentation of public bus transport services. The scheme will facilitate deployment of innovative PPP models to enable private sector players to finance, acquire, operate and maintain over 20,000 buses. The scheme will boost the automobile sector, provide fillip to economic growth, create employment opportunities for our youth and enhance ease of mobility for urban residents. 

A total of 702 km of conventional metro is operational and another 1,016 km of metro and RRTS is under construction in 27 cities. Two new technologies i.e., ‘MetroLite’ and ‘MetroNeo’ will be deployed to provide metro rail systems at much lesser cost with same experience, convenience and safety in Tier-2 cities and peripheral areas of Tier-1 cities. 

Central counterpart funding will be provided to:a. Kochi Metro Railway Phase-II of 11.5 km at a cost of `1957.05 crores.b. Chennai Metro Railway Phase-II of 118.9 km at a cost of ₹63,246 crores.c. Bengaluru Metro Railway Project Phase 2A and 2B of 58.19 km at a cost of ₹14,788 crores.d. Nagpur Metro Rail Project Phase-II and Nashik Metro at a cost of ₹ 5,976 crores and ₹ 2,092 crores respectively.

Power Infrastructure

The Finance Minister said, past 6 years, have seen a number of reforms and achievements in the power sector. The government has added139 Giga Watts of installed capacity, connected an additional 2.8 crores households and added 1.41 lakh circuit km of transmission lines.

The distribution companies across the country are monopolies, either government or private. There is a need to provide choice to consumers by promoting competition. A framework will be put in place to give consumers alternatives to choose from among more than one Distribution Company, the Finance Minister announced.

Ports, Shipping, Waterways

Major Ports will be moving from managing their operational services on their own to a model where a private partner will manage it for them. For the purpose, 7 projects worth more than ₹2,000 crores will be offered by the Major Ports on Public Private Partnership mode in FY21-22. A scheme to promote flagging of merchant ships in India will be launched by providing subsidy support to Indian shipping companies in global tenders floated by Ministries and CPSEs. An amount of ₹1624 crores will be provided over 5 years. This initiative will enable greater training and employment opportunities for Indian seafarers besides enhancing Indian companies share in global shipping.

India has enacted Recycling of Ships Act, 2019 and acceded to the Hong Kong International Convention. Around 90 ship recycling yards at Alang in Gujarat have already achieved HKC-compliant certificates. Efforts will be made to bring more ships to India from Europe and Japan.

Recycling capacity of around 4.5 Million Light Displacement Tonne (LDT) will be doubled by 2024. This is expected to generate an additional 1.5 lakh jobs for our youth.

The Finance Minister said, “we have kept working towards strategic disinvestment”. A number of transactions namely BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam limited among others would be completed in 2021-22. Other than IDBI Bank, the government proposes to take up the privatization of two Public Sector Banks and one General Insurance company in the year 2021-22.

In 2021-22, the Government would bring the IPO of LIC. This would require legislative amendments and amendments are proposed in this Session itself.

Higher Education

In order to provide quality educationto students of deprived section of the society as well as those who do
not have access to highereducation, it is proposed to start degree level full-fledged online education programme.

India should be a preferred destination for higher education. Hence, under its “Study in India” programme, Ind-SAT is proposed to be held in Asian and African
countries. It shall be used for benchmarking foreign candidates who receive scholarships for studying in Indian higher education centres.

A National Police University and a National Forensic Science University are also being proposed in the domain of policing science, forensic science, cyber-forensics etc.

India’s reforms could support medium-term growth

Newsroom24x7 Network

Hong Kong: Fitch Ratings believes that the revival of the central government’s reform agenda in response to the coronavirus pandemic shock has the potential to raise India’s medium-term growth rate. Nevertheless, there are also downside pressures to growth and it will take time to assess whether the reforms are implemented effectively.

In recent years, the Indian authorities’ strategy to keep the public debt ratio and broader public finances under control has relied heavily on expectations of sustained rapid nominal GDP growth. The pandemic will slow medium-term growth, as we believe damaged corporate balance sheets will dampen investment for years. Renewed asset-quality challenges in banks and generally fragile liquidity for non-bank financial companies could also constrain growth prospects and jeopardise the stability of the medium-term government debt/GDP trajectory.

Raising medium-term growth rates under these circumstances will require reforms to support investment and boost productivity. We noted the GDP growth outlook as a key rating sensitivity when we revised the Outlook on India’s ‘BBB-’ rating to Negative from Stable in June.

Several reforms passed by parliament since the pandemic set in could lift medium-term growth prospects. The most notable are agricultural reforms to give farmers more flexibility over where to sell their produce. Stripping out middle men, as the reform allows, could improve farmer incomes while reducing consumer prices. Nevertheless, implementation risks are significant. For example, segments of the farm lobby have protested the reform, apparently over fears that it could result in the abolition of minimum support prices, although the government says this will not happen.

Parliament has also passed labour reforms. Their intent, among other things, is to improve worker access to social security (notably in the large unorganised sector), strengthen occupational safety requirements, speed up the resolution of labour disputes and ease migrant workers’ ability to move between states. In addition, employers will now only need prior state government approval for redundancies if they have over 300 workers, up from 100 previously, and state governments may raise this threshold. These changes could support formalisation of India’s labour market and improve its flexibility, with positive efficiency gains, but our assumption is that in practice their impact will be modest.

The government also intends to privatise some state-owned enterprises, of which more than 200 are owned by the central government and 800 by state governments. A wide-ranging privatisation push involving large SOEs could be transformative. However, it remains unclear whether the government plans to surrender its majority control. The strength of market demand for state assets is also yet to be tested.

We expect the central government to remain generally reform-minded over the next few years, while reforms also take place at the state level. Some states, for example, have passed land acquisition reforms, after the central government was unable to find sufficient support on this issue for approval in India’s upper house, the Rajya Sabha, in 2015. State-level reforms will remain important, even if their impact is more geographically limited.

The process of reform in India remains especially complex and implementation at times has proven difficult. In recent years, the government has opened more sectors to FDI, but also raised international trade barriers and withdrawn from the Regional Comprehensive Economic Partnership before its recent agreement was secured. Meanwhile, two landmark reforms from the government’s previous term faced set-backs recently due to the pandemic. The Insolvency and Bankruptcy Code has been suspended temporarily in line with forbearance regulations for banks, while a decline in inflows from the Goods and Services Tax will make it more challenging to divide these revenues among the centre and the states.