The Paramount Goal Is More Jobs

The Paramount Goal Is more Jobs

When the annual Railway and main budgets are presented on the 8^th and 10^th of July, what must be understood by all is that they will not just be strongly GDP growth-oriented. They primarily intend to swiftly create millions of new jobs to properly utilise India’s demographic dividend.

The Economic Survey due to be revealed sometime in between the two, will probably have some grim prognostications on the present situation. But, the Modi Government has been elected with the first majority in thirty years in order to move the narrative forward as strongly as possible. Modi’s early emphasis on skill-development is of a piece with this theme.

Growth in the GDP via massive investment, up to $ 1 trillion or more, in infrastructure modernisation and new capacities, the opening up the economy further to FDI and FII, the simplification of processes and procedures, revocation of impedimenta, lowering of taxes on business and industry, some tweaking of income tax provisions, removal and dilution of irksome taxes, such as the equity transaction tax, the MAT, the tentacular service tax, will all be addressed in this budget.

At the same time, several of the exemptions granted to corporations, acting like loop-holes at present, may well be discontinued.

The paramount goal however will not be just to create a boost to the national economic balance sheet, but to absorb millions of young people into the work force. To do this must mean a very strong emphasis on reviving industry, both in terms of providing it capital for expansion and modernisation, the establishment of new green-field projects, and the removal of difficulties-with land acquisition, environmental clearances, other permissions, bureaucratic delays, and infrastructural bottlenecks.

It will also mean a positive response from the Government to long-standing calls from Japan and the US, amongst others, for lower taxation on manufacturers. The unpopular retrospective taxation is also going to be scrapped, and labour laws will be tweaked to provide greater flexibility and freedom to employers.

Dramatic new developments in the Defence Sector are imminent, both in terms of sharply enhanced budgetary support so that critical path purchases of submarines and howitzer field guns, attack helicopters and fighter jets, the last already in the pipeline, can be made.

In addition, The Modi Government will give vigorous encouragement to foreign collaboration with the private sector to manufacture many defence items now taken off the licensing list. These are not the most strategic, but do add up to 60% of the list, and can meet both our own requirements, and find profitable export markets.

Other, main items of military equipment, will be licensed on a 100% foreign-owned basis for manufacture in India, obviating the wrangles over technology transfer. This holds enormous promise given that the Indian armaments shopping list is valued at over $300 billion, making it the biggest arms purchaser in the world. Routine annual purchases alone exceed $ 8 billion worth!

This area of made in India armament manufacturing which has eluded Indian policy-makers so far, will also open up a vast, competitive and skilled employment market, as well as attract billions of dollars in FDI. Most arms manufacturing nations are busy beating a path to India now, sensing a bold, new, and unprecedented opportunity.

The moribund construction sector which presently accounts for 17% of GDP, but on par with agriculture, is likely to attract huge FDI interest, because of a perception that this Government will swiftly deliver on its policy announcements, implementation, clearances, approvals and  financial guarantees.

The Modi Government has announced it intends to build 100 new cities on ‘waste-land’ to empower the 600 million people in rural India with rurban facilities. This is exciting stuff, and bound to be prominently featured in the budget, and will also prove popular in the Assembly election campaigning coming up.

In  addition, strong emphasis on updating and enhancement of all kinds of other infrastructure, including universal provision of electricity and water for all, will both grow the economy, and again, provide much fresh employment. The methodology may involve a combination of FDI, particularly from Japan and China, domestic public and private investment, and much technology modernisation. Incentives to gain these objectives will find prominent mention.

The proposal to introduce up to 30% of pension funds into the stock market, likely to be implemented, will provide the funds themselves much better returns in the current long-term bull market, and enhanced liquidity to corporates. The pension fund corpus today is already at Rs. 6.5 lakh crores, and likely to swell to over $1 trillion by 2025.

As a way to tap into the rate of Indian savings, amongst the best in the world, but chary of the stock market so far, this is an excellent initiative. It will also balance the current dependence on FII funds alone.   

The Indian Railways, over-burdened and inadequate at present, are going to prove to be another major employment and growth-driver. Narendra Modi has already promised to create a ‘Diamond Quadrilateral’ of high-speed state- of-the-art trains, with requisite infrastructure and paraphernalia. This, with probable Chinese and/or Japanese collaboration, to connect the length and breadth of the country.

The Railways already employ a million people, but they will now be made to run efficiently, safely and profitably. The recent price hike in passenger fares and freight rates is commendable, but much more needs to be done to revive its fortunes. With a plethora of actions to invest heavily in railway modernisation, including unbundling some of its extensive property holdings, and reworking its colonial era station network  with an eye to its commercialisation, a transformation is indeed possible.

Many other sectors will also be opened up considerably to foreign investment, including some core sectors involving heavy industry, mining, logistics, materials-handling, food-processing, cold-chain infrastructure, the stock and debt markets, agricultural crop cultivation modernisation, generation, transmission and distribution of electricity, an e-backbone of extensive high-speed broadband connectivity, e-commerce per se, privatisation and divestment of selected PSUs, allocating 25% of equity in many PSUs to the public investor, many special purpose vehicles, irrigation, desalination, solar power, and so on.

The overall theme of the two expectedly path-breaking budgets will be growth in GDP, but yoked to an exponential rise in employment. 

(1,029 words)

June 29^th, 2014

Gautam Mukherjee