India pulls back state control in many sectors to boost economy
EXPERTS SAID THE STEPS SHOWED THE GOVT’S FAITH IN FREE MARKETS, IN ECONOMIC FREEDOM AND DESIRE TO KEEP LIMITED NATIONALIZED INDUSTRY
nNEWDELHI:THE Modi government has attempted to set the country on a new pro-business economic course, pulling down the last vestiges of state control in most sectors to jumpstart a stalling economy, a series of announcements by finance minister Nirmala Sitharaman that concluded Sunday show.
Several economists said the steps showed the government’s ample faith in free markets, in economic freedom, desire to keep limited nationalized industry and a somewhat redefined welfare state.
Sitharaman offloaded more chunks of the economy for private investment on Sunday. The government will fold up more public firms. It will limit staterun companies to just four in yet undeclared strategic sectors, for instance.
The Opposition has continued to grumble that the measures are oblivious to harsh life on the street. Growth was already falling before the Covid-19 struck. GDP, the widest measure of people’s incomes, grew just 4.71% in October-december 2019 period, the slowest pace in six years.
“But our approach looks different from many advanced economies, which are trying to spur people’s spending on goods and services. We are basically providin ing huge liquidity to the private sector so that the markets selfcorrect,” said Biswajit Dhar, who teaches at the Centre for Economic Studies and Planning, Jawaharlal Nehru University.
Dhar picked collateral-free loans to small enterprises as the best step. This will give small enterprises, which contribute 30% to the country’s GDP, money restart business, he said. They will be able to then add jobs. Small firms in India employ the largest workforce outside agriculture.
Dhar said in a “demand-deflated situation”, he expected the government to do the “heavy lifting”, instead of letting the “injured” private sector do it.
“Only the government is standing. The Reserve Bank has pumped in about ~8.5 lakh crore. In good times, they would have all been absorbed. Today there are no takers.”
Some economists said the government had not gone the whole hog in privatization even though it appears to have done so.
the critical power sector, the government continues to replace public-sector monopolies with private-sector, according to Gajendra Haldea, who served in India’s erstwhile planning commission and drafted India’s Electricity Act 2003. In simple terms, a monopoly arises when one firm has access to the entire market.
Sitharaman had announced privatization of power distribution firms in Union territories. Yet, unlike in the West, a consumer or a household cannot choose between power distributors because of the way the sector has been privatized.
“The power sector cannot flourish unless consumers have a choice. Competition is the soul of the Electricity Act 2003, consistent with international best practices. Yet, we have continued with monopolies that suit our political economy. So we should not expect any meaningful reform in the power sector at least, government’s laudable intentions notwithstanding,” Haldea said.
The measures announced by the government will take effect within a month, an official, requesting anonymity said. “Whether or not we get economywide self-sufficiency, which I think we won’t, the main job will be done if growth comes back. That will be enough for now,” said Abhishek Agrawal, an economist with Contrade, a commodities trading firm.
nNEW DELHI: India will suspend fresh bankruptcy proceedings against defaulters for one year so that companies are not dragged into tribunals at a time they are trying to get back on their feet, finance minister Nirmala Sitharaman said.
The government will also make provisions in the law to exclude all debt associated with the novel coronavirus pandemic from defaults covered under the Insolvency and Bankruptcy Code (IBC) for triggering action against defaulters by creditors, the minister said while announcing a raft of legislative measures to help businesses tide over the crisis. The measures will be brought to effect through an ordinance, Sitharaman said. Details of the proposed amendments will be known once the ordinance and subsequent notification of the proposals are issued.
The government will also notify a special framework for dealing with the bankruptcy of micro, small and medium enterprises (MSMES). Also, the minimum payment default threshold for triggering bankruptcy proceeding against a company will be raised from ~1 lakh currently to ~1 crore, the minister said.
“Many businesses have got severely affected particularly during the lockdown and the coronavirus pandemic. Debt related to Covid-19 shall be excluded from the category of ‘default’ under IBC. No fresh insolvency proceeding shall be initiated for up to one year,” Sitharaman said explaining the provisions in the proposed ordinance.
While pausing fresh bankruptcy proceedings could be a breather for many companies, it could deprive lenders the opportunity to restructure certain companies which may be beyond redemption. Experts said the uncertainty surrounding the economy warrants more fundamental changes in the IBC than suspending it for a period.
“Bankruptcy laws have undergone fundamental changes during uncertain times like these in the past. What we need is a revolutionary rehash of the insolvency law and not a pause of the bankruptcy proceedings for a year. A brand new, out-of-the-box resolution approach is needed, which incentivises banks and public sector institutions to proactively participate in rescuing businesses. The government should take another leap of faith on IBC,” said Sumant Batra, managing partner of law firm Kesar Dass B. and Associates.
nNEW DELHI: Finance minister Nirmala Sitharaman on Sunday announced a new public sector enterprise (PSE) policy under which there will be at least one state-run company in strategic sectors while PSES in non-strategic sectors will be privatized.
In her final tranche of announcement of the stimulus, Sitharaman said India needs a coherentpolicyonpses,wherein they will play important roles in defined areas. She said the Centre