We are getting there

NITI Aayog has put forth a plan to turn India’s economy to reach a size of $7.5 trillion, (though targeting $10 trillion) or more than three times of what it is today, at $2 trillion. Implementation of GST, tax reform and ease of doing business (read the Cover Story) are all parts of the building blocks of this plan. And, they all seem to be moving on course so far. India is on the throes of a massive change. The change is not only limited to economy and industry but is also being instituted in social behaviour, and most importantly, in changing mindsets. Just look at what all is happening: Swachh Bharat, Digital India, Smart Cities, AMRUT, Affordable Housing, E-governance, E-Procurement, Make in India, Direct Benefit Transfer, Demonetisation, black money campaign, renewable energy thrust, UDAN, etc, and other social campaigns such as the Ujwala Yojna, Beti Bachao Beti Padhao and so on. This is a lot of work in so short a time and work is in progress.

The recently announced affordable housing scheme and Pradhan Mantri Awas Yojana or PMAY have seen the launch of over 350 projects to build about 2 lakh houses with a private sector commitment of investing Rs 38,000 crore. The cost of constructing these units will be in the range of Rs 15 lakh to Rs 30 lakh with an average construction cost of Rs 18 lakh per house.

Under PMAY-U, central assistance is provided to each beneficiary in the range of Rs 1 lakh to Rs 2.35 lakh. Of the 2 lakh houses, over 1 lakh will be constructed in Maharashtra, followed by 41,921 houses in the NCR; 28,465 in Gujarat; 7,037 in Karnataka; and 6,055 in Uttar Pradesh; among others. Cement prices have already reached pre-demonetisation levels on the back of demand coming from infrastructure and will firm further due to these housing projects.

GST is on track and is likely to cause another disruption for a quarter, but will soon bring great prosperity. Distressed assets of around $6.8 trillion sitting on books of the banks would also heave a sigh of relief as firms and funds like KKR, Lone Star, Kotak and Edelweiss are planning to mobilise their resurrection. It is estimated by experts that the capital required for the next four to five years to resolve distressed situations is about Rs 30,000 crore to Rs 40,000 crore, and it is already being provided for by NBFCs, PEs and international funds.

The PM completes three years on May 26 this month and a lot is on his plate. Fortunately, for us, his plans have accorded priority to infrastructure and while public spending is leading the way, the private sector is preparing to jump in the fray too. Recently, at a private charity function, I bumped into Sajjan Jindal, Chairman of JSW Group, and when I posed him a casual question on whether the private sector was ready to invest into the India story: “We are getting there,” he quipped.

Can the Budget bring the mojo back?

Demonetisation has dealt a body blow to the economy whether we like it or not. It has delayed the uptick in the economy by a minimum of several quarters. The informal economy is in tatters and the business outlook is glum.

But it is done and nothing can be done about it. Building a cashless economy is a long-term goal but given the fillip provided owing to the diktat, digital payments and the infrastructure required for their enablement are set to leapfrog.

The argument that the informal economy can become part of the formal economy by such legal leverage is flawed. On the contrary, when the fruits of development ripen under the formal economy, they beckon with sweet dividends. But this, too, is more likely to happen provided the formal economy offers infrastructure to enable ´ease of doing business´. Currently, the formal economy is low down in the rankings globally and has barely moved up a notch despite fervent campaigns trying to create a favourable pitch for the same.

The reason it is not being reflected is because the constituents, like the legal system for enforcing contracts, resolving insolvency, obtaining construction permits, are not tuned in to this level of efficiency. They need overhauling. The Insolvency and Bankruptcy Code 2016 has just got notified and has been activated in the last quarter. But why are we ranked 172nd in paying taxes? If we want more and more tax payers, the process should be made payer-friendly and easy to comprehend and observe. Disillusionment with the formal economy will always encourage new entrants to find easier, unlawful ways of avoiding taxes. Starting a business, too, is a difficult proposition. Then, how can we create and harness young talent, which is the true demographic dividend? Thus, only when the states make it easy to do business will the informal economy take lessons in joining the formal economy.

For instance, dealing with construction permits is a nightmare. State governments need to bring down the number of permits and arrive at a one-window solution. The Model Building Bylaws introduced earlier this year provide a framework for online approvals for building and construction projects in urban areas, including simplified environmental and other clearances within 30 days, and encourage self-declaration. Similarly, various states need to adopt the Real-Estate Regulation Act to make the shift. Here, the act has stiffened penalties for the developers, but has kept no onus of delay in permissions on the authorities, leaving the developer exposed to the mercy of the authorities.

Meanwhile, roads need to step up the acceleration. Up to November, the total length of road contracts awarded has been 5,688 km and the length of roads constructed 4,021 km, which is 12 km per day.

A huge development in the Northeast under NHIDCL is underway, covering a length of 8,007 km to be executed at about Rs 100,000 crore. And, in urban infrastructure, from January to December 2016, a total investment of Rs 272,380 crore has been approved for the smart city plans of 60 cities, AMRUT, PMAY (Urban), new metro projects, Swachh Bharat Mission (Urban), and redevelopment of seven Central Government residential colonies in New Delhi.

Public spending will need to further be stepped up to create employment opportunities for the informal sector. The Budget is expected to reduce taxes, offer incentives for using digital payments and announce major initiatives in public spending. The growth momentum had just about begun to accelerate when November 8 struck. Now, that mojo seems elusive. Can the Budget bring it back?

PS: The Union Budget is scheduled on 1st February, a big change in practice followed ever since we became independent. Construction World too is making a big change. Watch out for the February issue!