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!