Page 23 - Forbes - India (January 2020)

ExpEctationS and Structural rEformS

inance Minister Nirmala Allianz’s Asia CEO and CIO Ritu
Sitharaman faces the most Arora, who is based in Singapore.
challenging period of her tenure As credit creation gets impacted,
as she prepares to present the so does growth. “The government
F Union Budget on February needs to introduce sentiment-boosting
1. The economy is in the doldrums measures to reinstate confidence
with the pace of growth slowing at a within NBFCs. Quick reviews of the
worrisome pace. According to data capital position of NBFCs by the
released by the Ministry of Statistics Reserve Bank of India (RBI) could be
and Programme Implementation one important measure,” adds Arora.
in January, the economy is forecast Though Sitharaman and the
to grow at 5 percent for the current Easing FDI government have been proactive
financial year, the slowest in 11 years. in announcing reforms, including
Labour participation rate is at an easing foreign direct that India could the Real Estate (Regulation and
all-time low of 42.4 percent as of investment (FDI) attract $10 billion Development) Act, Insolvency and
in investment if FDI
in the insurance
November 2019 and credit growth sector is likely to be norms were eased Bankruptcy Code and the Goods
from banks has more than halved in discussed. This is one further. Corporates & Services Tax (GST), the timing
of the few sectors—
say Indian control
2019 compared to a year earlier. besides telecom can still be achieved has been wrong. “Reforms carry a
The government is focusing and media—which by the government friction cost and businesses need to
remains restricted to
by ensuring key
on structural reforms to stem the foreign investment. managerial persons deal with them, particularly GST,”
rot, but those, at best, will boost The FDI limit for and majority of the says Nitin Jain, CEO of Edelweiss
foreign investment
board members are
economic competitiveness in into an insurance Indians. Global Investment Advisory.
many of these
the coming years. There appears company is 49 measures are low- These reforms were rolled out
percent, through a
to be no immediate remedy. joint venture with hanging fruit that the when monetary policy and market
Sitharaman thought she had found management control government could liquidity were relatively tight. “This
resting with the In-
use to improve the
her mojo to kick-start economic dian partner. There is investment climate. had increased friction. Growth has 23
activity last September when she a possibility that this But if India has to be been badly impacted,” adds Jain.
investment limit will
on track to achieve a
slashed corporate tax rate from be raised to 74 per- $5 trillion target by Monetary policy has now eased,
30 percent to 22 percent for local cent in the Budget. 2025, more structural interest rates are low, but the
The Life Insurance
reforms need to fall
companies. Corporate India and Council estimates into place. transmission rates continue to be
investors lauded the move, resulting weak. This means while the RBI
in a 5 percent surge in the Sensex companies (NBFC) are getting lowered its benchmark repo rates—by
index that day. Four months down choked with inadequate access to 135 basis points between February and
the line, the cut appears to have market liquidity in the backdrop October—the lending rate for fresh
failed to move the needle although of infrastructure lending giant loans has fallen by only 44 percent,
it was a positive structural move. IL&FS’s collapse. This lowered the according to RBI’s latest data.
The finance minister also ability of NBFCs to provide loans to The hope was that consumer
announced that there would be no customers in the auto and real estate demand and spending would pick
surcharge on capital gains and no tax sectors—both critical to economic up in the five-month-long festive
on buybacks. But this meant a blow of activity—and impacted sales for season which ended in December.
`1.45 lakh crore to the government’s both. The task ahead is huge, but not Sales of cars picked up by about
tax collections annually, thereby unmanageable, according to experts. 5-7 percent during this time, but
putting more pressure on fiscal deficit. tapered off soon. Passenger car sales
There is also a strong possibility that revving the credit cycle fell by 17.9 percent year-on-year
India could miss its disinvestment “One of the challenges that the finance between April and November.
target of `1.05 lakh crore, having minister has is to revive the credit The need for a fiscal stimulus
clocked just `17,364 crore since April cycle. The IL&FS default and issues at for the real estate and auto sectors
2019. Missing the target will mean DHFL have led to a situation where is real, which Sitharaman is likely
the fiscal deficit will widen further. confidence of market participants has to endorse in the Budget.
Economists say the government’s significantly been impacted. The short-
reforms, by their very nature, are term credit markets and commercial Banking on real estate
anti-growth, at least in the short papers remain frozen leading to The illness plaguing NBFCs has
term. Most of them have come at a most NBFCs having to contract their spread to the real estate sector,
time when non-banking financial balance sheets,” says insurance giant which contributes around 8 percent

january 31, 2020 • forbes india