Enumerate reforms should take by India for enhancing productivity of the Indian economy and spur private investments and exports?10 Marks

Enumerate reforms should take by India  for enhancing productivity of the Indian economy and spur private investments and exports?10 Marks

Introduction :

World Bank estimated that the COVID-19 outbreak is likely to have significant fiscal implications. The fiscal deficit of the central government is likely to increase to 6.6 percent of GDP in FY20/21 and is expected to remain elevated at 5.5 percent in the following year. Assuming that the states’ deficit is contained within 3.5-4.5 percent of GDP, the combined deficit could rise to around 11 percent in FY20/21. While there is a significant level of uncertainty around the projections, the general government debt-to-GDP ratio is projected to peak at around 89 percent in FY22/23 before gradually declining thereafter

 Reforms will help put the economy are:

i) Strengthening fiscal reforms

In order to instill fiscal discipline in handling COVID-19 related implications, the report suggests India may:  

· Reassess subsidies to leverage any scope for efficiency gains;

· Evaluate how much can be borrowed domestically and externally;

· Generate nontax revenues more aggressively; and

· Link the repayment of new borrowings to disinvestment receipts.

ii) Financial sector reforms

To put the financial sector on a sounder footing, the report identifies specific areas of reform. These include:

Financial sector stability. The RBI’s continued focus on risk-based regulation and supervision will be important as the temporary forbearance measures are phased out. Further strengthening of financial sector safety nets; close monitoring of liquidity and capital buffers; and regulatory and institutional framework for debt restructuring and insolvency could help deal with any spike in non-performing loans.

Examples are :

Reforms in the Non-Banking Finance Company (NBFC) sector. Reforms in the NBFC sector are needed to support its role in channeling credit to the real sector. In order to diversify the funding base and to strengthen the NBFC sector, recently launched liquidity schemes for NBFCs could be institutionalized. It would also be important to continue strengthening risk-based regulation and oversight of NBFCs.

Examples:

Deeper capital market reforms. Deeper capital markets are critical for increasing the availability of long-term finance. The report calls for the government to continue its focus on easing demand and supply side constraints, and to build on recent initiatives. The world Bank report also suggests revisiting investment guidelines for institutional investors to crowd in long-term finance and address asset liability mismatch issues.

Role of fintech. The fintech sector has the potential to close the gap in access to financial services and help firms, especially MSMEs, access much needed credit and liquidity. The report suggests mainstreaming fintech to reach firms faster and at a lower cost.

Moving to a more strategic public-sector footprint. Recent efforts including consolidation of public sector banks and strengthening of corporate governance are encouraging steps towards a more strategic public sector footprint. Moving forward, gradually scaling back the statutory requirement for state banks to provide liquidity, as well as the priority-sector lending policy, will help reduce market distortions.

countries that invest in sectoral reforms – infrastructure, labor and land, human capital -- and ensure that their national systems are connected to the Global Value Chains, are more able to respond to uncertainties and are better placed to take advantage of any global shifts. Investing in these areas will give India the ability to navigate these uncertainties and be more competitive as the world emerges from the pandemic.”