As we welcome the year 2024, it’s important to recognise its unique significance in the global political landscape. This year marks a pivotal moment, as 50 nations, including key players like the United States, United Kingdom, Russia, South Africa, and India, embark on the critical process of electing new governments. The democratic exercise of elections not only embodies the foundational principles of democracy but also exerts a profound influence on the corporate sector. The stability and predictability offered by consistent governmental policies are indispensable for fostering long-term economic growth.
A closer examination of the current government’s initiatives reveals several structural reforms that have yielded substantial economic benefits.
Strengthening of the banking system
A paramount achievement has been the fortification of the Indian banking system. The considerable reduction in gross Non-Performing Assets (NPAs) from 9.1% as of March 2019 to 3.2% as of September 2023 exemplifies this progress. This improvement stems from a strategic infusion of equity and a marked decrease in the accumulation of new bad loans. Credit for this turnaround is largely attributable to the implementation of robust bankruptcy laws under the Insolvency and Bankruptcy Code (IBC) and the vigilant oversight of the Reserve Bank of India (RBI).
Moreover, the eradication of crony capitalism played a pivotal role in this transformation. Looking ahead, preserving this independence, crucial for maintaining low NPAs and supporting the credit needs of the Indian corporate sector, is of utmost importance.
Continued focus on infrastructure development
Another cornerstone of the government’s strategy has been its unwavering commitment to infrastructure development. This focus, particularly on roads and renewable energy, represents a strategic triumph. The ambitious target of achieving 500 GW of renewable energy by 2030 illustrates a clear vision and scale of ambition.
Notably, this era of infrastructure expansion differs from the past, as it was accomplished without overburdening the financial system, thanks in part to the shared responsibility by government and quasi-government entities such as the National Highways Authority of India (NHAI) and the Solar Energy Corporation of India (SECI). This emphasis on infrastructure has compensated for the previous lack of private sector investment, propelling the economy towards robust growth. Moving forward, the focus must shift to new sectors like urban infrastructure, water supply, metro development, airports, and railways to sustain this momentum.
Boosting the manufacturing-focused sectors
The government’s efforts to invigorate manufacturing-focused sectors deserve recognition. Historically, India’s manufacturing sector has lagged behind its Southeast Asian counterparts, such as China. To address this, policies like the Production Linked Incentives (PLI) schemes have been introduced across various sectors including electronics, mobile phones, pharmaceuticals, and food processing. These initiatives capitalise on India’s strengths like abundant manpower, technological capability, and strong domestic demand. Although the full impact of these schemes is yet to be realised, their long-term focus is poised to enhance global competitiveness and self-reliance in the manufacturing sector.
In conclusion, while the current government has achieved significant milestones in economic reform and development, the journey towards sustained economic growth is ongoing. Therefore, the continuity of these policies is crucial. Maintaining the momentum in key focus areas such as infrastructure development will be key determinants of India’s economic trajectory in the coming years.
Sachin Gupta, Chief Rating Officer, CareEdge Ratings
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Published: 19 Feb 2024, 05:45 PM IST