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Deferrals in Policy Implementation

Indian economy today is in urgent need of policies aimed at restoring growth. The economy which has lost its shine to its neighbour China is now experiencing a net outflow of FII funds all thanks to slow execution of policy at centre. The government currently needs to execute some of the key bills like Land Acquisition Bill (LAB), GST in order to revive the investment climate.

A clear transparent tax system in the form of GST would go a long way and will help in boosting investor confidence and improving sentiments. The bill not only helps in increase the tax revenue (by bringing the untapped unorganised sector in tax regime) but will also help in getting rid of complex taxation system. It will help in lowering the price of products thus boosting private consumption and will improve the usage rate of trucks in logistics sector.

Similarly, a reformed land acquisition bill (LAB) will pave way for faster development of infrastructure (power, roads, railways, defence and the likes) and will also support the farmers by transparent mechanism of compensation (LAB outlines that the compensation for land acquisition will be directly transferred to beneficiary bank account thereby reducing involvement of middle men and reducing corruption).

The manufacturing sector today needs tremendous support if the decline in growth has to be reversed. Current investment allowance of 15 per cent might do well for large investors but the spectrum needs to be broadened if over 70,000+ SME force is to be tapped.

The bills have been passed by the lower house of parliament during the budget session where the Narendra Modi led NDA government is in clear majority but Rajya Sabha remained a challenge. Thus, the bills are delayed until next session of Parliament. The chart below shows the status of bills presented in both the houses since 2010 until 2015 (YTD).

 

Policy defferal

Source: Parliamentary bills information

 

Some of the key bills introduced in Lok Sabha by government in 2015 are stated as under:

Bill no. and year Bill name Status
156 of 2015 The Benami Transactions (Prohibition) Amendment Bill, 2015 Pending
155 of 2015 The Repealing and Amending (Third) Bill, 2015 Pending
154 of 2015 The Whistle Blowers Protection (Amendment) Bill, 2015 Passed
153 of 2015 The Compensatory Afforestation Fund Bill, 2015 Pending
152 of 2015 The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment) Second Bill, 2015 Pending
151 of 2015 The Negotiable Instruments (Amendment) Bill, 2015 Passed
122 of 2015 The National Waterways Bill, 2015 Pending
119 of 2015 The Appropriation Acts (Repeal) Bill, 2015 Passed
85 of 2015 The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2015 Pending
20 of 2015 The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment) Bill, 2015 Passed
18 of 2015 The Mines and Minerals (Development and Regulation) Amendment Bill, 2015 Passed

Source: Parliamentary bills information

Thus, we see that majority of the bills are pending. The deferrals in policy implementation for the above mentioned bills will have a negative impact on the growth as economic revival would further take time. The ambitious growth rate of 8-8.5 per cent GDP will now be a distant dream and we will see only 150 percentage points deviation from the target, thanks to the easing inflation and rate cuts announced by the Central Bank. The policies deferral will lead to poor investment ecosystem which was somewhat improving due to lower interest rate and participation from private players will remain a concern. Thus we see that delay in implementation will eat upon the expected growth story which the Narendra Modi led NDA government plans to write before the next Lok Sabha elections in 2019.

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