For the Year July 1, 2016 to June 30, 2017*
I.1 Headwinds from the global slowdown
and the transient impact of demonetisation
notwithstanding, the Indian economy
demonstrated resilience in 2016-17, marked
by moderate expansion and macroeconomic
stability - low inflation, and improvement in
current account and fiscal deficits. Financial
markets priced in global and domestic shocks and
volatility ebbed, with excess liquidity conditions
induced by demonetisation persisting through the
second half of the year. In this milieu, the outlook
for growth in 2017-18 has brightened, with the
likelihood of another favourable monsoon and the
implementation of major policy reforms – led by
the introduction of the Goods and Services Tax
(GST) from July 1, 2017 - that would help to unlock
bottlenecks to growth. The likely normal southwest
monsoon for the second successive year is
expected to boost rural demand besides keeping
a check on food inflation. Urban consumption
too is expected to remain buoyant, following
the upward revision in the house rent allowance
(HRA) to central government employees as also
the likely implementation of the 7th Central Pay
Commission (CPC) award at the state level.
With further progress in implementing policy
reforms that ease doing business, India may
continue to be a preferred destination for foreign direct investment (FDI). Improvement in external
vulnerability indicators and fiscal credibility should
boost business and investment sentiment. The
sluggish growth of industry and fixed capital
formation, however, remain areas which warrant
priority in policy attention. The progress in
resolving the highly indebted corporates and
improving the financial health of public sector
banks (PSBs) is critical for restarting credit flows
to the productive sectors, apart from reviving the
investment climate, in general. The attainment of
the inflation target under the new monetary policy
framework should strengthen the transparency,
credibility and effectiveness of monetary policy,
which would anchor the progress of reforms going
forward.
ASSESSMENT: 2016-17
I.2 In 2016-17, Gross Domestic Product
(GDP) growth moderated due to slowdown in
gross capital formation as waning business
confidence and flagging entrepreneurial energies
took their toll on the appetite for new investment.
On the other hand, both government and private
consumption accelerated and held up aggregate
demand. While the turnaround in the growth of
agriculture paved the way for a pick-up in rural
demand, urban demand remained resilient due to hikes in salary, wages and pensions of the central
government employees. There has also been an
improvement in households’ financial savings,
post demonetisation.
I.3 On the production side, agriculture and
allied activities rebounded sharply in 2016-17.
Record foodgrains and horticulture production,
facilitated by the normal monsoon as well as
considerable hike in pulses’ Minimum Support
Prices (MSPs), augmented the sector’s growth
during the year. On the other hand, deceleration
in services Gross Value Added (GVA) across all
sub-sectors barring public administration, defence
and other services (PADO), moderated the overall
GVA growth. The slowdown was pronounced in
H2 as construction and real estate sectors, which
relied to a large extent on cash transactions, were
severely impacted following demonetisation. The
growth in industrial GVA also decelerated from
a year ago, dragged down by a slowdown in
manufacturing and mining, even though electricity
generation accelerated. On the use-based front,
consumer non-durables posted the highest
growth across sectors while consumer durables
decelerated significantly. Industrial output seemed
to have been impacted, albeit transiently, by
demonetisation as IIP growth during November
2016 to March 2017 was 2.6 percentage points
lower than in the pre-demonetisation period (April
– October 2016).
I.4 As the infrastructure sector is widely
perceived to hold the key to revival of growth, top
priority was accorded to addressing environmental
clearances, land acquisition issues and other structural bottlenecks associated with project
implementation, which led to a reduction in the
number of stalled projects and cost overruns in
central sector infrastructure projects during 2016-
17. During the year, there was the highest ever
awarding and construction of national highway
projects. The resolution of stalled projects,
development of roads under Bharat Mala project,
steps taken to streamline land acquisition, inter
alia, helped to speed up road construction.
Capacity addition in major ports was also the
highest ever in a single year with improvement
in total turn-around time1 and average output per
ship berth day2. In respect of the power sector,
the shortfall in meeting total energy requirements
bottomed out during the year. In addition, India
turned around from a net importer to a net exporter
of electricity for the first time. Concomitant to
the impetus for cleaner energy, the renewable
energy sector surpassed thermal power in annual
capacity addition, also for the first time. This apart,
increased capacity addition in solar energy and
enhanced private sector interest, coupled with
the availability of cheaper voltaic cells, resulted
in historically low solar tariffs in recent reverse
auctions. Moreover, almost all state governments
joined the Ujwal DISCOM Assurance Yojana
(UDAY) scheme during the year, strengthening
prospects for financial turnaround of distribution
companies (DISCOMs) on a macro scale, going
forward. Amidst these positive developments,
capacity utilisation in thermal power plants
continued to decline for the seventh year in
succession, weighed down by the stressed
health of power DISCOMs and lower energy demand. Similarly, the pace of capital investment
in railways slackened even as electrification of
railway lines and commissioning of broad gauge
lines moderated.
I.5 Inflation picked up during the first four
months of 2016-17 driven by an upsurge in food
prices, outweighing favourable base effects.
With the monsoon gaining momentum, however,
inflation reversed into a declining trajectory
beginning August 2016, which got accentuated by
falling food prices, especially those of vegetables,
in the wake of demonetisation in November 2016.
Rapid disinflation in the food group drove down
headline inflation month after month - barring
February and March - to a low of 1.5 per cent in
June 2017. Eventually, the year 2016-17 ended
up with a subdued inflation of 3.6 per cent in Q4,
undershooting the Bank’s projection of 5.0 per
cent.
I.6 The asset quality of the banking sector
continued to be a concern during 2016-17. In
the aftermath of the asset quality review (AQR)
undertaken by the Reserve Bank beginning July
2015 and concomitantly with better recognition of
non-performing assets (NPAs), the asset quality
of banks, particularly the PSBs, deteriorated
sharply. As of end-March 2017, 12.1 per cent
of the advances of the banking system were
stressed (sum of gross NPAs and restructured
standard advances). A sharp increase in
provisioning for NPAs adversely impacted the
profitability of banks, with the PSBs as a whole
continuing to incur net losses during 2016-17. The
capital position of many banks also witnessed
erosion even though the capital to risk-weighted
assets ratio (CRAR) for the banking system as a
whole marginally increased and continued to be
above the regulatory minimum under the Basel
III framework. The large amount of bad loans circumscribed the ability of banks to lend, as
reflected in the declining credit growth in recent
years. Large NPAs also led to risk aversion on the
part of banks as apprehensions of loans turning into
NPAs intensified. Furthermore, banks engaged
in diversifying their credit portfolios, reducing
their exposure from large industries and shifting
towards the relatively less stressed categories of
housing, personal loans and services.
I.7 As the banking sector struggled with the
sizeable volume of NPAs, the Reserve Bank
continued its efforts to fortify the regulatory
framework through significant policy interventions
for improving the banking system’s ability to deal
with distress. Pursuant to the promulgation of the
Banking Regulation (Amendment) Ordinance,
2017, the Reserve Bank constituted an Internal
Advisory Committee (IAC) to recommend cases
that might be considered for reference under the
Insolvency and Bankruptcy Code (IBC), 2016.
On the recommendation of the IAC, the Reserve
Bank directed banks to file proceedings under the
IBC in respect of 12 accounts comprising about
25 per cent of the current gross NPAs of the
banking system. The Reserve Bank also brought
the Overseeing Committee under its aegis and
strengthened it by adding three more members
and by expanding its mandate to review the
resolution of cases other than those under the
Scheme for Sustainable Structuring of Stressed
Assets (S4A scheme). Final guidelines on large
exposures framework and enhancing credit supply
for large borrowers through market mechanism
were also issued in order to align the exposure
norms for Indian banks with the Basel Committee
on Banking Supervision (BCBS) standards and to
further diversify the lending base of banks.
I.8 Apart from slowdown in credit, one-off
factors like demonetisation and the redemption of Foreign Currency Non-Resident (Bank) (FCNR(B))
deposits impacted the behaviour of monetary
aggregates during the year. Predominantly driven
down by the compression in currency in circulation,
reserve money contracted during the year while
the growth of money supply moderated, despite
the surge in deposits. Besides demonetisation,
intra-year spikes in deposits growth were caused
by mobilisation under the Income Declaration
Scheme (IDS) and arrears of the 7th CPC to
central government employees. The surge in
deposits led to excess liquidity in the banking
system which was absorbed through an array
of liquidity management measures, viz., reverse
repo under the Liquidity Adjustment Facility
(LAF), incremental Cash Reserve Ratio (CRR),
and issuance of Cash Management Bills (CMBs)
under the Market Stabilisation Scheme (MSS).
Credit growth touched a low in more than two
decades on account of factors such as subdued
state of economic activity, risk aversion of the
banking sector, capital adequacy requirements,
loan write-offs, substitution of bank credit by
UDAY bonds, loan repayment by use of specified
bank notes (SBNs) and banks’ pre-occupation
with exchange of notes and deposits following
demonetisation. As the pace of remonetisation
gathered momentum, monetary aggregates
started recovering with currency in circulation as
of end-June 2017 reaching around 85 per cent of
its pre-demonetisation peak.
I.9 The institutional architecture for the conduct
of monetary policy underwent a fundamental shift,
with the formal transition to a flexible inflation
targeting framework and the constitution of a six
member monetary policy committee (MPC) for
setting the policy rate. These reforms marked
the culmination of efforts made since early 2014
to strengthen the transparency, credibility and independence of monetary policy formulation.
The conduct of monetary policy during 2016-
17 was guided by an inflation objective of 5.0
per cent for Q4 of 2016-17. With inflation, then
expected to be below its objective for Q4: 2016-
17, the MPC in its resolution of February 8, 2017
emphasised its commitment to the medium-term
inflation target of 4 per cent within a band of +/- 2
per cent while supporting growth. Keeping this in
view, the stance of monetary policy was changed
from accommodative to neutral in February 2017.
The inflation objective for Q4: 2016-17 was met
with a considerable undershoot on the back of
strong disinflation in food items, driven partly by
demonetisation.
I.10 Post demonetisation, the pace of monetary
transmission from the policy repo rate to banks’
lending rates accelerated significantly, aided
by the increase in the share of low cost current
account and saving account (CASA) deposits in
bank funding. However, the transmission to actual
lending rates was uneven across sectors, reflecting
sector-specific credit risk dynamics. Asset quality
concerns also appeared to have constrained the
banks from passing on the full benefits of rate cuts.
Also, the transmission of past cumulative cuts in
the repo rate to lending rates has not propelled a
revival in credit growth as banks, especially PSBs,
appeared to have turned risk-averse and strapped
by large provisioning requirements, as mentioned
earlier. As such, private investment activity
remained depressed. The recent experience
suggests that monetary easing alone may not
help in reviving the investment sentiment unless
structural factors affecting it are addressed.
I.11 Notwithstanding a deferment of the target
of 3.0 per cent gross fiscal deficit to gross domestic
product (GFD/GDP) ratio to 2018-19 as announced
in the Union Budget 2017-18, adherence of the central government to the fiscal consolidation path
in 2016-17 enhanced fiscal credibility, thereby
anchoring inflation expectations in the economy.
Fiscal consolidation was achieved during 2016-17
through a strategy of revenue augmentation rather
than expenditure compression, exemplifying
improvement in the quality of public finances. Tax
revenues were shored up by collections under
the IDS, upward revision or imposition of cess,
additional excise duty and pruning of the negative
list for services tax. Capital expenditure exceeded
the budget estimates even as revenue expenditure
was broadly contained within the budgeted level.
Consequently, the gross fiscal deficit remained
at the budgeted level of 3.5 per cent. In contrast,
state finances deteriorated on account of UDAY
scheme and revenue shortfalls despite cutbacks
in capital outlays.
I.12 During 2016-17, the benchmark Indian
equity indices, viz., BSE Sensex and Nifty 50
increased by 16.9 per cent and 18.5 per cent,
respectively, as against some contraction in the
previous year. The stock market gained on account
of optimism over the Union Budget proposals,
passage of the GST Bill, favourable monsoon,
expectations of steady progress of economic
reforms, better macroeconomic data, higher than
expected Q3 earnings of companies and huge
buying by institutional investors amid positive
cues from global equity markets. The Indian
equity market had eased temporarily in Q3 owing
to several factors such as the US Presidential
election outcome, increasing expectations of
interest rate hike by the US Fed, withdrawal of
legal tender status of SBNs, and foreign portfolio
investment (FPI) selling, but recovered in the next
quarter.
I.13 India’s external sector strengthened
during 2016-17 as reflected in a lower current account deficit (CAD), robust FDI inflows, build-up
of forex reserves and improvement in other
external vulnerability indicators. The trade deficit
narrowed with stronger exports and subdued
imports and offset the impact of lower net receipts
from services exports and remittances, and
higher outgo of investment income payments. Net
capital flows were in excess of CAD, resulting in
an increase in foreign exchange reserves during
the year. Following the redemption of FCNR(B)
deposits by banks without much disruption in
the foreign exchange market, India’s external
debt turned much lower than its level a year ago.
The reduction in the CAD and external debt, and
build-up of foreign exchange buffers, fortified the
resilience of the external sector in 2016-17.
PROSPECTS: 2017-18
I.14 Global growth is gaining traction in
2017-18 with the recovery, driven primarily by
a cyclical upturn in investment, manufacturing
and trade. Tailwinds are also expected from the
improving performance of emerging markets
and developing economies (EMDEs). However,
the path and pace of global growth will likely be
shaped by structural factors, viz., the inward-looking
protectionist policies in advanced
economies, low productivity growth and high
income inequality impinging on the cyclical
upturn. Amid elevated asset prices, financial
markets remain vulnerable to systemic factors,
including geo-political risks and the pace of
normalisation of monetary policy and balance
sheets by major central banks. Consequently,
external risks to the domestic economy remain.
I.15 Against the backdrop of these external
developments, strengthening external demand
will likely play a role in supporting the domestic
economy. Favourable domestic conditions are mainly expected to enable a quicker pace of
overall economic activity during the year. While
growth is again expected to be consumption-led,
continuing remonetisation should enable a pickup
in discretionary consumer spending, especially
in cash-intensive segments of the economy.
Government spending continues to be robust,
cushioning the impact of a slowdown in other
constituents. Furthermore, reductions in bank
lending rates post-demonetisation should support
investment demand of stress-free corporates.
On the downside, global political risks remain
elevated. Second, rising input costs may prove a
drag on the profitability of firms, pulling down the
overall GVA growth. Third, the twin balance sheet
problem - over-leveraged corporate sector and
stressed banking sector - may delay the revival in
private investment demand.
I.16 The expected normal monsoon and the
resultant replenishment of reservoirs, policy
initiatives of the government such as hike in MSPs
and increasing crop insurance coverage are likely
to help in boosting crop production and supporting
rural demand. The implementation of HRA as per
the recommendation of the 7th CPC for central
government employees from July 2017 and the
possibility of its implementation at the state level
should strengthen urban consumption demand.
An offsetting impact on aggregate demand could,
however, emerge if state governments restrain or
scale down capital spending, keeping in view the
objective of fiscal consolidation.
I.17 Early indicators for 2017-18 based on IIP
and the performance of eight core industries point
to subdued industrial activity. The prospects for the
manufacturing sector remain uncertain in the short
term in view of the implementation of GST. The
services sector is, however, expected to perform
better during the year. The majority of the high frequency services sector indicators, shows signs
of improvement thus far, though some sectors
such as commercial vehicles have been adversely
affected by external factors like emission norms.
Construction and real estate seem to be on the
path of recovery as reflected in rebounding of new
residential project launches to pre-demonetisation
levels. Furthermore, government initiatives such
as infrastructure status for affordable housing,
improved customer protection and transparency
through the real estate regulatory agencies,
modified policy norms on real estate investment
trusts to address funding issues, and the provision
for 75 per cent upfront payment of the arbitral
amount by Public Sector Undertakings (PSUs)
to builders and contractors, should provide a
boost to the housing sector. On the whole, real
GVA growth is projected to rise from 6.6 per cent
in 2016-17 to 7.3 per cent in 2017-18, with risks
evenly balanced.
I.18 Headline inflation remained around 2.2
per cent in the first quarter of 2017-18. In June
2017, inflation declined to a historic low of 1.5 per
cent, primarily driven by disinflation in food and
large favourable base effects. Excluding food
and fuel, inflation eased on account of subdued
price pressures in services, particularly transport
and communication, reflecting fall in global crude
oil prices. With the likely progress of the southwest
monsoon, food prices are likely to remain
moderate over the ensuing months, consequent
upon the dissipation of seasonal price pressures of
select vegetables such as tomatoes. Furthermore,
in view of the bumper production and record
procurement of pulses during 2016-17, inflation
in pulses – a major driver of food inflation during
2015-16 and early 2016-17 – is expected to remain
muted. Notwithstanding these developments,
some uptick in overall food inflation could be expected as unfavourable base effects set in from
August 2017. In contrast, the implementation of
the GST is not expected to have a material impact
on headline inflation in the near term. However,
the announcements of farm loan waivers and the
implementation of the 7th CPC with the likelihood
of adoption at the state level have implications in
terms of fiscal slippages with upside pressures to
the future trajectory of headline inflation. On the
whole, headline inflation is forecast in the range
of 2.0-3.5 per cent in the first half of 2017-18 and
3.5-4.5 per cent in the second half.
I.19 The continuing increase in currency in
circulation on the back of remonetisation is likely
to reduce the magnitude of the liquidity overhang
during the course of the year. In this scenario, the
Reserve Bank will continue to manage liquidity to
ensure that the operating target – weighted average
call money rate (WACR) – remains aligned to the
policy repo rate. Continuing government initiative
towards a full implementation of the formula for
adjustment in the interest rates on small savings
schemes to changes in yields on government
securities of corresponding maturities will further
strengthen the transmission of policy rates to
bank lending rates, which will help increase credit
demand.
I.20 Notwithstanding the rapid remonetisation
process, currency demand appears to have
attained a new normal (currently around 87 per
cent of the pre-demonetisation peak) in view
of the sharp increase in electronic modes of
payments since demonetisation. Indeed, year-on-
year growth rates of the total volume of retail
electronic payments, that had averaged around
37 per cent during April to October 2016, shot up
to nearly 70 per cent in November and then further
to as much as 123 per cent in December 2016;
in subsequent months, the growth rates have moderated but remain high. There appears to be
a structural break in the volume and value of retail
electronic payments, coinciding with the onset of
demonetisation and the special measures put in
place to promote digital payments. Going forward,
the Reserve Bank would continue its efforts
towards migrating to a less-cash economy while
ensuring safety and enhancing the efficiency of
the payments system.
I.21 In the fiscal sphere, while the gains to
growth, efficiency and tax buoyancy over the
medium term from the recent implementation of
GST are unequivocally recognised, near-term
uncertainties with regard to revenue mobilisation
therefrom – which could impact fiscal consolidation
at both centre and state levels – cannot be ruled
out as this fundamental reform gains pan-India
traction. Additionally, state government finances
are likely to face several challenges during 2017-
18. First, the announcement of farm loan waivers
by four state governments (so far in 2017-18)
and the potential announcement by several
others pose a major fiscal risk over the medium
term. Besides impacting credit discipline, vitiating
credit culture and dis-incentivising borrowers from
repayment, they may have a destabilising impact
on yields of state development loans (SDL),
thereby posing a higher interest burden for the
states in future. Concomitantly, ratchet effects
can firm up the general level of interest rates
and crowd out private borrowers. Second, the
committed liabilities of states may increase in case
they decide to implement the recommendations of
their own pay commissions in 2017-18. Third, the
existing high level of state government guarantees
constitutes a major fiscal risk. Fourth, the interest
liabilities of states that have participated in financial
restructuring of DISCOMs (through UDAY) would
increase in the years ahead. Fifth, many states (particularly the fiscally prudent ones), which were
earlier refraining from seeking additional funds
through market borrowing, may now borrow as per
the flexibility provided by the Fourteenth Finance
Commission.
I.22 Thus, even as the central government
makes significant efforts toward fiscal
consolidation, the higher debt burden of the states
could push up general government debt. Keeping
in view the recommendation of the FRBM Review
Committee (Chairman: Shri N. K. Singh) that a
sustainable debt path – consisting of a debt-GDP
ratio of 40 per cent for the central government and
20 per cent for state governments by 2022-23 –
must be the principal macro-economic anchor of
fiscal policy, the states too will need to tread the
fiscal path with caution to reach this benchmark.
I.23 In the external sector, a slump in export
growth and an increase in imports widened the
trade deficit to US$ 40 billion in Q1 of 2017-18,
the highest since Q2 of 2013-14. The evolution
of terms of trade is likely to be largely shaped
by the outlook for oil production in the US and
compliance with the extended production cuts
announced by the Organisation of the Petroleum
Exporting Countries (OPEC). Even though the
outlook among major trade partner economies
entails a modest expansion, increasing recourse
to protectionist measures in advanced economies
could impose a challenging business environment
for exports. The global economic environment
is prone to other downside risks such as high
policy uncertainty in advanced economies and
the possibility of financial market disruptions due
to faster normalisation of monetary policy by
advanced economies. Nevertheless, the CAD is
expected to be comfortably financed by stable
capital inflows as FDI may remain strong with
further progress in the ease of doing business and simplification of procedures in recent years.
Foreign portfolio flows, on the other hand, remain
vulnerable to bouts of global risk aversion.
However, an optimistic growth outlook, pro-reform
measures and augmented level of reserves are
expected to mitigate the negative spillovers of
global market disruptions.
I.24 In the banking arena, the actions of the
central government authorising the Reserve Bank
to direct banking companies to resolve specific
stressed assets by initiating insolvency resolution
process are expected to significantly improve
the resolution of stressed assets, particularly in
consortium or multiple banking arrangements.
The corporate insolvency resolution process,
liquidation and cross-border insolvency under the
IBC, 2016 and the establishment of the Insolvency
and Bankruptcy Board of India (IBBI) will help in
reorganisation and resolution of corporates and
individuals in a time-bound manner. The proposal
of the Union Budget 2017-18 to introduce a bill
relating to resolution of financial firms is expected to
improve the resilience and stability of the financial
system through speedy and efficient resolution of
financial firms in distress, and also help address
the moral hazard problem associated with explicit
and implicit government guarantees.
I.25 The prescription of stringent penalties
by the Reserve Bank for breaching the risk
thresholds under the revised Prompt Corrective
Action (PCA) framework - restrictions on dividend
payments, remittance of profits and branch
expansion; higher provisions; and restriction on
management compensation are expected to help
restore the health of banks currently under PCA.
The Reserve Bank’s instructions to banks to put
in place a Board-approved policy for making
provisions for standard assets at rates higher than
the regulatory minimum, based on evaluation of risk and stress in various sectors, will help control
build-up of fresh stressed assets in a pre-emptive
manner. The fine-tuning of macro-prudential
measures in the form of reduction in risk weights
and provisioning on standard assets on certain
categories of individual housing loans will provide
a boost to the flow of credit to the housing sector.
I.26 In pursuance of the regulatory stance in
2016-17, the Reserve Bank will continue to monitor
and respond to banks’ asset quality issues in 2017-
18 as well. Implementation of Indian Accounting
Standard (Ind-AS) and the Basel III framework will
remain the areas of focus during 2017-18. The
revised framework for securitisation, the minimum
capital requirement for market risk, guidelines on
net stable funding ratio (NSFR) and the guidelines
on corporate governance as per Basel standards
will be considered during the course of the year.
The revised regulatory framework for the All India
Financial Institutions (AIFIs), including extension
of various elements of Basel III standards
relevant to these institutions, will also be taken
up. The banking sector has undergone significant
transformation by digital innovations in the past
few years and the Reserve Bank will work on
framing an appropriate response to the regulatory
challenges posed by developments in FinTech.
Taking note of changes in the global and financial
sector environment, the Reserve Bank formalised
a framework for taking enforcement action against
banks for non-compliance with guidelines and
instructions issued by it. Accordingly, a separate
Enforcement Department has been created within
the Reserve Bank in April 2017.
I.27 Going forward, an important initiative
under active consideration of the Reserve
Bank is the setting up of a transparent and
comprehensive public credit register (PCR) – an
extensive database of credit information for India that is accessible to all stakeholders – that would
help in enhancing efficiency of the credit market,
increase financial inclusion, improve ease of
doing business, and help control delinquencies,
as corroborated by international evidence. To
begin with, by incorporating unique identifiers
for the borrowers (Aadhaar for individuals and
Corporate Identification Number (CIN No.) for
companies), the Reserve Bank’s Basic Statistical
Returns (BSR1) data set could be quickly
transformed into a PCR covering customers of
scheduled commercial banks, which could then
be expanded to cover other financial institutions
in India. In this regard, a High-level Task Force
comprising experts as well as major stakeholders
is being constituted to, inter alia, review the
current availability of information on credit in India
and suggest a roadmap, including priority areas,
for developing a transparent, comprehensive and
near-real-time PCR for India.
I.28 Infrastructural development of the
economy would continue to play a critical role
in shaping growth prospects, particularly over
the medium to long run. Several initiatives –
increased public infrastructure investment;
innovative ways of infrastructure financing; the
fast-track awarding and construction of national
highway projects; effective streamlining of land
acquisition issues; Regional Connectivity Scheme
(RCS) to connect the unserved and under-served
airports; the proposal to achieve 100 per
cent rural electrification by May 2018; providing
infrastructure status to affordable housing; and a
new Metro Rail Policy and Metro Rail Act – are
in the pipeline which would provide an enabling
environment for growth path in the years to come.
The recent policy measures for easing of norms
for state PSUs to directly borrow from bilateral
agencies, launching of Infrastructure Investment Trust and full-fledged rolling out of National
Investment and Infrastructure Fund are also
expected to address the infrastructure financing
constraints significantly. In the power sector,
higher capacity addition in renewables may pose
multiple challenges with regard to the integration
of renewables into the electricity grid and the
possible dampening effect on already worsened
thermal Plant Load Factor (PLF). However, the
new coal linkage policy and the impetus for more
nuclear power plants would engender a positive
outlook for the sector.
I.29 Finally, in the area of employment
generation, spending on priority sectors (roads,
railways, health and housing), MGNREGA (i.e., Mahatma Gandhi National Rural Employment
Guarantee Act) and the Pradhan Mantri MUDRA
Loan Scheme are going to be the most important
factors. As labour regulations get further simplified,
more jobs are expected to be included and
created in the formal sector. On labour reforms,
the codification of labour laws into four codes, viz.,
wages, industrial relations, social security and
welfare, and safety and working conditions, will
help avoid multiplicity of labour laws. At the same
time, the job loss threat, particularly in Information
Technology and Information Technology Enabled
Services (IT and ITES) sector emanating from
the emerging global protectionism cannot be
overlooked.
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