Make the most of emerging shifts in economy, RBI's Das to industry captains

RBI governor favours a domestic free trade in agriculture, says policies undertaken by govt should be able to encourage private investment in supply chain infra

The coronavirus-led gloom notwithstanding, India is undergoing some dynamic shift and the industry as well as policymakers must make the most out of it, Reserve Bank of India (RBI) governor Shaktikanta Das said on Monday.

Das was interacting with industry captains at a meeting of the Confederation of Indian Industry (CII) governing council. The RBI governor listed out five emerging trends for the Indian economy – boom in the farm sector; renewable energy getting precedence, growth being powered by information and communication technology and start-ups, shifts in supply and value chains in both domestic and global; and infrastructure as the force multiplier of growth.

The RBI governor told the industry bigwigs to make the most out of the changes, which are medium term in nature, even as the coronavirus is a short-term challenge that can be overcome.

“Indian agriculture has witnessed a distinct transformation,” the governor said, as the total production of food grains has reached a record 296 million tonnes in 2019- 20, registering an annual average growth of 3.6 per cent over the last decade. Total horticulture production also reached an all-time high of 320 million tonnes, growing at an annual average rate of 4.4 per cent over the last 10 years. India is now one of the leading producers of milk, cereals, pulses, vegetables, fruits, cotton, sugarcane, fish, poultry and livestock in the world. Importantly, the buffer stocks in cereal, at 91.6 million, is at 2.2 times the buffer norm.

The success in agriculture is so much that managing the surplus has become a “major challenge.”

“These achievements represent, in my view, the most vivid silver lining in the current environment,” the governor said, adding, “shifting the terms of trade in favour of agriculture is the key to sustaining this dynamic change and generating positive supply responses in agriculture.”

While a policy for sustained farmers income and reasonable food prices should be pursued, the minimum support prices could be “costly, inefficient and even distortive,” the RBI governor said.

The RBI governor favours a domestic free trade in agriculture and policies undertaken by the government should be able to encourage private investment in supply chain infrastructure, including warehouses, cold storages and marketplaces. The opportunity for businesses and industries around agriculture is huge and job creation and farmers’ income augmentation could be enormous, he said.

The governor stressed on focusing on the renewable sector, and said industries should now actively look into making solar panels in India. The prices have dropped steeply, and renewable energies have already started affecting the spot prices of energy prices. The government envisions renewable energy to become 40 per cent of the total energy need of the country by 2030. This would reduce the coal import bill, create employment opportunities, ensure sustained inflow of new investments and promote ecologically sustainable growth.  

Information and communication technology (ICT) has been an engine of India’s economic progress for more than two decades now, the governor said, adding, the sector, while contributing 8 per cent in Indian GDP and making 44 per cent of services export, has also made India as a global innovation hub. Indian IT firms are now at the forefront of developing applications using artificial intelligence, machine learning, robotics, and blockchain technology. India added seven new unicorns in 2019, or firms that are valued over $1 billion, taking the total count to 24, the third largest in the world. At the same time, Das stressed the need to nurture the startup culture, which has recently taken a hit due to Covid-19 related disruptions. However, he also warned of emerging competition from other countries in IT space that the industry should be mindful of.

The RBI governor, in particular, told Indian industries to get into the global supply and value chain, as even 1 per cent increase in participation in the value chain increases per capita income by more than 1 per cent.

“Global shifts in GVCs in response to COVID-19 and other developments will create opportunities for India. Besides focusing on diversifying sources of imports, it may also be necessary to focus on greater strategic trade integration, including in the form of early completion of bilateral free trade agreements with the US, EU and UK,” the RBI governor said.

Finally, the governor said the change in infrastructure in the country in the last five years has been a dynamic shift. Road construction has increased from 17 kms per day in 2015-16 to 29 kms in the last two years, the country is the third largest market for civil aviation with 142 airports, mobile penetration is high, broadband data consumption is the highest in the world. The country has done well in shipping and rail network connectivity.  

Nevertheless, infrastructure gaps exist. India would need $4.5 trillion for investment in infrastructure by 2030, as per NITI Ayog estimates but banks are not well placed to fund this entire expenditure.

“On financing options for infrastructure, we are just recovering from the consequences of excessive exposure of banks to infrastructure projects. Non-performing assets (NPAs) relating to infrastructure lending by banks has remained at elevated levels. There is clearly a need for diversifying financing options,” the RBI governor said.

While the National Investment and Infrastructure Fund (NIIF) is a major strategic policy response, “promotion of the corporate bond market, securitisation to enhance market-based solutions to the problem of stressed assets, and appropriate pricing and collection of user charges should continue to receive priority in policy attention,” the RBI governor said.