By Anjan Roy
Eight core industries, which constitute over 40 per cent of the total industrial production, have shrunk by 6.5 per cent in March 2020. This decline is by and large before the nationwide lock down was imposed, but these figures reveal what really to expect from the industrial sector. The only silver lining was that coal production in March increased by 4 per cent, although cumulative production during the current year was marginally down. Crude oil production was down by 5.5 per cent, while natural gas production plummeted by 15 per cent.
Cement production, indicating the deep slow down in construction sector as a whole, has been down by a quarter (24 per cent) and steel production by 13 per cent. Fertilisers was lower by 12 per cent. The post lock down contraction could be expected to be even sharper, though electricity generation and coal production might not be as sharp.
These represent the slackening trends in the economy since last year and there is no doubt that overall industrial contraction would be severe. In the circumstances, the farm sector alone could be a saviour as a normal monsoon is predicted and farm operations have already resumed.
The Prime Minister held deliberations (Thursday) on how best to ramp up the economy once the pandemic crisis abates. The deliberations were mainly on attracting foreign investment into India.
It is commonplace now to talk about exit of companies from China. Both the US and Japan are actively promoting withdrawal from China for their national corporations. Japan has even set up a $2 billion fund to facilitate this.
Globally it is anticipated that large corporations who had invested heavily in China would start disengaging from that country and invest elsewhere, India is therefore scratching up strategy to catch some of those fleeting investments.
Even if a portion of those investments do seek to come into India, it would be a formidable task to convert these into green field projects given the maze of laws and rules that still enmesh starting businesses in India. The biggest question was whether it would be possible to readily offer land for industrial projects.
Land acquisition for industry and infrastructure projects have been a bitter question for even decades. Latest efforts of the Modi government to introduce some land acquisition laws were frustrated. A bill for industrial land acquisition had been shelved, it appears, for good.
Aware of the need for reforms of various operational issues, the prime minister has urged central economic ministries to pursue sectoral reforms. The prime minister has suggested to the state governments to initiate reforms in their respective states and formulate strategies fro attracting investments.
The prime minister has urged ministries to hand hold investors and provide solutions to these on a proactive basis. The deliberations were oriented more towards the issues of foreign direct investors. However, those faced by the domestic investors were also given some prominence.
There are some reports that the US secretary of state was already initiating discussions to develop synergies with like mined countries —“friends”— for developing reworked supply chains for US corporations. The US state department is deliberately moving towards hollowing out all presence of US companies in China so that the dependence on China could be brought down.
But it is once again timely to remember that Indian investments come mainly from domestic sources and only about 2 per cent of overall investments came from overseas. In the changed world of post covid pandemic, there will be wide-ranging uncertainties and reservations about investments in far off places. It is better to have some moderated expectations around FDI rather than gung-ho inflows.
And then, while attracting FDI or fresh investments could at best be a medium to long term goal, it would be impractical to hope large inward flows immediately.
The more urgent issue right away for restarting the Indian economy was to firstly create demand by making available pure cash in the hands of the people, particularly the rural poor. This can be best achieved by infusing funds into the rural economy in a variety of formats. It could be useful to right away start a whole range of small infrastructure (like small irrigation facilities and village roads) building activity in the rural areas, using the MNREGA funds for work creation.
These in turn can give a huge boost to the farming sector in both raising production as well as reaching their produce to the markets seamlessly. Small scale irrigation projects under the MNREGA scheme could bring down dependence on rains.
Another area needing immediate attention is purchase plans for the current harvest. The reports are that the production of foodgrains as well as vegetables have been plentiful and proper marketing of these produce could immediately push income into the rural areas and raise demand.
This would rehabilitate the Indian economy faster than elaborate plans for attracting foreign investment or for that matter domestic investment in ambitious proportions in various sectors. Any real time fresh investment could happen only when the internal demand rises. (IPA Service)