Economic Growth: One good policy, and a few more to go

By Taponeel Mukherjee

Access to credit, data and transportation are among the most crucial drivers of economic well-being. To ensure better access to critical needs in India, Rod Tidwell's famous line from Jerry Maguire, "Show me the money", would hold in good stead. Access to the correct quality and quantity of financing at the right time is crucial to improving economic well-being.

The Insolvency and Bankruptcy Code (IBC) has been a significant boost to the credit mechanism of the economy. Of all the positive data that the IBC has seen of late the most critical, as per the Reserve Bank of India's (RBI) "Report on Trend and Progress of Banking in India 2017-18", was that the projected amount recovered as a percentage of amount involved in the bankruptcy proceedings was at 49.6 percent for FY 2017-2018.

This number compares favourably with other recovery mechanisms such as Lok Adalats, Debt Recovery Tribunals and Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act where the SARFAESI had the highest recovery rate at 24.8 percent (projected for 2017-18).

While these are early days for the IBC and a lot more needs to be done to streamline the process, there is a strong possibility that it will assist creditors recover better value for stressed assets. If this trend holds, this has a significant positive multiplier effect for the Indian credit system. From a lender's perspective, the prospect of a relatively efficient and transparent bankruptcy process would imply better availability of credit in the economy.

Additionally, better credit flow through a robust bankruptcy mechanism also implies that, as the credit cycle ebbs and flows, the slowdown in lending in the downturn of the cycle will be less pronounced as lenders will have recourse to a bankruptcy mechanism that they have greater faith in. The less noticeable slowdown will reduce the stop-and-go credit mechanism that has severely hurt the Indian economy in the past.

Besides credit, data is a focal point in India. The move towards the 5G era in telecom is inevitable. The two areas that need urgent attention are the "fiberisation" of telecom towers and spectrum auctions for 5G airwaves.

The key driver for the transition will be effective "financing mechanisms" for the investment that the telecom ecosystem requires. The ability of the government, tower and telecom companies, and investors to utilise long-dated financing to create the fibre infrastructure will be critical. The possibility of viewing fibre as an asset that can be monetised through long-dated annuity payments will be essential to facilitating a ubiquitous 5G network in India.

On the spectrum front, a delicate balance will have to be maintained between conducting fair-value spectrum auctions and ensuring the prices in India are competitive with those globally.

The new year presents us an opportunity to truly assess and execute projects to meet the ambitious allied infrastructure sector development targets that India has. The recent talk by Civil Aviation Minister Suresh Prabhu of building India as a potential aircraft leasing market is laudable. At a broader level, the intent to make India a potential asset-financing hub is one that merits attention.

That said, building such a hub will require significant policy changes, primarily through lower taxes. The focus must be on increasing the tax revenues through greater financial activity, even as tax rates for specific activities are lowered to compete with global financial centres. The asset financing market can only flourish and deliver long-term returns if post-tax investment returns are competitive on a global scale.

Given the growth in the domestic aviation market, the aim of locally financing aircraft assets will help boost the local credit market and allow lenders in India to benefit from the consumption boom. As air travel picks up further and assets yield decent investment returns, being able to keep the capital in circulation within the economy will help generate significant positive multiplier effects through increased availability of credit, profitable loan books, and better job creation.

Policies such as IBC yielding positive results teach essential lessons regarding how gradual improvement in systems can result in long-term benefits. For India to indeed deliver equitable economic growth, further impetus on credit, data and financing markets is non-negotiable.

(Taponeel Mukherjee heads Development Tracks, an infrastructure advisory firm. The views expressed are personal. He can be contacted at taponeel.mukherjee@development-tracks.com or @Taponeel on Twitter)

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