The bold and big thinking of Indian leaders is pushing India to become a $30 trillion economy in the next 30 years.
In a short span of a year, the Indian economy has quickly expanded, from the timely action of the RBI to tame inflation to expanding consumption – India is skyrocketing towards growth and development.
Recently, India has emerged as one of the most powerful countries, since it surpassed the UK to become the 5th largest world economy. However, a question is still being asked whether India can put itself forward as a $30 trillion economy.
Certainly, India holds the potential to become a $30 trillion economy which is clear from the fact that the nominal GDP (GDP at the current rate) has taken a big swing in the April-June quarter, i.e., Rs 64.95 lakh crores, according to the June rupee-dollar exchange rate it stands at $823 billion.
Moreover, it is also claimed that India surpassed the UK’s GDP in March itself, which was $813 billion, while India GDP was $864 billion.
However, as per 2021 April’s GDP outlook report of the International Monetary Fund (IMF), India’s GDP ($3.18 trillion) was right behind UK’s GDP ($3.19 trillion) in 2021. Conversely, it has also been anticipated that India would become a $3.54 trillion economy by the end of 2022 if compared to the UK’s projected GDP which would be $3.38 trillion.
From the estimated data and India GDP growth, it can be seamlessly prognosticated that India will soon become a $3.54 trillion economy by the end of 2022 considering its present growth.
Although, in which year it can become a $30 trillion economy will depend on many factors.
With that, let’s see some facts, how the India GDP surpassed the GDP of the UK?
How India GDP Growth Has Surpassed the UK
The timing could not have been more auspicious when India emerged as the 5th largest world economy at midnight after the entire country celebrated Azadi ka Amrit Mahotsav, that’s its 75th Independence day. Moreover, after overtaking the UK, India is all set to skyrocket to be the third-largest world economy by 2029.
The path taken by India since 2014 reveals it is likely to get the tag of the third largest economy in 2029, a movement of seven places upward since 2014 when India was ranked 10th. India should surpass Germany in 2027 and Japan by 2029 at the current rate of growth (as per estimated figures).
From the estimated data, it can be safely projected that India has been moving in the right direction, and we can conclude that India GDP rank will surpass the world economic leaders in the coming years.
How India pipped the UK, our colonial rulers –
Due to pent-up demand, the consumption in the service sector is bouncing back, as consumers are stepping out and spending (as per 2019-2020 data). One of the major reasons for the increase in demand is the “ abundance of festivals” celebrated in India.
While the world is on the brink of recession, our economy is growing by 7%.
As per the Finance Secretary, the government is on the pathway to meet the fiscal deficit target of 6.4% (Rs. 16, 61,196 crores) in the current fiscal year ending in March 2023, while currently, it is Rs. 15, 91,089 crores as per revised estimates for 2021-22.
The Real Gross Fixed Capital Formation of the country is expected to grow by 6.8% (2021-22), previously it was -9.8 (2020-21).
Yet, with the commendable achievement of India, one aspect which can not be ignored is, that “the per capita income of India is low, as India ranked 144 positions out of 190 countries.”
It indicates a clear picture of poverty, income disparity, and our inability to account for inflation, wealth, or saving, therefore, even after achieving the milestone of being recognized as the “world’s fifth largest economy” the Indian economy is lagging behind in distinct aspects.
Whether India Will Be Able to Transform Itself Into a $30 Trillion Economy or Not | India GDP Growth
India GDP growth in the last 10 years, reflects a meritorious change, as it jumps to 8.9% in 2021 from 5.5% in 2012, especially after sinking as low as -6.6% in the previous year.
With the magnificent elevation in GDP of India, it can unequivocally be noticed that we are perfectly poised on the passageway to aspire to be a $30 trillion economy in the next 30 years. Though, it seems like a far-fetched dream, yet, beyond doubt it’s not rocket science as with our magical power of demographic dividend, youth power, and power of democracy – India can proudly establish itself as a $30 trillion economy.
Although, India encounters varied stumbling blocks to be finally crowned as a $30 trillion economy, such as –
The Economic Issues in India
1. Low Per Capita Income
Even after 75 years of Independence, India continues to be a developing country, whose one feature is low per capita income. However, in 2020-21 low per capita income has dropped to Rs 1.27 lakh from Rs 1.32 lakh in 2019-20, while in 2021-22 it is estimated to be 1.50 lakh.
Apart from this, the problem of unequal distribution of income exists in India, which is one of the significant contributors and obstacles to economic development.
Proposed solution –
Increase in farmers’ income – India’s 54.6% of the population works in the agriculture sector and historically, India has always kept prices of agricultural products low. However, due to the introduction of schemes like the Farm Acts, the Indian government can allow farmers to earn high profits. Therefore, with the increase in profit of farmers, they can provide support to the other economic sectors through their consumption. For instance, products like fertilizers, working attire, and tools are a necessity for farmers, especially if they are planning to expand their business. So, this increase in expenditure will generate more job opportunities.
Urbanizing India’s rural population – Urbanization drives growth, due to the prominent nature of the Indian agricultural population, moving certain farmers into rural areas could allow them to generate employment and increase agricultural productivity by minimizing the working of a number of farmers on the same land. Therefore, it will help in growing India’s medium-sized cities. Moreover, the Indian government can promote migration by providing incentives to farmers, including investment in infrastructure development and urban services. Further, the new urban population will generate a resurgence of the housing market and provide more lending opportunities to banks. This in return will result in more development and urbanization, thus, would create more international investment and manufacturing export opportunities.
2. Dependence on Agriculture
Over 54.6% of the population is dependent on agriculture to earn a livelihood, which only contributes 20.2% to the national income, reflecting low productivity. Fortunately, in the Union Budget 2022-23, Rs 1.24 lakh crores have been allocated to the Department of Agriculture, Cooperation, and Farmers’ Welfare.
The measures are taken by the government, such as financial and the introduction of policies, positively solve the problem of individuals working in the agriculture sector.
Proposed solution –
Technological advancement – Apart from increasing the farmers’ income and urbanizing India’s rural population (earlier mentioned points), the Indian government can emphasize on the introduction of technologies in agriculture. Since, technology can assist farmers in predicting the climate, decreasing water usage, increasing yield, and their net profit margins. That in return increases India GDP growth rate.
Digital Credit Policy – Though the Indian government has already launched several credit policies to ensure easy access to loans with fewer legal formalities, yet, farmers could not able to avail the benefits of credit. That could be solved by combining easy access to loans with a digital credit policy, under which loan filing would become much simpler.
3. High Population
Another factor, which is the stumbling block in economic development is heavy population pressure. Contemporary, India is the second most populous country, after China, yet, the per capita income of our country is low, which results in income disparity, and the inability to account for inflation, wealth, or saving.
Further, in order to take care of the well-being of the population of the country, the government has to allocate high funds to fulfill basic requirements like food, shelter, medicine, schooling, electricity, hygiene, and more.
Proposed solution –
India can put more emphasis on programs like “AI for Youth” under which youth will be trained to be future-ready for AI development. Therefore, will commence the trend of entrepreneurship and contribute to India GDP growth.
To create “future entrepreneurs” the government can put more emphasis on the improvement of the soft skills of a student which are core for all professionals, rather than emphasizing on traditional studying methods.
Preventing the migration of India’s youth to other countries (to search for better opportunities) can be done through the creation of better jobs in all sectors.
The Indian government could provide subsidiaries to scientists, engineers, and other students (youth) who persist in talents but lack financial support.
Females/ women should be prepared to lead the fields which are considered non-fit for them, that’s how we will have another Sarla Thukral, Mithali Raj, and more.
4. Existence of Under-employment And Chronic Unemployment
Unemployment of any kind is a curse of any economy, be it developed or developing, and being a developing country, India is also encountering similar problems. Therefore, due to the abundance of labor, it is challenging for the government to generate employment opportunities for the entire population.
In addition to that, due to a deficiency of capital, secondary and tertiary occupations are inadequate, which results in under-employment and chronic unemployment.
Proposed solution –
Unemployment is a constant problem in the Indian economy and the Indian government has introduced several schemes to minimize unemployment such as Atmanirbhar Bharat Rojgar Yojana, Pradhan Mantri Rojgar Protsahan Yojana, etc. However, India’s world-beating growth is not creating as many jobs, considering that India should put more emphasis on improving the education system and job training.
Even though the employment rate has increased, employers couldn’t hire due to a lack of skills in freshers. Therefore, there is a need to give importance to the soft skills of students.
The Indian government can invest in the establishment of more industries and infrastructure development projects to minimize under-employment.
Training in the workplace, youth employment services, and career education could be a great way to improve skills, create more entrepreneurs, and allow students to choose the right career.
5. Leisurely Improvement in Rate of Capital Formation
From the beginning, one thing that pertains is a deficiency of capital in India, though, in 2021-22, the Gross Fixed Capital Formation of the country is expected to grow by 6.8%. Therefore, reflecting positive growth, yet, considering the high population growth, India could use better measures to increase the rate of gross capital formation.
Proposed solution –
Saving and investment from household savings or government policy need to be increased by improving the money flow, that in return increases the private investment or fixed asset acquisition. Therefore, increase in gross fixed capital formation.
Resident enterprises in the country can be increased to increase the gross fixed capital formation. For instance, oil extraction occurs in open seas, so the associated fixed capital is allocated to the national territory, in which the relevant enterprises are resident.
The mentioned economic issues have many potential solutions (as mentioned above) and it is no doubt that with time India has made progress in many fields.
Certainly, from the 5 worst economies in the world to the world’s 5th largest economy, India has truly proven it’s worth and how its leaders have been working in all directions to tame the world to see India growing and expanding as a world power.
What Are The Strengths Of The Indian Economy?
India, the fastest growing economy has to realize the strengths of demographic dividend, youth power, and the power of democracy. It is no doubt, from the year 2014 to 2022, India has witnessed tremendous growth in distinct aspects – be it science and technology, innovation, agriculture, the service sector, or digitalization.
Under the leadership of Hon’ble PM Modi Ji, India has built a modern economy, lifted millions of individuals from poverty, become a space and nuclear power, and developed robust foreign policies.
Since 2014, India has come a long way, leaving a string of landmarks, which defines its journey. This section of the blog will trace the strengths of the Indian economy and India will become a $30 trillion economy.
1. Mixed Economy
The Indian economy is a perfect example of a mixed economy, which means private and public both sectors co-exist in India and function smoothly. On one hand, the public sector operates on heavy and fundamental industries, while on the other hand, private sectors have gained importance (due to liberalization).
That provides a model for a “public-private partnership” where both, private and public sectors can work together through the adequate contribution of financial resources, management expertise, technology, and other resources.
2. An Emerging Market
India has emerged as a vibrant economy, which contributes to the stable the India GDP growth rate, even amidst global downstream, India continues to show positive India GDP growth trends, especially with the introduction of policies such as an automatic route for FDI in India, including measures taken by the government to attract domestic and foreign investment such as –
Empowered Group of Secretaries (EGoS) Project Development Cells (PDCs)
Production Linked Incentive (PLI) Schemes
PLI Scheme
Make in India
Investment Clearance Cell (ICC)
One District One Product (ODOP) and more.
All the initiatives taken by the Indian government reflect the high prospect for growth.
3. Expansion in The Role of Agriculture
As mentioned, the largest part of our population is engaged in agriculture, which also contributes to the India GDP growth of the country. The introduction of the “green revolution” and other “bio-technological” improvements in agriculture has made Indian agriculture more efficient and has increased the surplus too.
Including that, government initiatives such as PM Fasal Bima Yojana (PMFBY) (provides insurance on naturally grown crops,) Paramparagat Krishi Vikas Yojana (PKVY), and National Project on Organic Farming schemes – have pushed our agriculture sector towards growth. Moreover, PM Modi Ji’s government has also been working to incorporate AI in agriculture, which will again be an immense step towards development.
4. Service Sector
Due to liberalization and economic reforms India’s service sectors are flourishing, especially with the introduction of schemes like Make in India, and Digital India Mission, including schemes to boost the “12 champion service sectors” that are IT & ITeS, Tourism, and Hospitality, Medical Value Travel, Transport and Logistics, Accounting and Finance, Audio Visual, Legal, Communication, Construction, and Related Engineering, Environmental, Financial and Education – India is truly making immense progression in the service sector.
The service sector is the largest sector in India, estimated to grow by 8.2%.in 2021-22, after a contraction of 8.4% the previous year.
5. Demographic Dividend
The human capital of India is young, which reflects that India is a proud owner of the maximum percentage of youth. The “youth” is not only highly motivated but also the greatest asset of a country, if skilled and trained adequately. And in order to provide diversified training to the youth, Hon’ble PM Modi Ji’s government has introduced schemes such as –
Pradhan Mantri Kaushal Vikas Yojana (PMKVY)
Craftsman Training Scheme (CTS)
Pradhan Mantri Kaushal Kendras (PMKK)
Scheme for Higher Education Youth in Apprenticeship and Skills.
National Apprenticeship Promotion Scheme.
National Programme for Civil Services Capacity Building.
Green Skill Development Programme.
With the introduction of such programs and schemes, the Indian government is constantly taking measures to train and enhance the skills of youth, in order to create human capital to maximize the growth prospects of the country.
Moreover, the availability of maximum human capital in India attracts investment opportunities in India, hence, contributes India GDP growth.
6. High Purchase Price Parity (PPP)
Purchase Price Parity (PPP) refers to the rates of currency conversion, which tries to equalize the purchasing power of other currencies by obliterating the differences in price levels between countries.
The PPP of India stood at 23.14 in 2021, which reflects that India is one of the countries with the highest PPP. That means that the same product would cost less in India, than in other countries, for instance, the price of the same shoes would be high in the US, say $50 (3,982.53), however, would say Rs 2000 in India.
This opens up the possibility of exports to other countries, since raw materials are economical in India, thereby contributing to the India GDP growth.
7. Rapid Growth of Urban Areas
Urbanization is one of the keys to improve the growth of the economy and under the leadership of Hon’ble Narendra Modi Ji several measures have been taken to provide distinct facilities in rural areas such as electricity, schools, employment, banks, and financial institutions, transportation facilities, and more.
Along with that, more scheme has been introduced with the purpose to ensure further development, such as –
Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS)
Shyama Prasad Mukherji Rurban Mission (SPMRM)
Aadarsh Gram Yojana (AGY) :- SAGY, VAGY & SPAGY.
Pradhan Mantri Adarsh Gram Yojana (PMAGY)
Pradhan Mantri Jan Vikas Karyakram (Center 60 : State 40)
Swaranjayanti Khand Utthan Yojana (100 % State
8. Digitalization
Digitalization in India, once a traditional country, is now a home of AI system designers and will soon become an AI hub, especially when the government is taking adequate measures to support digitization. India stands 4th in the largest producer of AI-relevant scholarly papers and has introduced initiatives like AI for Youth (commenced in 2020) to make the youth future ready for AI developments.
Apart from that, our hon’ble PM also talks about making work from home a reality, which will allow more women to participate in the workforce, ensure energy saving, and will allow youth to manage studies and work conveniently.
9. Science and Technology (AI)
India is among one of the top countries in the world and in order to be successful in science and technology, the Indian government has launched schemes like INSPIRE“Innovation in Science Pursuit for Inspired Research” or “Abdul Kalam Technology Innovation National Fellowship”, and other schemes with the purpose to encourage innovation in this sector.
It is no doubt that India is prosperously achieving success through launching Mission mars, or GSAT- 19.
10. Startup Hub
With the introduction of startup culture in India, India is becoming a startup hub, since due to schemes introduced by the Indian government, now startups are receiving concessions, subsidiaries, and more.
Some of the schemes are –
Pradhan Mantri Mudra Yojana.
Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTSME).
Financial Support to MSMEs in ZED Certification Scheme.
Credit Linked Capital Subsidy for Technology Upgradation (CLCSS).
Design Clinic for Design Expertise to MSMEs.
Conclusion
India has overthrown one of the cultural, technological, and scientific leaders by conquering the position of the world’s fifth-largest economy, thereby, reflecting an increase in India GDP growth.
India has always strived hard to adopt the best possible measures and strategies, which are in the interest of the economy as a whole and which have wider political and economic implications for the country and the world. From our track record, we envision the path of a $30 trillion economy, through a constant emphasis on fair and credible policies and measures that will eliminate unemployment issues, improve technological development and infrastructure, ensure adequate utilization of economic resources, and other aspects associated with economic development.
Moreover, under the guidance of our honorable Prime Minister Narendra Modi, India will soon become a $5 trillion economy and will head strategically on the path to becoming a $30 trillion economy.
During speech at the conference on 18th November, 2021 on ‘Creating synergies for seamless credit flow and economic growth’, our Prime Minister said “Indian banks are strong enough to play a major role in imparting fresh energy to the country’s economy, for giving a big push and making India self-reliant. I consider this phase as a major milestone in the banking sector of India”.
On this great occasion I wish to congratulate the Hon’ble Prime Minister on behalf of the industry, for suggesting various measures to commercial banks for easing out loan delivery process for providing better opportunities to business enterprises and start-ups. Our country’s outlook is now to intensify and spread the economic activities by providing hassle free loans to entrepreneurs. In the post Covid scenario, RBI’s role has to play an important role for boosting up economic activities and encouraging the banks to sanction loans at easy terms.
Prime Minister reiterated that banks have sufficient liquidity and coupled with the fact that now there is no backlog for provisioning of NPAs as NPAs in public sector banks are at the lowest compared to the five years back and this has led to upgrading of outlook for the Indian Banks by the International agencies. The Prime Minister said apart from being a milestone, this phase is also a new starting point and called upon the banking sector to support the wealth creators and job creators. The Prime Minister empathetically said “It is the need of the hour for the banks of India to work proactively to bolster the wealth sheet of the country along with their balance sheets”.
PM urged bankers to identify the productive potential of citizens and go beyond the traditional banking when it comes to nourish their business intelligence and entrepreneurial dreams with quick release of loan funds. PM further stressed upon the need to do away with the feeling that lender is approver and customer is an applicant or receiver. Instead of waiting for the customers to come and seek loans, bankers have to come forward to analyse the credit appetite of both existing and potential customers and provide consultancy services with customized solutions and unified policies. In this way, banks have to adopt the model of partnership in which both partners share the benefits.
The Prime Minister said that due to recent implementation of various schemes, a huge pool of data is now available in the country. The Prime Minister emphasized that the banking sector must take advantage of this facility. He also listed the opportunities presented by the flagship schemes like PM Awas Yojana, Svamitva and Svanidhi and asked banks to participate and play their proactive role in these schemes.
Prime Minister said the scale at which corporates and startups are coming forward today is unprecedented and it is the opportune time to strengthen, fund, invest in India’s economic aspirations.
Reduction In NPA
He quoted detailed reports while saying that NPA ratio of public sector banks has now come down to the lowest during last 5 years and they are flushed with liquidity. PM quoted that public sector banks have recovered around 5 lakh crores of bad loans during last years but such news did not make headlines in core media due to illegitimate activities of some defaulters.
Need For Massive Credit Push
Inspite of the current Covid situation, it is assumed that economy will recover at growth rate of 8.7% to 10.5% during current fiscal. This study sounds good but a massive credit push is essential for businesses to remain operational without hindrance and to expand to new horizons.
Studies have also found that growth rate of non-food bank credit has increased to 6.8% in September, 2021 as compared to 5.1% during same period last year. Industrial loans however have seen the growth of only 2.5%. CARE ratings also hint that weekly average (net) liquidity surplus in banking system grew from Rs.4.5 lakh crores at the end of June, 2021 to around Rs.7.5 lakh crores as of September-end.
Time For Action To Contribute to Economy
Bank’s participation in the growth of nation’s economy is undeniable. Banks maintain strict protocols while sanctioning loans. This exercise makes entrepreneurs to wait for long period and delay the process for unwanted reasons. Bankers must overlook traditional methods to approve loans.
PM assures the banks with dependable words and announced to provide all possible help. It is however important for loan seekers to maintain all records and provide all necessary documents for faster disbursal of loan funds.
Make Loan Dispensation Process Easy And Time Bound
He also appreciated the proposal to set up the web-based project funding tracker. This proposal will make all ministries and banks to work in tandem. PM also suggested adding this proposal as an interface to Gati Shakti Portal. Faster loan disbursal process will also help to effectively cope with other big challenges of unemployment and fund crunch. Access https://www.rbi.org.in/ to read more information.
Conclusion
In view of the abovementioned facts, it may be safe to conclude that the Government is fully committed to support Indian economy by promoting businesses and providing easy availability of funds through banks. It becomes pertinent for banks to be proactive in considering genuine loan requests and make sure that the funds sanctioned are being used only for the said purpose. Misuse of bank funds may land customer and/or concerned authorities into trouble and may attract various penal actions. In order to find more details on the given subject, you may refer to the author at https://www.sunilkumargupta.com.
Non Banking Financial Companies (NBFCs) have been growing in size and have substantial interconnectedness with other segments of the financial system. Reserve Bank of India had introduced a PromptCorrective Action Framework (PCA) for Scheduled Commercial Banks in 2002 and the same has been reviewed from time to time based on the experience gained and developments in the banking system. Accordingly, RBI has now decided to put in place a PCA Framework for NBFCs to initiate and implement remedial measures in a timely manner, so as to restore its financial health for strengthen the supervisory tools applicable to NBFCs.
The PCA Framework for NBFCs, as summarized hereunder, comes into effect from October 1, 2022, based on the financial position of NBFCs on or after March 31, 2022. The objective of the PCA Framework is to enable Supervisory intervention at appropriate time and is intended to act as a tool for effective market discipline. The PCA Framework does not preclude the Reserve Bank of India from taking any other action as it deems fit at any time in addition to the corrective actions prescribed in the Framework.
The PCA Framework is applicable to the following category of NBFCs:
All Deposit Taking NBFCs [Excluding Government Companies] (NBFCs-D)
All Non-Deposit Taking NBFCs in Middle, Upper and Top Layers3(NBFCs-ND);
[Including Investment and Credit Companies, Core Investment Companies (CICs), Infrastructure Debt Funds, Infrastructure Finance Companies, Micro Finance Institutions and Factors]; but [Excluding – (i) NBFCs not accepting/not intending to accept public funds4; (ii) Government Companies, (iii) Primary Dealers and (iv) Housing Finance Companies].
For NBFCs-D and NBFCs-ND, Capital and Asset Quality would be the key areas for monitoring in PCA Framework. For CICs, Capital, Leverage and Asset Quality would be the key areas for monitoring in PCA Framework.
For NBFCs-D and NBFCs-ND, indicators to be tracked would be Capital to Risk Weighted Assets Ratio (CRAR), Tier I Capital Ratio and Net NPA Ratio (NNPA). For CICs, indicators to be tracked would be Adjusted Net Worth/Aggregate Risk Weighted Assets, Leverage Ratio and NNPA.
A NBFC will generally be placed under PCA Framework based on the audited Annual Financial Results and/or the Supervisory Assessment made by the RBI. However, the RBI may impose PCA on any NBFC during the course of a year (including migration from one threshold to another) in case the circumstances so warrant.
The Reserve Bank may issue a press release when a NBFC is placed under PCA as well as when PCA is withdrawn vis-à-vis a NBFC.
Breach of any risk threshold may result in invocation of PCA as detailed under:
For NBFCs-D and NBFCs-ND (excluding CICs):
Indicator
Risk Threshold-1
Risk Threshold-2
Risk Threshold-3
CRAR
Upto 300 bps below the regulatory minimum CRAR [currently, CRAR <15% but ≥12%]
More than 300 bps but upto 600 bps below regulatory minimum CRAR [currently, CRAR <12% but ≥9%]
More than 600 bps below regulatory minimum CRAR [currently, CRAR <9%
Tier I Capital Ratio
Upto 200 bps below the regulatory minimum Tier I Capital Ratio [currently, Tier I Capital Ratio <10% but ≥8%]
More than 200 bps but upto 400 bps below the regulatory minimum Tier I Capital Ratio [currently, Tier I Capital Ratio <8% but ≥6%]
More than 400 bps below the regulatory minimum Tier I Capital Ratio [currently, Tier I Capital Ratio <6%]
NNPA Ratio (including NPIs)
>6% but ≤ 9%
>9% but ≤12%
>9% but ≤12%
For Core Investment Companies (CICs)
Indicator
Risk Threshold-1
Risk Threshold-2
Risk Threshold-3
Adjusted Net Worth / Aggregate Risk Weighted Assets
Upto 600 bps below the regulatory minimum ANW/RWA [currently, ANW/RWA <30% but ≥24%]
More than 600 bps but upto 1200bps below regulatory minimum ANW/RWA [currently, ANW/RWA <24% but ≥18%]
More than 1200 bps below regulatory minimum ANW/RWA [currently, ANW/RWA <18%]
Leverage Ratio
≥2.5 times but <3 times
≥ 3 times but <3.5 times
≥3.5 times
NNPA Ratio (including NPIs)
>6% but ≤ 9%
>9% but ≤12%
>12%
Exit from PCA and Withdrawal of Restrictions under PCA – Once a NBFC is placed under PCA, taking the NBFC out of PCA Framework and/or withdrawal of restrictions imposed under the PCA Framework will be considered: a) if no breaches in risk thresholds in any of the parameters are observed as per four continuous quarterly financial statements, one of which should be Annual Audited Financial Statement (subject to assessment by RBI); and b) based on Supervisory comfort of the RBI, including an assessment on sustainability of profitability of the NBFC.
The menu of corrective actions is as below:
Mandatory and Discretionary actions
Specifications
Mandatory actions
Discretionary actions
Risk Threshold – 1
1. Restriction on dividend distribution/remittance of profits;
2. Promoters/shareholders to infuse equity and reduction in leverage;
3. Restriction on issue of guarantees or taking on other contingent liabilities on behalf of group companies (only for CICs)
Common menu
Special Supervisory Actions
Strategy related
Governance related
Capital related
Credit risk related
Market risk related
HR related
Profitability related
Operations/Business related
Any other.
Risk Threshold – 2
In addition to mandatory actions of Threshold: Restriction on branch expansion
Risk Threshold – 3
In addition to mandatory actions of Threshold 1 & 2,
1.Appropriate restrictions on capital expenditure, other than for technological upgradation within Board approved limits
2.Restrictions/reduction in variable operating costs
Common Menu for Selection of Discretionary Corrective Actions by the RBI are mentioned below:
Special Supervisory Actions
Strategy Related Actions
Governance Related Actions
Capital Related Actions
Credit risk Related Actions
Market risk Related Actions
HR Related Actions
Profitability Related Actions
Operations Related Actions
Any other specific action that the RBI may deem fit considering specific circumstances of the NBFC.
RBI would initiate suitable corrective actions including in particular mandatory and discretionary actions to check the wrong doings of the companies. Corrective measures are summarized in brief i.e. may conduct Special Supervisory Monitoring Meetings at quarterly or other identified frequency, special inspections/targeted scrutiny of the NBFC, restricted and need based regulatory/supervisory approvals, review short-term strategy, medium-term business plans, identify achievable targets and set concrete milestones for progress and achievement, may recommend to promoters/shareholders to remove and bring in new Management/ Board, restriction in expansion of high risk-weighted assets, preparation of time bound plan and commitment for reduction of stock of NPAs, restrictions on branch expansion plans; PCAs would prove to be a milestone in the history of NBFCs and RBI will definitely have more control over NBFCs and would protect interest of the public funds at large.
For more details on the topic, you may refer to circular no RBI/2021-22/139DoS.CO.PPG. SEC.7/ 11.01.005/2021-22 dated Dec. 14, 2021, of RBI or access the author at www.sunilkumargupta.com/ to explore more on other topics.
We congratulate our Hon’ble PM & FM for announcing the economic package in 5 parts to make India self-reliant i.e. #AtmaNirbharBharat and for better opportunities for post COVID 19. I am happy to share that some points from my blog published on 9th May, 2020 on various social media platforms and where the Government was tagged, also found place in the package like : (1) Release of pending payment of MSMEs from PSUs; (2) Increasing the existing loan limit of MSME sector by 20%, without any additional collateral securities; (3) Creation of a digital market for MSME
Ease and deferment of labour law: Now, all occupations have been opened for women and permitted to work at night with safeguards. Major State Governments are now working on relaxing or deferring the labour law applicability
The Indian Government has always been reviewing its policies in the best interest of the country. The focus should now be drawn on improving India’s performance in ease of doing business by reviewing and rationalizing its policies in Dealing with Construction Permits, Getting Electricity, Registering Property, Paying Taxes, Trading across Borders, Enforcing Contracts, Resolving Insolvency, Employing Workers and Contracting with the Government. The government has started working on ease of doing business relating to easy registration of property and fast disposal of commercial disputes for making India one of the easiest places to do business as a part of next phase of Ease of Doing Business Reforms
Ease of Corporate Law and IBC laws to enhance businesses and to believe in entrepreneurs
de-punitive and de-criminalization of corporate and business laws: a) lower penalties for all defaults for Small Companies, One person Companies, Producer Companies & Start Ups. b) decriminalization of Companies Act violations involving minor technical and procedural defaults (shortcomings in CSR reporting, inadequacies in board report, filing defaults, delay in holding AGM). c) majority of the compoundable offences sections to be shifted to internal adjudication mechanism (IAM) and powers of RD for compounding enhanced (58 sections to be dealt with under IAM as compared to 18 earlier). d) 7 compoundable offences altogether dropped and 5 to be dealt with under alternative framework
All these will enable businesses to complete their pending compliances without payment of any additional filing fees, thereby the entrepreneurs may focus on the growth of their businesses and simultaneously de-clog the criminal courts and NCLT
Better Opportunities for New India post COVID 19 : The World Manufacturing Hub
The whole world is struggling hard with the global lockdown during the pandemic COVID-19 and is striving its best to regain its economies. The IMF World Economic Outlook came out with its interesting growth projections stating that the Euro Area is projected to have a de-growth in 2020 at minus 7.5% and projected growth of 4.7% in 2021. They have projected that India will have a better position by attaining 1.9% in 2020 and 7.4% in 2021 as against a contraction in the global economy. India has great opportunity to become a global manufacturing hub and to boost their MSME sector which is the lifeline of the country which eventually contributes 45% of the total manufacturing and 40% of the total exports and provides huge employment to all the skilled, semiskilled and unskilled youth of the country.
The pandemic COVID-19 had its origin in China and it has gradually spread its claws all over the world creating global economic destruction and resulting in Anti-Chinese sentiments in the system. Now businesses and manufacturers are looking for possible alternative locations to set up their manufacturing units. Various companies are planning to shift its manufacturing units from China to India, Vietnam, Thailand, Indonesia, Eastern Europe etc. India is being seen as a viable option to become a global manufacturing destination going forward. Countries like Japan are in talk with the Indian Government to set up their base in India. Market giants like Pegatron Corp., Google, Microsoft, Apple’s manufacturing partner Wistron Corporation are planning to move out of China and set up their manufacturing units in countries like India, Vietnam, Thailand, Indonesia etc. India is one of the good choices for these companies due to its young population, availability of abundant land, skilled labour, low tax rate for new manufacturing units and favorable business environment. As per the World Bank latest 2019 data, in ease of doing business, Thailand ranks at 21, followed by India at 63, Vietnam at 70 and Indonesia at 73. But is this all that is needed?
The entire world now is rethinking to develop their manufacturing niche in their own country or set up their manufacturing unit in any other country except China so as to avoid such devastating loss in the future. This is a brilliant opportunity for India to become the manufacturing hub of the world by pressing the reboot key to start afresh with new ideas and new goals in New India. Hence, it is important to justify why the businesses will shift to India and not to the other countries. Developing India as a manufacturing hub and an economic powerhouse is not like pressing the F5 key on the computer. Not only we have to attract the foreign companies to set up their manufacturing units in India, but also rejuvenate our MSME sector to grow and support our economy and the international manufacturing in India.
Let us now analyze whether doing business in India is really easy as compared to other nations. As per the World Bank study, there are majorly 12 indicators, whose aggregate score, giving equal weight to each indicator, determines the rankings of the countries in ease of doing business and they keep on changing on year to year basis.
*Source: The World Bank
India is one among the top 10 countries which has shown major improvement in 2019 vis-à-vis 2018. After climbing up the ladder, due to business-friendly policies of Modi Government, India is now at 63rd position out of 190 countries with DB Score of 71.0 out of 100 points. These are the 10 indicators of ease of doing business which is prepared by comparing the business regulation in 190 countries and are being considered by the businesses (domestic and international) before starting a new venture:
Sl. No
Indicators
India
Way forward for better ranking by India
1
Starting a Business
This topic measures the number of procedures, time, cost and paid-in minimum capital requirement for a small- to medium-size business to start up and formally operate in each economy’s largest business city.
136
136 out of 190 is not a good score, we need to at least reach a score within 50 as far as starting a business is concerned. Norms for starting a new business needs to be relaxed and should be made online in time bound manner. Due to the federal structure and the nature of businesses, they has to take several permissions from the Central and State Governments. Thus, a close coordination should be there between both the governments. Though the Ministry of Corporate Affairs has already implemented various steps like reduction of fees for incorporation of Company, introduction of SPICe, formation of a Company in 1 day, relaxation in the minimum paid-up capital requirement for ease of doing business, but we have to review various other compliances applicable for starting a new business and try to reduce the number of procedures, time and cost of the entire process.
2
Dealing with Construction Permits
It tracks the procedures, time and cost for obtaining the necessary licenses and permits, submitting all required notifications, requesting and receiving all necessary inspections and obtaining all requisite connections and permissions.
27
India was at the 52nd position in 2018 as against 27th in 2019. Although India has streamlined the process and improved its quality building controls, with faster and less expensive procedures to get construction permits in Delhi and Mumbai, but for better ranks it is advisable to encourage digitalisation and online approval for easy operation by each of the State Governments. For a better ranking post lockdown, India should now reduce/ minimise the number of procedures for getting the construction permits along with the time and cost of the process and build more effective quality control parameters.
3
Getting Electricity
This indicates procedures, time and cost required for a business to obtain a permanent electricity connection.
22
Though we have reached a score of 22 out of 190, but we need to improve the score further. Automated mechanism needs to be set up for supply of electricity connection. Further, more solar and hydro power plants, transmission lines needs to be set up all across the country so that there is no scarcity of supply of electricity. Our country needs to focus on reducing the time, cost and number of procedures for getting the electricity connections and emphasise on reliability of supply and transparency of tariff.
4
Registering Property
This is one of the primary steps for any new business to set up. It examines the steps, time, and cost involved in registering an undisputed property i.e. land and/ land along with building.
154
We are at 154th position out of 190 countries, hence we need significant improvement in getting property registered in the name of businesses because owning a land/ property for businesses is one of the most important and critical steps in setting up a new business, wherein there are some improvements. The Government needs to rationalise the land acquisition law and standardise online system of allotment of land by the industrial development authorities. It is also required to work on increasing the quality of land and administration process along with better transparency and reduce/ minimise the time taken, cost and number of procedures.
5
Getting Credit
This topic covers two aspects of access to finance—the strength of credit reporting systems and the effectiveness of collateral and bankruptcy laws in facilitating lending.
25
The entire process of getting credit in India needs to be reviewed, relaxed, standardised and made online. The Government needs to strengthen the legal rights of all the parties in the contract as well as transparency in assessing the credit score and expand the scope of information collection and reported by credit bureau.
6
Protecting Minority Investors
It measures the strength of minority shareholder protections against misuse of corporate assets by directors for their personal gain as well as shareholder rights, governance safeguards and corporate transparency requirements that reduce the risk of abuse.
13
The interests of the minority investors needs to be protected more strictly. Disclosures needs to clearly explain the facts, terms and risks involved, extent of directors’ liability and shareholders rights should be highlighted. Policies for corporate transparency, ownership and control measures needs to be reviewed and rationalised.
7
Paying Taxes
It records the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year, as well as the administrative burden of paying taxes and contributions.
115
India has a rank of 115 out of 190, which shows that the Government needs to review its taxation policies and significantly work on getting a better score within top 50. The Government needs to encourage businesses and individuals to pay tax and rationalise their compliances and administrative burden of collection should be bare minimum. They need to work on increasing total tax and contributions received and reduce the tax rates. Computation, compliance, filing and refund of direct and indirect taxes should be made easy. The taxation system needs to be made uniform so that the taxpayers find it easy and just, to pay the taxes and the tax audit processes needs to be reviewed along with rationalising labour taxes and other mandatory contribution (other than tax on profit).
8
Trading across Borders
Doing Business records the time and cost associated with the logistical process of exporting and importing goods. It measures the time and cost (excluding tariffs) associated with three sets of procedures—documentary compliance, border compliance and domestic transport—within the overall process of exporting or importing a shipment of goods.
68
India has implemented post clearance audits, integrating trade stakeholders in a single electronic platform, upgrading port infrastructures and enhancing electronic submission of documents in Delhi and Mumbai. The Government should now relax the existing laws regulating trade relations between India and other countries except the countries sharing land borders with India. While exporting or importing we have to reduce the time and cost for documentary compliance and border compliance.
9
Enforcing Contracts
It measures the time and cost for resolving a commercial dispute through a local first-instance court, and the quality of judicial processes index, evaluating whether each economy has adopted a series of good practices that promote quality and efficiency in the court system.
163
Since India now ranks at 163rd position out of 190 countries as per the World Bank data, the Government needs to stress on putting extra efforts in its system to enforce contracts. India Government should now bring out effective steps to resolve commercial disputes and enforce contracts. The Government should reduce the time to enforce contracts i.e. from the date of filing of dispute till the date of passing the order at the first-instance court with a minimum cost and increase the quality of judicial processes.
10
Resolving Insolvency
These variables are used to calculate the recovery rate, which is recorded as cents on the dollar recovered by secured creditors through reorganization, liquidation or debt enforcement (foreclosure or receivership) proceedings.
52
After the Insolvency laws, India has made resolving insolvency in a much easier way by promoting existing reorganisation proceedings. Government now needs to work on the effective implementation of the law in line with the international laws. Focus needs to be also drawn in increasing the recovery rate and strengthening the insolvency framework.
11
Employing workers
Labour laws to avoid worker exploitation, discrimination of hiring and working policies and unfair dismissal practices vis-à-vis rational and flexible labour laws for the growth of business
Not considered in ranking in 2019
The employing workers indicator measures regulation in the areas of hiring, working hours, and redundancy. A country should have flexible labour regulations, which provides workers an opportunity to choose their jobs and work freely, thereby increasing the labour productivity. India should have easy hiring framework with flexible rules so as to reduce the rate of unemployment among youth and female workers.
12
Contracting with the Government
Efficiency in public procurement policy to ensure better use of taxpayer’s money
Not considered in ranking in 2019
The contracting with the government indicator captures the time and procedures to win a public procurement contract. The Indian Government should review and take effective steps to prepare a database which constitutes a repository of comparable data on how efficiently public procurement processes are carried out and which will act as a benchmark to analyze efficiency of the entire public procurement life cycle. The procurement process should be an open unrestricted and competitive public call.
We have seen that since the past few years, India is significantly improving its position in ease of doing business as per the World Bank ranking. Apart from ease of doing, the country has to take some bold steps to come out of COVID-19 setback and achieve its dream of becoming the most attractive manufacturing hub and in establishing new businesses.
a) The biggest challenge for us is to create a lucrative environment for the international businesses by relaxing the compliance procedures followed in the country. The Government shall start easing the punitive and criminality clauses from compliance, business, commercial and labour laws and trusting the businesses so that the investors/businesses can concentrate more on the growth of their business, rather than wasting time on the compliance burdens. Government should rely on the self-declarations being given by the businesses and give them a more work friendly environment. Maximum companies prior to investing in India will compare the entry procedures i.e. starting a business in India, getting lands, enforcing contracts, statutory compliances, penalty and prosecution clauses in compliance, business and labour laws with that prevailing in other countries. The India Government is now focusing on interacting with the businesses and stakeholders of various other countries to set up their manufacturing base in India but the Central and State Governments may set up specific workforce for interacting with the foreign and Indian entrepreneurs and frame guidelines for timely completion of the projects. The said workforce may be formed jointly by the industry experts, professionals and Government representatives;
b) As a matter of continuous endeavor of the Government to promote MSME, enough safeguards are already built in the MSME law which states that for every services/goods supplied by the MSME unit, the buyer needs to make payment as per the pre-set terms but not exceeding 45 days and in case of delay, interest is charged. The Government needs to implement this law strictly and ensure that the dues from the State/ Central Government, PSUs and big corporates are paid to the MSMEs immediately along with the applicable interest. As per the law, MSME registration is very simple through Udyog Aadhaar (https://www.msmeregistration.org), however still a lot of MSMEs are unregistered and not able to get all the benefits allowed to registered MSMEs. The Government needs to ensure that all the MSMEs get themselves registered through the website. The State Governments should also relax or defer the labour law applicability on MSME sector for few years;
c) The Reserve Bank of India (RBI) needs to pump in more funds in the system to fund the MSME sector. The total liquidity injected in the market by RBI values 3.2% of the GDP, which the Government needs to ensure that it flows into the MSME sector. In order to fight the financial crisis caused by the COVID-19, the MSME sector may be granted a moratorium period of 6 months instead of 3 months and immediate fresh business loan may be granted to those MSMEs who do not have any existing loan. The cash flows of the MSMEs may be maintained by enhancing the overdraft limit to 25% without any primary security or otherwise, with repayment schedule starting after 6 months from the date of granting the facility. Further, the Government should strictly implement the ‘Credit Guarantee Fund Scheme’ to make available collateral-free credit upto Rs 2 crore to the micro and small enterprise sector. The Government should also ensure that the banks approve the loan to the MSMEs and the purpose of bringing this scheme doesn’t get defeated. The Government should also relax the norms pertaining to non-performing assets of the MSMEs to release the burden from their shoulders. They should further assure the banks/ financial institutions that in case any loan turns bad in future, the sanctioning authority will not be held liable and they will not be booked by the criminal law;
d) The State Governments has to promote MSMEs in manufacturing and service sectors in B-class, C-class, small towns and villages and link them with digital platforms for procuring raw materials and selling their goods. Though we have a few digital platforms for selling of goods in MSME sector which are run by the Government, but we need such digital platforms which will be run and managed by the MSMEs only and which can be operated in the local language also for easy understanding by the MSMEs.
e) The country’s agriculture sector accounts for 17% contribution in the GDP and has a growth rate of 2.1%. Out of the 138 cr population, approx. 58% population of the country is engaged in the agriculture sector. Since agriculture sector is the prime sector employing the maximum population of India, the Government needs to focus on increasing the percentage of the contribution to GDP from this sector by allowing businesses to invest in this sector by way of PPP model. Accordingly, the businesses can invest at the initial stages i.e. funding the farmer for seeds, fertilizer, labour cost etc. and purchase the entire crop at a price not which is being fixed by the Government. In case of any natural calamity or unforeseen circumstances resulting in loss of crop, the farmers and businesses should get the minimum fixed amount from the insurance company. The businesses may adopt this as their business model. Currently the Government through banks, provides loans to the farmers and if due to some natural calamity or otherwise, the crops get affected, then as a result of various compulsions, the Government has to waive off the loans and it creates a habit of financial indiscipline in the country.
Conclusion:
In this global crisis, each and every country is trying to start afresh and revive back its economic growth and become the new economic powerhouse. The Indian Government has always been reviewing its policies in the best interest of the country. The focus should now be drawn on improving India’s performance in ease of doing business by reviewing and rationalizing its policies in Dealing with Construction Permits, Getting Electricity, Registering Property, Paying Taxes, Trading across Borders, Enforcing Contracts, Resolving Insolvency, Employing Workers and Contracting with the Government. The existing punitive and criminality clauses from compliance, business, commercial and labour laws need to be reviewed and relaxed. Entrepreneurs and foreign businesses should be given a free hand to focus on the business growth and in turn aid in the economic growth of the country.
MSME sector is growing at 10%, which needs to be escalated by establishing MSME in small town and villages and connect them through digital platforms owned and run by the MSME sector in the local language also. The State Governments should relax or defer the labour law applicability on MSME sector and incentivise them link with their production for the next few years. The Government should strictly implement the ‘Credit Guarantee Fund Scheme’ to make available collateral-free credit upto Rs 2 crore to the MSME sector. They should also ensure that the banks approve the loan to the MSMEs and the purpose of bringing this scheme doesn’t get defeated. The Government shall also focus on developing the agricultural sector by allowing investment through farmer-business-government model where Government needs to allow investment by businesses and the minimum price should be controlled by the Government.
Opportunity to professionals: Fresh Start Scheme, 2020 & LLP Settlement Scheme, 2020 – Relief to Companies & LLPs
The Companies Act, 2013 and Limited Liability Partnerships Act (LLP Act) 2008 require all Companies/ Limited Liability Partnerships (LLPs) to make annual statutory compliance by filing the Annual Return and Financial Statements. Apart from this, various other statements, documents, returns, etc. are required to be filed on the MCA electronically within prescribed time limits.
As part of its constant efforts to ease of doing business and to reduce the litigation burden from the Companies and/LLPs and in order to encourage the businessman to focus more on the growth of the Company/LLP and organize their internal structure, the Government of India has announced a one-time relaxation to law abiding Companies and LLPs so as to enable them to complete their pending compliances without payment of any additional filing fees. The Ministry of Corporate Affairs (MCA), introduced the “Companies Fresh Start Scheme, 2020” and revised the “LLP Settlement Scheme, 2020” to provide an opportunity to both companies and LLPs to make good their default by filing pending documents and to serve as a compliant entity in future. The Fresh Start scheme and modified LLP Settlement Scheme condone the delay in filing the specified documents with the Registrar, insofar as it relates to charging of additional fees, and granting of immunity from launching of prosecution or proceedings for imposing penalty on account of delay associated with certain filings during the unprecedented lockdown caused by COVID-19. The prominent feature of both the schemes is a one-time waiver of additional filing fees for delayed filings by the companies or LLPs with the Registrar of Companies during the currency of the Schemes, i.e. during the period starting from 1st April, 2020 and ending on 30th September, 2020.
Both the Schemes, apart from giving longer time for corporates/LLPs to comply with various filing requirements under the Companies Act 2013 and LLP Act, 2008, significantly reduce the related financial burden on them, especially for those with long standing defaults, thereby giving them an opportunity to make a “fresh start”. Both the Schemes also contain provision for giving immunity from penal proceedings, including against imposition of penalties for late submissions and also provide additional time for filing appeals before the concerned Regional Directors against imposition of penalties, if already imposed. However, the immunity is only against delayed filings in MCA 21 and not against any substantive violation of law.
Details of the both the Schemes are available vide the Circular nos. 12/2020 & 13/2020 dated 30.03.2020, issued by the Ministry of Corporate Affairs.
The Schemes are not applicable in following cases :
Non-applicability in case of Companies:
to companies against which action for final notice for striking off the name u/s 248 of the Companies Act 2013 (previously Section 560 of the Companies Act, 1956) has already been initiated by the Designated Authority.
where an application has already been filed by the companies in Form STK-2 for striking off the name of the company from the Registrar of Companies.
to companies which have amalgamated under a scheme of arrangement or compromise under the Act.
where applications have already been filed for obtaining Dormant Status under section 455 of the Act before this scheme.
to vanishing companies.
Where any increase in Authorised Share Capital is involved and also charge related documents
Non-applicability in case of LLPs:
LLPs which has made an application in Form 24 to the Registrar, for striking off its name from the register as per provisions of Rule 37(1) of the LLP Rules, 2009.
Conclusion:
The Government of India is working on giving the businessmen the opportunity to mitigate the pending litigations against their business so that they are able to focus on developing their business and in turn contribute in the growth of the nation’s wealth and GDP of the Country. In the wake of this pandemic outbreak, it is an opportunity on the shoulders of the professionals to help the businessmen by working online and cleaning the pending compliances of the Companies and the LLPs.
