Reserve Bank of India (RBI) governor Shaktikanta Das on Monday said five dynamic shifts have the potential to shape the future of the country’s economy — fortunes shifting in favour of the farm sector, changing energy mix in favour of renewable, leveraging information and communication technology (ICT) and start-ups, strengthening supply and value chains, and focusing on infrastructure as a growth multiplier.

“They [the five factors] may escape our attention in this all-consuming engrossment with the [coronavirus disease, or Covid-19] pandemic, but they could be nursing the potential to repair, to rebuild and renew our tryst with developmental aspirations. These dynamic shifts have been taking place incipiently for some time,” he said at an event, organised by the Confederation of Indian Industry (CII) and held via video-conference.

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Commenting on the infrastructure as a growth driver, he said the infrastructure gap still remains large and there is a need for diversifying financing options. “On financing options for infrastructure, we are 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,” he said.

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“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,” he added.

He proposed a big push to certain targeted mega infrastructure projects that can reignite the economy. “This could begin in the form of a north-south and east-west expressway together with high-speed rail corridors, both of which would generate large forward and backward linkages for several other sectors of the economy and regions around the rail/road networks,” he said.

On agricultural transformation, Das suggested a change in agriculture policy focus from minimum support price (MSP).

“Hitherto, the main instrument has been minimum support prices, but the experience has been that price incentives have been costly, inefficient, and even distortive,” he said.

He hoped that an efficient domestic supply chain will facilitate “domestic free trade” in agriculture that is triggered by three key policy changes — the amendment of the Essential Commodities Act (ECA), 1955; the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020; and the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020.

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With this enabling legislative framework, the focus must turn to crop diversification, food processing, agricultural exports, and public and private capital formation in the farm sector, he said.

A similar opportunity space exists in the energy sector, especially renewable, he said adding that India has emerged a power surplus country, exporting electricity to neighbouring countries.

Das said the shift to greener energy would reduce the coal import bill, create employment opportunities, ensure a sustained inflow of new investments, and promote ecologically sustainable growth. He, however, said that reforming retail distribution of electricity while reducing commercial, technical and transmission losses remained a key challenge.

According to Das, ICT, and start-ups are one of the key growth drivers. “The ICT revolution has placed India on the global map as a competent, reliable, and low-cost supplier of knowledge-based solutions,” he said.

He said Covid-19 has impacted the outlook for start-ups, particularly the availability of funding due to an all-pervasive atmosphere of risk aversion. Besides, globally, regulatory uncertainty relating to work permits and immigration policies could also amplify challenges. The sector has to also deal with concerns relating to data privacy and data security, he added.

“Promoting young firms and start-ups will be critical for greater employment generation and higher productivity-led economic growth in India … Innovation and the ability to nurture ideas into actualisation would be the key challenge. In this context, private enterprise and investment have a game-changing role,” he said.

He said this is the time to strengthen the domestic and global supply chain. “Investment in sectors with strong forward and backward linkages in the supply chain can generate higher production, income, and employment. Consequently, identification of such sectors becomes critical for strategic policy interventions,” he said.

Global shifts in value chains in response to Covid-19 and other developments would create opportunities for India, he said. “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 (United States), the EU (European Union), and the UK (United Kingdom),” he added.

DK Srivastava, the chief policy advisor at consultancy firm EY India, said the RBI Governor has invited India’s corporate sector to invest heavily in these five sectors that define an ongoing economic shift in the economy.

“First, in agriculture, the government’s new regulatory initiatives including the creation of a genuine pan-India market in agricultural products, will make returns to investment in agriculture more remunerative. Second, in the case of renewables, there is clear scope for taking advantage of progressive cost reductions and substituting imports of solar panels from China by creating domestic capacity. Third, in the case of information and communication technology, the government’s initiatives for curbing Chinese technologies and applications open up competitive space for Indian initiatives. Fourth, global supply chains are bound to be realigned in favour of the country and the private sector should invest extensively and take advantage of the space that is being opened up,” he said.

According to Srivastava, in the case of infrastructure, the private sector already has a specific role in financing the Rs 100-lakh crore National Infrastructure Pipeline (NIP). “The current and next years are critical for the NIP since the proposed schedule provides for peaking of infrastructure investment in these years, particularly in the construction sector. Financing of infrastructure investment in the current and subsequent years will be key to the recovery of India’s growth and pushing it towards its potential,” he said.

“The RBI Governor acknowledges the role of both the public and private sectors for infrastructure financing. In the first case, greater flexibility in setting the fiscal deficit limits for the central and state governments may be needed and in the second case, innovative market solutions may be called for,” he added.

Srivastava proposed another round of fiscal stimulus. “To finance public investment in infrastructure, the government may consider another round of fiscal stimulus focused mainly on increasing its capital expenditure on infrastructure,” he said.

The state governments may also be persuaded to borrow up to the enhanced limit of 5% of their respective gross state domestic product (GSDP). “The prerequisite conditions for availing of this increased limit may also be relaxed,” he added.