India is growing rapidly. It amazed that how India grows so fast? Let’s understand the reasons of the same. As per the report published by moody’s India cross 3.5 trillion target of the GDP. There are 7 major factors which enhanced growth of Indian economy. These are as follows:
1. Non- Banking Financial Institution support:
Non-Banking Financial Companies (NBFCs) play a significant role in the Indian economy and contribute to its overall growth and development. Credit to GDP ratio of NBFC had increased to 13.7. It means NBFC providing loan to 14 persons out of 100. It is indicating that customer can repay the loans also that are why the loan payment by the NBFC is increasing. In 2020, the Indian government introduced the Atmanirbhar Economic Package, which aimed to boost the country’s economy and make it self-reliant. As part of this package, the government allocated Rs.30,000 crore to Non-Banking Financial Companies (NBFCs) for providing loans to the public. It boosts the economic activity in the country.
While it is true that NBFCs can act as economic boosters, their impact can vary depending on several factors.
Increased Financial Inclusion: NBFCs provide financial services to individuals and businesses that may not have access to traditional banking services. By offering loans, credit, and other financial products, NBFCs contribute to increasing financial inclusion, empowering individuals and small businesses to participate in economic activities.
Complementing Banking Sector: NBFCs complement the banking sector by providing additional sources of credit and liquidity. They fill the gaps left by traditional banks and cater to the specific needs of various sectors and segments of the economy. This helps in channeling funds to sectors that may be underserved by banks, such as small and medium enterprises (SMEs), agriculture, and retail.
SME Financing: NBFCs often specialize in lending to SMEs, which are the backbone of the Indian economy. These companies face challenges in accessing credit from banks due to various reasons, including limited collateral and documentation. NBFCs offer flexible financing options, faster loan approvals, and customized solutions tailored to the needs of SMEs, thus promoting entrepreneurship and fostering economic growth.
Infrastructure Development: NBFCs play a crucial role in financing infrastructure projects, which are vital for economic development. They provide long-term financing, project advisory services, and expertise in project appraisal and structuring. By supporting infrastructure development, NBFCs contribute to job creation, improved connectivity, and enhanced productivity, leading to overall economic growth.
Consumer Financing: NBFCs also contribute to the growth of consumption in the economy. They provide loans for purchasing consumer durables, two-wheelers, automobiles, and housing, among other things. By offering easy financing options, NBFCs enable individuals to fulfill their aspirations and increase their purchasing power, thereby stimulating demand and economic activity.
Rural and Agricultural Sector: NBFCs play a crucial role in the rural and agricultural sectors, which form the backbone of India’s economy. They provide agricultural credit, rural housing finance, and microfinance services, thereby promoting rural development, poverty alleviation, and agricultural productivity.
2. Reform in Corporate Affairs:
To boost make in India initiative in 2019 government had cut down corporate taxes to 22 percent which was previously 30 percent. To promote domestic production had provided production linked Incentives. 5000 foreign companies registered in Indian manufacturing industry due to the scheme. Within a year, foreign investment in India doubled, indicating a significant increase in the amount of investment coming from foreign sources.
3. Easy KYC’s introduction in Capital market
Recently, the market witnessed the highest investment in a single day. This indicates a surge in investor activity and interest in the stock market. One contributing factor to this trend is the increasing number of D-mat accounts being opened. Previously, the process of opening a D-mat account used to take 5 to 7 days and required a stock broker to visit the investor’s home for physical verification. However, this has now been simplified through e-KYC (electronic Know Your Customer) procedures. With e-KYC, the verification process has become quicker and more convenient, saving time for both investors and stock brokers.
With the implementation of e-KYC (electronic Know Your Customer) processes, opening D-mat accounts has become faster and easier. This has attracted more individuals to participate in the stock market, leading to a surge in investments. The simplified procedures have reduced the barriers to entry, making it more accessible for people to invest in stocks and take advantage of the potential returns offered by the market.
4. Simplified Labour Laws:
In 2019, India introduced four labor codes, which replaced the previous 44 existing labor laws. These codes aimed to simplify and streamline labor regulations in the country. Here are the key details about the four labor codes:
Code on Wages: This code consolidated and simplified the laws related to wages and bonus payments. It unified various wage-related provisions and introduced a standardized framework for minimum wages, timely payment of wages, and transparency in wage calculations.
Code on Occupational Safety, Health, and Working Conditions (OSH): This code focused on ensuring safe and healthy working conditions for employees. It consolidated and simplified laws related to occupational safety, health, and welfare provisions. It established guidelines for workplace safety, welfare amenities, working hours, and leave provisions.
Code on Industrial Relations: This code brought together laws related to industrial disputes, trade unions, and employee-employer relations. It aimed to promote a harmonious industrial environment by introducing provisions for grievance redressal, negotiation mechanisms, and procedures for resolving industrial disputes.
Code on Social Security: This code aimed to expand the coverage and benefits of social security schemes for workers. It consolidated and streamlined various social security laws, including provisions related to provident fund, employee state insurance, and maternity benefits. The code aimed to extend social security benefits to a broader workforce and improve the social security framework.
These four labor codes were introduced to simplify and modernize labor regulations, reduce compliance burden, and promote ease of doing business. The consolidation of multiple labor laws into these codes aimed to provide clarity and transparency to both employers and employees, ensuring better protection and welfare for the workforce while supporting India’s economic growth and development.
5. FPI Tax cut:
In the financial year 2022-23, the Indian stock market emerged as the best performing market in Asia. This remarkable performance attracted significant Foreign Portfolio Investment (FPI) flows into the Indian market.
In 2019, the Indian government took a significant step to boost Foreign Portfolio Investment (FPI) by reducing the Tax Deducted at Source (TDS) rate. TDS is the tax deducted by the payer while making payments to the recipient, which includes FPI investors. The government’s decision to reduce the TDS rate to 5% for FPIs aimed to attract more foreign investment into the Indian market.
6. Relaxed Foreign Direct Investment Rules:
India has witnessed a significant increase in foreign companies setting up manufacturing units in the country. Companies such as Apple, Walmart, and Boeing are among those choosing to establish their manufacturing facilities in India. In fact, around 67% of foreign companies prefer India as their Foreign Direct Investment (FDI) destination. This trend can be attributed to the Indian government’s introduction of eased FDI rules.
The Indian government has implemented policies to allow Foreign Direct Investment (FDI) in the defense and railway sectors, as well as introduced convertible notes for startups. These measures aim to encourage investment and promote growth in these sectors.
FDI in Defense and Railway: The government has opened up the defense and railway sectors to FDI, allowing foreign companies to invest in these industries. This move enables technology transfer, promotes modernization, and enhances competitiveness in the defense and railway sectors. It also encourages foreign collaborations and brings in advanced expertise and investment.
Convertible Notes for Startups: The government has introduced convertible notes as a funding instrument for startups. Convertible notes are debt instruments that can be converted into equity shares at a later stage. This initiative facilitates early-stage funding for startups, providing them with flexible financing options. It encourages investment in innovative startups and promotes the growth of the startup ecosystem in India.
By allowing FDI in defense and railway sectors and introducing convertible notes for startups, the government aims to attract foreign investment, encourage technological advancements, and foster entrepreneurship and innovation in India. These measures contribute to the development and expansion of critical sectors and support the overall economic growth of the country.
7. Easy e- Clearances:
In 2019, India made significant progress in improving its ease of doing business rankings by jumping 66 ranks. This means that India’s business environment became more favorable and conducive for companies to operate and invest in.
Government has taken the help of digital tool such as e-sahaj, e-visa, cargo clearance, parivesh etc. for early clearance of consignments. The step payed significant role in the MSME sector.
Conclusion:
It is the proud to addresses huge economic growth in India in last 10 years. The increase in GDP does not the only indicator of the growth. But the faster growing of India is the admirable.