Economic revival: Baptism by fire
If you thought, the lockdown was tough, think again. Because it may very well turn out that the difficult part has not even begun yet. With dried-up revenue sources, economic revival is going to be the toughest challenge for PM Narendra Modi in six years as the Prime Minister of the country.
The market keeps making random moves as the nation gears up for the Prime Minister's address tonight. The PM could likely discuss the partial exit strategy. Lockdown extension also remains on cards for most of the economic hot spots of the country.
While a large part of the population still remains severely affected from coronavirus, Glenmark pharma has become the first Indian pharma company in India to start clinical trials on Covid-19 patients as the global race to find a vaccine is still on.
Glenmark Pharma’s results are expected by July or August this year.
Intraday, Sensex closed 0.60% down at 31,371.12 while Nifty lost 0.32% to close at 9,196.55. Vedanta (up 12.44%), NTPC (up 5.77%) and ITC (up 4.17%) were the major gainers of the day while Reliance (Down 6.19%), GAIL (Down 3.64%) and Asian Paints (Down 2.93%) were the major losers of the day.
Economic revival: Baptism by fire
A lack of private investment has been an Achilles heel for the Indian economy since a long time. In the pre-COVID-19 era, the government managed to run the show with increased spending. But, with revenue sources drying up and tax collection falling to abysmally low levels, government spending has also declined.
In such a grim scenario, a few emerging reports have suggested that the government is looking to provide a 10-year tax holiday for companies who are bringing in new investments upwards of $500 million. The buzz is that the companies who wish to avail the benefits under this scheme will have to start operations within three years from June 1.
A four-year tax holiday deal could also be extended to companies, willing to invest $100 million or more in labour-intensive sectors like textiles, food processing, leather and footwear.
If this happens, we could see the second bonanza for companies looking at expansion, the first one being the labor reforms that states like UP, MP and Gujarat are looking to formalize soon.
Key takeaway:
State governments are looking to utilize this opportunity to seek investments from manufacturing companies who are looking to move out of China. It is particularly important for those states which are native to migrants. Setting up factories and attracting investments are far more important for them as a large part of laborers might not want to return to the industrial states.
Changing employment paradigm?
Experts believe that if labor law reforms become a reality then even the formal employment sector will not remain immune from its effect. The sector could join the trend of hiring employees on a contractual basis and permanent employment as an overall percentage could go down.
Currently, only 1-1.3% of employment is outsourced in the formal sector. But, with labor reforms coming into effect, this number could quickly climb towards the range of 15-20%.
Key Takeaway:
In India, there are no differences in labor laws for contractual and permanent employees. However, new labor laws could encourage employees to hire more on a contractual basis.
In this scenario, a majority of the job market could shift towards the formal sector but with a reduced percentage of permanent jobs. It will reduce the burden of job creation on MSMEs. MSMEs are currently the largest job creation engine in India.
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