Mobilisation of Resources
==================
China has forged ahead by pushing credit to productive projects, resulting in profound economic growth. Indian Govt would like to do the same but it is stretched due to high public sector investment, central fiscal consolidation, high govt debt and poor credit rating of its debt. To follow suit India must first identify idle funds.

ASSETS WITHIN
Centre and state treasuries are being synchronised to reduce operating cash.  "Parked cash" is being mobilized within govt departments (central monies in state a/cs), in statutory bodies (compensation collected for forestry, mining, etc), in welfare trusts (like construction workers welfare body) and with suppliers. Unclaimed bank deposits, dividends etc are now transferred to RBI reserves.

Assets of criminals and overseas absconders are being traced, seized and auctioned, incl. use of extradition and disclosures under treaties. Legislative and executive actions were taken to simplify recovery under Enemy Property act, Benami act, Undisclosed Foreign Income & Assets, Insolvency & Bankruptcy code. GAAR and tax treaty re-negotiations should protect tax revenues.

Divestment, strategic divestment and loss-making PSU turnarounds are taking place. PSUs are asked to invest or return surplus reserves, and in some cases borrow on balance sheets (see link 1). Rail, road and other ministries are using off-balance sheet finance (ie borrowing on viable new projects); monetizing toll roads or securitizing port dollars. Hybrid annuity model eases bank credit for contractors and reduces govt outlay (see link 2). Innovative funds (govt, industry, multinational agencies, foreign) are being set up.

Bankruptcy code offers an effective exit mechanism to unblock idle funds in non-functioning companies. Stable functioning enterprises will be able to raise higher, cheaper debt (link 3 & 4). In total as much as 20% additional funds will be released for productive use. GST has the scope to free up $200B, as inventory falls from 50% to 10% of logistics cost (explained in link 5).

ILLICIT FUNDS
Illicit hoarding of idle assets like jewellery, real estate are  discouraged through new rules like declaring ID source of funds, cash restrictions, rules on disclosure for govt officials & on tax forms; digital records of property ownership, collation of wealth from IT tracks & surveys; GST (creates transactions trail, makes it difficult to hide sales data); and seizures of newly discovered illicit assets via Benami act.

Naturally, money is moving into productive areas like startups, new businesses, bank deposits and market traded instruments like shares & bonds.

MONEY MULTIPLIER
Govt has successfully shifted idle or unaccounted cash into bank deposits. 3 to 3.5% GDP of demonetized cash into banks has the potential to create a multiplier of 15 to 17% GDP, through recycling deposits to credit.

For money multiplier to work, look at:
i.   Bank readiness to extend credit
ii.  Borrowers willingness to take loans
iii. Overall effect does not create bubbles or NPAs.

The corporate sector is increasingly using the bond market as it is offering cheaper funds. Banks are shying from the corporate sector due to their bad experiences. They are pursuing the retail sector or govt supported industries.

ACTIONS
1. Interest subvention

2. Affordable housing gets a boost from easier planning, infra status & tax exemption. Affordable housing now covers larger middle-class homes.

3. 90% withdrawals from EPFO for housing.

4. Retail loans are facilitated through credit rating of Jandhan accounts, and where good bank records are maintained (eg for salaries, sales, rent, etc).

5. Govt is encouraging digital salaries, esp for certifying minimum wages. I-T can disallow cash deductions.

6. Credit boost to select industries like textiles, leather, tourism.

7. MUDRA for small unsecured lending. New bank licenses.

8. PSU bank executives being filled up. Recruitment from the private sector.

9. Bank mergers, with good synergies, will lead to larger, more efficient players.

10. Weak banks asked to sign a contract and agree on significant improvements to avail bank capitalization.

11. Work on reviving industry sectors (eg power, infra, steel, etc).

12. Large asset reconstruction companies to take over NPAs.

13. Business climate being boosted by significantly improving Ease of doing Business & Global Competitiveness Index.

14. GST should release a potential $200 billion tied up wasteful inventory spend

The ABC of remonetisation: India's China moment - The Economic Times