Bharat’s slowing growth rate and collapse in employment generation require radical policy measures to tackle. The World Hindu Economic Forum (WHEF) proposes reforms for policy makers to consider.
- Bharat’s poor economic performance in the past few years is a setback for the economic welfare of its people.
- Also creates serious dangers for the integrity and security of the country.
Bharat is in the cusp of major changes in the global axis of Economic power. In the 1990s G-7 had more than 51% of the global GDP in 1990 while as Emerging markets had 36 %. But by 2012 the share of Emerging markets- adjusted for purchasing power parity [PPP] in Global GDP is around 52 % and that of G-7 is only 36 %. It is estimated that the share of G-7 may come down to 25% in the next decade. This implies that the markets mainly consisting of Bharat and China are Re-emerging as major powers. Till 1820 they had more than 50% of the global GDP from the beginning of the Christian Era. This shift in the economic Axis is to be internalized by planners in Bharat to achieve our full potential.
But at the same time people of Bharat should be deeply concerned that faltering economic growth and failure to augment national capacity is affecting Bharat’s ability to compete with China, whose productivity growth is significantly higher than Bharat’s. As a result, China continues to increase its ability to deploy resources for enhanced military capacity to achieve foreign policy goals.
Within a decade China’s military infrastructure will reach formidable new heights.
It will dramatically outstrip Bharat’s economic capacity and endanger its ability to resist Chinese territorial and other claims against it. Chinese economic power will also facilitate enhanced support for Pakistan and they will conjointly threaten Bharat’s political and territorial integrity. In addition, they will both invest resources to influence political and social life within Bharat itself. This menace is already evident, but will intensify and result in grave challenges for a weakened Bharat, which will possess fewer economic resources to resist them. In addition, the obsessive preoccupation of Bharat’s political class with electoral outcomes is likely to result in their direct subversion by foreign interests, originating in the neighbourhood and beyond.
Bharat’s faltering economic performance is an enormous additional peril for its internal social and political stability. The failure to generate employment and the inability to achieve meaningful improvements in livings standards for the majority are already prompting popular disaffection. Terrorist groups seeking overthrow of the State in Bharat through armed assault exploit the disadvantaged, vulnerable to radicalisation. Such terrorists receive incitement and help from abroad and already pose the most serious challenge, in large areas of the country, confronting the State of Bharat.
The most fundamental reform required for Bharat’s to prosper as an economy and achieve ethical integrity is dramatic reform of governance. Many sensible proposals have been put forward by public and private bodies and analysts.
- The most obvious and urgent need is for a reduction in the reach and role of government in the economy. The capacity of the State Bharat to function efficiently and deliver goals has been tested over a very long period of time and found lacking. Serious and sustained attention must now be paid to limiting its intrusive and often extremely detailed intervention in all spheres of economic activity. It involves both curtailment of its role in entirety in many instances and also rethinking methodologies of compliance which are deemed unavoidable.
- The imperative of transparency to ensure efficiency and honesty in the dealings of state agencies and public servants with civil society and ordinary citizens require radical departures. Many examples of policies abroad and, indeed in some instances, within Bharat, might be appropriate and should be adopted. Automatic, time-bound default settings for granting regulatory permission for actions necessary to private agents to function should be considered.
- The limiting of corruption in society is only possible when an example is set from the highest levels of political life and public service. Yet the major underlying cause is the need to raise funds for elections, which facilitates and encourages corruption in political life. It also contaminates the conduct of public servants who become the accessories of dishonest politicians. A new way must be found to finance politics in Bharat that drastically curbs the corruption in public life that is causing huge collateral damage to both the economy and society.
- Large areas of regulations can be simplified with stress on self –regulation and any violation to be met with swift and dissuasive punishment
- The issue of infrastructure looms large as a constraint on the growth of the Bharat’s economy. The shortfall is huge and the significant negative impact on the economy of Bharat. Bharat invests around 4% of GDP on infrastructure compared to 9% by China, seriously constraining investment and productivity in the manufacturing sector and other areas of the economy as well. Transport bottlenecks are an important contributory factor to inflation in Bharat.
- The process of decision-making on investment in infrastructure in transport, power generation, airports and ports, in particular, is woefully slow in Bharat and urgently needs to be streamlined. Improved rural road connectivity, in particular, would benefit marketing of products, increasing incomes and reducing waste. Bundling the building of minor individual roads into single contracts would also encourage the participation of more experienced contractors and address the issue of quality.
- Coordination and consultation between different agencies across the country are necessary, but major improvements, by enforcing adherence to time-bound schedules, are required.
The pace of decision making on infrastructure investment is distorted by corruption and endemic
- illegal payoffs and the appropriate authorities must consider measures that eliminate such hindrances. Corrupt practices also inflict incalculable losses on the economy and the taxpayer through poor quality construction and cannot be tolerated. Transparency and default settings that automatically grant requisite permissions are one potential means of curbing political and bureaucratic interference to extract bribes. In addition, severe sanctions must be applied to act as a deterrent.
- The balance between private and public sector provision of infrastructure and its operation should be subjected to fresh scrutiny. Experience of performance in a significant range infrastructure facilities constructed and operated by the public sector enjoins skepticism about the scale of its involvement.
- Operation of the railway should be opened up,initially, by allowing private operators to operate their own rolling stock on payment of an appropriate fee for use of the track and other facilities that defray the cost and maintenance of signaling and sidings, etc.
One of the first economic goals of a new government should be to reduce the public sector deficit and the borrowing it entails.
The Ministry of Finance should immediately begin a careful examination of public finances to identify the waste widespread associated with government spending and recommend measures to curb it.
- A number of programmes introduced by the preceding government like NREGA should also be curtailed and a timetable outlined for their eventual termination. At minimum any indexation of such programmes should stop, as a prelude to more drastic measures.
- A new government would be well advised to embark on reform of Bharat’s labour laws at the earliest opportunity, in order to take advantage of the public goodwill enjoyed at the outset of its tenure.
- A major programme of disinvestment of publicly-owned enterprises remains outstanding and must be promoted with renewed vigour. There is little economic or political rationale for the extent of existing state ownership of Bharat’s public sector undertakings. Appropriate rules may be required on the extent of foreign participation in the purchase of equity in denationalised public sector undertakings when their sale occurs.
- Reform of agricultural policy is imperative to create competitive markets that will change the mix of products and improve productivity. Urgent departures are required of the APMC and EAC, which are distorting prices, production and the distribution of agricultural incomes through misallocation and outright corrupt practices. Greater competition will allow entry and exit from trading and likely encourage better cold storage and warehousing facilities.
- Additional irrigation projects to achieve Bharat’s full potential of 139.4 million ha and policies to maximise the use of 360km3 of available groundwater, as well as the adoption of new technologies, already in use in some parts of the country, are required. It will increase agricultural output and productivity and sustained government
attention is highly desirable.
- Reform of tax policies, principally to expand its base and reduce its marginal impact would be welcome. Bharat’s size potentially allows for a low tax rate provided its base is enlarged. The government should also contemplate major reform of taxes on agriculture that assure transparency and fairness. The administration of taxation also cries out for reform to reduce leakage and curb corruption.
- Bharat’s educational policy, across the board, requires urgent attention to improve quality and ensure fair access at reasonable cost. The performance of public schools across the country varies significantly and measures should be adopted to raise the performance of the worst to levels achieved by the best. The availability of tertiary education in collaboration with industry needs to be expanded methodically. Models exist abroad (e.g. Germany) that might be evaluated and possibly emulated. More funding is certainly an issue as well and Bharat’s
aggregate level of spending on education lags behind that of successful countries in Asia, including China. In addition, policies are necessary to end the seizure of educational provision by politically-connected racketeers.
Health provision in Bharat is another area that must be addressed urgently because it is the single most salient issue
- for all but the wealthiest. The poorest experience permanent setback from illness because the cost of medical treatment is prohibitive and the quality of public provision inadequate. Effective primary health care outside urban centres remains a critical issue. A mix between public and private health care remains desirable, but improvements in the quality of provision in the former require careful reflection.Private hospitals should be obligated to allot a portion of their total budget for the care of the uninsured, less well off. Careful incentive structures for clinical and administrative staff in public health institutions and penalties for substandard performance require robust implementation. Effective delivery and monitoring remain paramount and many recent reforms (e.g. the NRHM) have faltered at this stage rather than due to clinical incompetence.
- Urban development has been deeply compromised by a mixture of mediocre planning and widespread violation of regulations owing to rampant corruption. It has inflicted incalculable and, in many instances, irreversible damage to cities and urban living. All planning applications must be advertised on government websites and public consultation deemed a statutory requirement.All officials involved in individual applications must be named and both their decisions and the progress of construction monitored and advertised on the official website. All interested parties should have a statutory right to challenge and oppose planning consent and any violations that occur in their execution.
- A recent World Bank study identified Bharat as the third worst country for resolving commercial disputes. This appalling reputation is attributable to prolonged delays and its high cost, which are unsustainable for SMEs. Improvement in judicial procedure and process enjoins every effort to fill unfilled vacancies and ensure speedy resolution of disputes. Arrangements for designated commercial courts, with appropriate expertise, and voluntary arbitration are also desirable. Delays owing to judicial delays are costly and deter investment and should be considered a priority.
- The issue of research and development remains an unresolved issue in Bharat. Great achievements in particular areas are accompanied by few patents in the majority. The contrast with China’s huge strides in registering scientific and engineering patents during the past two decades should cause alarm. Many publicly-funded institutions in Bharat achieve little through their supposed research endeavours and misspend valuable resources. Incentive structures and disciplined management of the highest quality are required to address this issue. Robust patent laws also constitute encouragement and should not be only dictated by concern about the cost of importing technology. The activities of private scientific research should be offered significant public help and sponsorship.
- The regulation of economy should be subjected to searching evaluation to mitigate the multiplicity of administrative barriers that hinder business activity and deter entry. These must include the many opportunities for corrupt extortion rife, which place particular burdens on small and medium enterprise.Many specific legislative stipulations are of historical origin and have no value and should be rescinded by administrative fiat.Default settings for automatic grant of licenses and permissions, preferably through a single window, needs urgent consideration. These can be subjected to vigorous transparency measures such as contact with public officials in large halls, already used in Turkey.
- Bharat’s international economic policy should comply with obligations to the WTO and other international treaties since fidelity to them is in Bharat’s long-term interest. However, Bharat must ensure protection for vulnerable sections of its society in sectors like agriculture. Nor should it accept the international regime on intellectual property rights without converse protection for other types of economic activity. But this does not automatically imply that domestic reforms should take a backseat or that intellectual property rights are unprotected in Bharat. For example, Bharat has the potential to become a major exporter of agricultural products if it implements reform and engages in development policies that promote production in which it possesses comparative advantage.
- Bharat should make every effort to reduce its contribution to greenhouse gases and other sources of atmospheric pollution. But it would be inadvisable to concede the important principle of sharing the international burden for such noxious emissions on a per capita basis rather than acquiescing to the idea of absolute national contributions to such pollutants. It should not preclude unilateral Bharat’s contribution to reducing such emissions, but without conceding the important historic principle of global equity.
- The largest sector of our economy namely the non-corporate forms of organization in manufacturing and service sector like construction/ trade/ hotel &restaurants/transport/ and other self-employed activities –whose share in GDP is more than 45% is suffering from twin evils of corruption and lack of credit at reasonable rates. It is imperative that the Government create a separate body to facilitate the growth of these organisations and also non-Bank Finance facilities to them.
- Finally, banking in Bharat is in a parlous condition, as the recent RBI report has underlined. The danger it poses to health of the economy is enormous and the highest political authorities, in conjunction with the RBI, must address the issue immediately. Firm judicial sanctions must be deployed against those who have conspired to extend loans to business houses on the basis of corrupt payments and political intercession.
Conclusion The Government formed on May 26,
2014, will face enormous challenges because of the economic mismanagement of the past decade. The first priority must inevitably be to tackle the huge public sector deficit. Immediate curbing of wasteful expenditure and some additional taxation may be unavoidable. But these interim measures can be mitigated by intelligent structural reforms, including a major disinvestment programme to reduce the fiscal burden and improve the efficiency of the economy. The wider, second tier reforms across the many sectors of the economy and society, outlined above, can be achieved in the subsequent phase. In combination, they will improve the economic health and moral well being of both.