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Achhe Din: 10 questions Modi must answer to set the economy right

Ashok V Desai | Updated on: 15 June 2015, 17:04 IST
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The promises

  • PM Modi\'s \'Make in India\' was meant to be a big ticket idea to boost manufacturing in the country.
  • He promised to make India the skill capital of the world, dropped the BJP\'s xenophobia and invited foreigners to set up industry in India.
  • He put out many plans for agriculture: a unified national agricultural market and crop specialisation according to agri-zones.
  • Every paisa of black money will be brought back, Modi had said in his \'Mann ki Baat\'.

The delivery

  • The Finance Minister presented two budgets, but did nothing to stimulate growth.
  • There was a skill development policy in place. It just needed implementation. But a new one was promised. It hasn\'t materialised so far.
  • A fairer tax regime hasn\'t been put in place, which is keeping foreign investors away.
  • A task force on black money was appointed, which has delivered little so far.

Next steps

  • The government should address foreign investors\' concerns and ask them what they need to start \'making in India\'.
  • It should redesign MGNREGS and the public distribution system.
  • Modi suffers from an action-block. He should start to preach less, and practice more.

From the day Jesus Christ was born, India's national income was a third to a quarter of the world's for many centuries. Then the British wrecked the system by industrialising and acquiring colonies: that led India's share of world income to fall towards a mere one per cent. So said Angus Maddison, who spent an entire lifetime constructing the economic history of the world. But his was all guesswork, before governments began to collect figures and economists started to read all kinds of meanings into them.

Since the late 19th century, when modern statistics begin, India's national income has risen and fallen. But it has never grown so fast as it did in 2008-11, when its growth rate touched 8 per cent.

In 2011-12, the average Indian bought 10 per cent more tea, 16 per cent more sugar, 21 per cent more cloth, 25 per cent more milk, 32 per cent more coffee, and 35 per cent more cooking oil than in 2004-05. She ate 9 per cent less vanaspati, presumably because she ate more ghee. In the decade of Congress rule, national income nearly doubled, and income per head rose almost 70 per cent.

Manmohan Singh, the once-respectable economist, never told us this; nor did his party seniors, Sonia Gandhi and Rahul Gandhi, ever refer to it. They devoted themselves soulfully to helping the poor. They poured government money into dozens of schemes for the poor, for girls, for backward castes, and so on.

But it did not impress the electorate. It just pocketed the gifts - what it got after partymen and bureaucrats had taken their prior share - and voted the Bharatiya Janata Party to power.

Its leader avoided the usual cultural themes so dear to the BJP, and instead picked up economic themes. He promised better times. He will soon complete a year in power. What has his government done to keep his promise?

01
How can industry be encouraged to 'Make in India'?

'Make in India' was the Prime Minister's famous slogan. He forgot to mention what he wanted made; but everyone assumed that he meant manufactures.

The next step should have been to ask firms what they wanted to be persuaded to make more in India. That too was forgotten; they are still waiting. Industrial growth went up to 10% in 2008-2011 and then collapsed; currently it is around 4%.

The finance minister presented two budgets, but did nothing to stimulate growth. He keeps jauntily telling everyone that 9-10% growth is child's play, but the child shows no signs that he knows.

02
How can inflation be kept down?

The UPA helped the poor through employment schemes and subsidies on wheat and rice; to maximise the subsidies, it bought up the grains from farmers who had spare crop to sell at ever higher prices. It spent on its schemes as if there was no tomorrow.

To finance these schemes, it ran huge fiscal deficits, which were inflationary. To make sure that prices rose, it hoarded crores of tonnes of foodgrains. In the end, its spendthrift strategies did not work; the UPA suffered humiliating defeats in election after election.

Its experience was a good reason why the NDA government should have rethought and redesigned the poor Mahatma Gandhi National Rural Employment Guarantee Scheme and the public distribution system. It did nothing of that sort; instead, it keeps spending on these schemes.

03
When can young people be employed?

"I call upon the nation to take a pledge to make India the skill capital of the world," said the Prime Minister. He is not the first one to make the promise; earlier Prime Ministers not only promised, but they created numerous institutions to impart training. The government has owned many training facilities for decades, but created few skills. He did not ask why.

Instead, he created a new ministry of youth affairs, sports, skill development and entrepreneurship. The minister, Rajiv Pratap Rudy, has collected bright young women like Radhika Maloo, Divya Nambiar, Charvi Mehta and Shivi Anand, and taken his newly recruited army on a hunt for ideas.

The first stop was the previous government's skill development policy of 2009. It is pretty detailed, and largely unimplemented. But it was not good enough for Rudy. His ministry announced long ago that it would come out with a revised policy; will it ever end the suspense?

04
When will foreign industrialists enter India?

The Prime Minister has discarded his party's traditional xenophobia as casually as he changes clothes; he has openly invited foreigners to come and set up industry in India.

Once a foreigner builds a factory, it is a prisoner of the government, which can do anything with it. It can even expropriate it. That would hurt its reputation and put off other foreign investors; but such flimsy considerations never stopped the previous government from taxing Vodafone on the purchase of Hutchison Essar's stake in a telecommunications company - even though it was Essar, not Vodafone, that had made the money, and the transaction happened outside India's borders where India's taxes cannot be levied.

Nor has the NDA government reversed its action. The finance minister has said that if the Supreme Court rules against his claim, he will not appeal; it sounds as if he is waiting for the court to rescue him from the embarrassing situation from which he refuses to emerge on his own.

[twittable]Even if Modi wants to act, many of his ideas are so ill defined, it's difficult to translate them into policy[/twittable]

More generally, the finance minister has still not put a fairer tax regime in place. He has promised companies that he will reduce income tax on them very slowly over the next four years if he stays in his ministry.

The government has taken some small steps such as raising some FDI caps, and sometimes dispensing with cabinet approval required for FDI that might lead to a change of ownership; but such mincing steps do not impress foreign investors.

The finance minister should shake off his sloth. He has been travelling a lot; if it is Thursday, he must be in Timbuktoo. He should talk to the foreign investors he meets and solve their problems.

05
Where will reforms start in agriculture?

The BJP is too timid to tackle the two main problems of agricultural policy: the price support system, and the rationing system. The two are interlinked, but independent of each other.

The price support system subsidises the big rice and wheat farmers, who are concentrated in a few areas such as Punjab and Andhra Pradesh; it does nothing for the millions of subsistence farmers everywhere.

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The public distribution system delivers foodgrains to consumers below the poverty line. But it is impossible to separate the poor from those who are not poor. They all look the same; and the poverty certificate that entitles someone to cheap rations can be bought from suitably corrupt government servants.

The best thing to do would be to make foodgrains cheap for everyone, instead of the nominally poor 80%. The rich are already well fed, and are not going to eat more wheat simply because they get it a few rupees cheaper. And if the government stops keeping foodgrain prices high, it will not have to buy millions of tons of grains and store them until they rot away.

Aside from the PDS, the BJP put forward many ideas on agriculture: unifying the national agricultural market, dividing up Food Corporation of India into functional units, more crop specialisation among regions instead of them all growing more wheat and rice, increasing efficiency of irrigation, and so on. But nothing has moved on any front.

06
When will we be able to fly from Mysore to Kolhapur?

Work began on the golden quadrilateral and the north-south and east-west highways under the last BJP government. The concepts came from the fertile mind of Atal Bihari Vajpayee, who is remembered for them even though none of them was named after him.

This government too does not lack ideas. In railways, it has made Suresh Prabhu, one of the two good economists in BJP, minister, and he has not wasted time. He is brimming with ideas; he can achieve a lot if he is given some money to invest and allowed to bring in some technology.

But some MPs have derailed this and wasted some time waiting for late trains; they have got the Prime Minister to pull Prabhu's ears. That is nothing new.

07
When will you show us some black money?

"I want to tell the people that please have faith in this pradhan sevak of yours... this is an article of faith that every paisa that has gone will come back," said the Prime Minister in his 'Mann ki Baat', "I assure you I will not be held back in bringing back whatever the amount."

And he kept his word up to a point: he appointed a committee, which till now has produced little. So many people in this country believe that a few have made billions illegally and parked it abroad. If they have, they are not going to go about telling anybody; so the view is based entirely on hearsay and superstition.

[twittable]Arun Jaitley tells everyone 9-10% growth is child's play, but the child shows no signs that he knows how to play[/twittable]

Even if there are billions abroad, the Prime Minister has no power over money in other countries; there is nothing he can do to bring it back. Still, he says he can be trusted, so we have to wait for him to produce the rabbit out of a hat.

Meanwhile, black money in the country can be traced much more easily; all one has to do is to bring some rationality into taxation of land and property. Taxing transactions is a perfect way of creating black money; undervaluing property immediately reduces tax liability.

A low annual tax, based on locality instead of on value of individual properties, is a better way of collecting revenue. The ideas are there for the asking; the Prime Minister has just to stop holding himself back from action.

08
What are you doing with the 58%?

Ever since he was chief minister, the Prime Minister has held a grudge against the centre - it kept too much of the revenue, and placed conditions on what it gave. That it collected the revenue from its own taxes did not matter.

The tussle was not just over money; the self-righteous wise men in the Planning Commission that Modi had to deal with were equally irritating. Now they are gone, and he has abolished the Planning Commission - in name.

In March, the finance commission raised states' share of central revenue from 38% to 42%. Why is the Prime Minister keeping the other 58%? Why not act on his principles, and make the Centre beg before the states?

09
When will Rothschild get land for his factory?

The BJP government reintroduced the land acquisition act with small changes; it was approved by Parliament. Development is impossible without some compulsory land acquisition.

This law could be passed only by agreement of other parties. That was quite a change from the normal fisticuffs in the august house. It is a good precedent; the Prime Minister should talk more often to the opposition for consensus.

10
When will we get an efficient administration at the Centre?

The Prime Minister has from time to time floated big, vague ideas about reforming administration, such as removing bottlenecks and missing links, striving for scale and speed, empowering bureaucrats, or proper planning and execution.

He could have started turning them into action as soon as he entered the South Block. But he suffers from an action-block. Even if he wants to act, many of these ideas are so ill defined that it would be difficult to translate them into policy.

They are often less about policy, and more about the process of debating and formulating policy. And that process can be changed only under the leadership of the prime minister; anyone lower down would not have the guts or the imagination to change processes that have been in place for decades. He should start to preach less, and practice more.

The views expressed here are personal and do not reflect those of the organisation.

First published: 23 May 2015, 14:54 IST
 
Ashok V Desai @CatchNews

A senior economist and commentator on economic policy and a pioneer of economic liberalisation in India, Desai was also Chief Economic Adviser to the government. Known for his iconoclastic, bold and original views on the economy, he has taught, conducted research, and coordinated large research projects both in India and abroad.

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