Column: Need to shed swadeshi mindset

Updated: May 25 2014, 03:11am hrs
The Narendra Modi government will follow the precedent of successful policies of the earlier NDA government. It must resume and expand the Vajpayee initiatives: aim for fiscal balance, privatisation of state-owned enterprises, massive infrastructure investments, market-determined petroleum product prices, and focus on agriculture infrastructure while integrating them into the rural employment guarantee scheme. Modi has said he will aim at improved economic efficiency and better implementation. He has to rationalise subsidies, expenditures on them, and better target the intended beneficiaries to minimise waste and leakage. The UPAs social programmes have wasted huge funds and encouraged corruption. They have not built assets and failed to build for the future. He must drastically reform the administrative services to improve individual accountability and punish malfeasance.

The new government must not junk Aadhaar as some of its members want. Instead, the government must expand the direct benefits transfer of welfare payments to bank accounts using Aadhaar. It must stimulate banks to open micro-bank branches. Public-private partnerships were a great idea of the UPA, but like so many of its ideas, very poorly implemented. Accountability of all concerned government departments for time-bound clearances must be introduced to encourage private investment. PPP contracts must not ask for tariffs to be set for 25 to 30 years as is the case now, but only for the period required by lenders, usually 12 years. The debt-equity ratio should be raised to 2:1 against the present 66%-80% for debt. The present ratios have led to huge non-performing assets with banks, as projects make little progress due to raw material uncertainties, lack of government clearances, aggressive bidding and poor implementation.

Agricultural infrastructure must get private and public investments in warehouses, cold stores, refrigerated transport, rain water harvesting, water storage, canals, etc. The government must get out of agricultural marketing and allow local initatives, now helped by better rural roads an transportation, and better communications due to mobile telephony. Minimum support prices must not stimulate more grains production. The government must accelerate clearances for genetically modified seeds to improve productivity. The MGNREGA must build agricultural assets, not just give money away.

The NDA government must control black money creation and the large holdings overseas by Indian citizens. No capital gains tax on investments from Mauritius and participatory notes have enabled vast money laundering on a vast scale by politicians, businessmen and bureaucrats. This must be stopped and these enabling routes be closed, or at least better controlled.

The NDA must not allow its swadeshi hang-up to oppose foreign direct investment. The main problem with FDI in retail is not the prospect of closure of small kirana outlets. It is the prospect of large and cheap imports from China by stores like Walmart (which has destroyed American manufacturing). FDI must be opened up and with the need for lesser bureaucratic clearances. This must inlcude defence industries which must be opened to private domestic and foreign investment.

For deficit reduction, NDA must revamp direct and indirect taxation with the early introduction of the Direct Taxes Code (DTC) Bill and the Goods and Services Tax Bill. The DTC needs some changes but both of these could help stimulate the economy.

The Planning Commission should be abolished and a think-tank needs to be created in the PMO to do strategic thinking for the economy. State governments must do their own planning as per their respective requirements.

On social welfare schemes which have caused the large fiscal deficit along with poor growth, the new government must emphasise on building capability through education and skills development on a large scale. Any schemes must build physical or human assets, and not just give money away. This can not only reduce expenditures and the deficit, but also help growth.

It must positively encourage and not bemoan rural-urban migration. It must invest in new cities and towns and in infrastructure for roads, public transport, housing, health and education, for both old and new migrant populations in cities and towns. Reducing pressure of population in rural areas and on land is imperative. Migration to urban areas is the only way out. If migrants can be taught new skills and provided reasonable facilities in cities and towns, we will have a win-win situation, apart from the investments stimulating growth and employment.

At the same time, the new Prime Minister must remain conscious of the fact that his government was voted in only by a third of the country and that it has no representation in the South except for a limited one in Karnataka.The NDA also will not have a majority in the Rajya Sabha for some two years. The government must carry the nation with it while it is trying to move the economy forward.

The other challenge to moving the economy is the need to make the bureaucracy individually accountable, efficient and time-conscious. Outlines for this are already there in the various reports of the Administrative Reforms Commission and Police Commissions.

It does not need saying, even so, it must be saidIndia is much more complex than Gujarat. Modi is yet to show that he understands and can deal with this complexity.

SL Rao

The author is former director general, National Council of Applied Economic Research