Every political party, every chamber of commerce, every academic and public figure today talks repetitively of reform. For the government, the major idea in reforms is to introduce FDI in retail, a pensions regulator, tax overseas takeovers that include Indian operations, etc. The one genuine reform is the GST, which would make India a truly common market, but that has been a moving target. Our government does not even mention the real issues. Or when it takes initiatives like the GST or the DTC, it leaves them to fructify by themselves, with little push from the government.
As finance minister, this Prime Minister brought down the fiscal deficit. The NDA government passed the Fiscal Responsibility Act. The second UPA government ignored its responsibility and, at the behest of the NAC and the Congress president, introduced hugely expensive social welfare programmes. They were necessary programmes but the government should have adjusted expenditures, raised revenues, and spent honestly and efficiently on new programmes. There was no attempt to gain experience and the government blithely rolled them out nationally. Over half the massive new expenditures are stolen, adding to the theft by the bureaucracy and politicians from other government programmes. The fiscal deficit has risen to 1991 levels and the poor have suffered two years of double-digit inflation.
As finance minister and now as Prime Minister, Manmohan Singh ignored agriculture except to increase subsidies and write off farmer loans. He did little to introduce structural changes in agriculture pricing and marketing. Little was done to build new assets like watersheds, canals, small dams, rural roads, etc. Not surprisingly, agriculture?s share in GDP has been falling; productivity in almost all crops in India is lower than in most other countries, but 60% of the population continues to depend on it.
India must move its workforce from agriculture and low level self-employment to other occupations, mainly industry. This requires their access to capital and skills. They must learn about minimum standards of quality, standardisation of products, efficiency to keep costs down, etc. This has not been attempted.
We must have some flexibility in labour laws to allow large-scale labour-intensive production in products like garments, leather goods and toys, in which we are as good as, if not better, than China, which dominates developed world markets in these items. But our ideological socialist legacy will not permit such flexibility.
More industry will require more energy. We must have a coordinated approach, instead of the weak attempts of ineffective power and coal ministers, and the oil and gas minister strangled by the anti-national decisions of his predecessor. Electricity distribution must become efficient and remunerative to allow more investment into the sector. Privatisation, removing the heavy hand of the bureaucracy from electricity management, eliminating theft, etc, are some of the urgent reforms. Coal production must rise. If denationalisation is politically impossible, why can we not lease out coal mines as we allow oil and gas exploration and production to the private sector? Environmental issues must not be allowed to clog production.
We now have a massive ?independent? regulatory system staffed mostly by retired bureaucrats. The system is ineffective and must be re-composed.
India moves only in crisis and this is illustrated by the move, under pressure of airline bankruptcy, to allow 49% FDI in airlines. We must encourage FDI and at the same time close routes like the tax exemptions on FII investments from Mauritius and anonymous participatory notes that make possible black money, illegal overseas accounts and money laundering. It is high time that our foreign exchange reserves were composed of less volatile funds and more stable ones like FDI and export surpluses. Our overseas debt equals our forex reserves. This is undesirable. We must encourage ECBs to come in as equity funds. That is possible if we put less hurdles in the way of infrastructure investments and execution in India.
We have to make an all-out effort to promote exports. This need not only be in mineral resources to China, as has been the case recently. We have excellent capabilities in chemicals, pharma, steel, engineering goods, etc, and, if we encourage labour-intensive industry, consumer products. We should also be looking at EPC contracts to build roads, power plants, etc, especially in Asia and Africa. Well targeted tax incentives can help.
There are two other very essential and difficult areas for reform. One is rarely addressed, which is administrative reforms that can speed up decision-making, individual accountability, specialists instead of generalists in most government positions, management for enterprises than administrator fiat. As with Manmohan Singh in 1991, when he had blueprints for reforms written by LK Jha and others, there are excellent reports from the Administrative Reforms Commissions that only have to be dusted up and implemented. The bureaucracy?s stranglehold on the nation prevents this. It must be broken. The other vital reform is to reduce corruption, make it less easy and increase the independence of the agencies for investigation and prosecution of corruption. The penalties for corruption must be increased and include confiscation of such earnings.
This brief listing of what reform must mean today should replace the superficial changes proposed. More and more funds are being poured into social programmes without thought to making the expenditure efficient and beneficial to those it is intended for. Reforms have become a mantra uttered piously and with no thought to what they have to achieve. We need political leadership that will push it. Public opinion is already strongly for such real reforms.
The author is the first chairman of CERC, independent director at R-Infra and R-Power, and an extensive commentator on infrastructure