Indian reforms tend to be reactive rather than proactive. The recent abolition of octroi in 15 municipal corporations in Maharashtra comes at a time when the state is feeling the heat from other states in attracting industrial investment. Why leave the rest standing? Octroi is a primitive levy that generates little revenue but poses an impediment to trade and commerce by causing transport bottlenecks and, worse, providing an avenue for corruption. The road congestions seen outside Mumbai?s city limits, with trucks carrying machinery and raw-materials having to wait endlessly for octroi clearance, are a sign of distress that needs to be addressed straightaway. The economy has become much too large and is growing much too fast to afford a gridlock caused by petty palms held out for greasing. It is nothing short of an outrage that this has been allowed to persist even in the post-reform era.
In fact, a country that is serious about economic efficiency and the job creation that goes with it should be going out on a war footing to dislodge any source of delay in the system. Experts reckon that a truck of cold-rolled steel plying a distance of 60 km from Mumbai could take two entire days to reach the port. Normally, it should not take more than half a day. So, when the globalised corporate world works on deploying advanced IT packages, building logistical advantages and adopting inventory management techniques like just-in-time operations, octroi barriers throw in enough idle time as a giant spanner to bring all efforts to nought. This creates a cycle of cynicism, with the domino effect on costs?inventory carrying costs, transportation costs, fuel costs and labour costs?taken as much for granted by manufacturers as their inability to match China?s prowess in similar commercial activities. For many countries, what blunts their competitive edge is largely unknown to them. India should be thankful that its ailments are so clearly understood within the country. Why, then, do we not summon the will to act on this knowledge? Octroi, meant to finance local municipalities, is a relic of the Raj that has lost its utility in this new age of speed and precision. Local bodies would be better and more abundantly funded through access to financial markets, for which their accounting systems are being reformed. Municipal bonds can more than fill the void that axeing octroi would create.
