No one denies Modi made big reforms like GST and IBC, but by not reforming the farm sector and not fixing poor policies in big industries like telecom and mining, he ensured capex growth was slow
NITI Aayog has done well to organise an Economists’ Huddle on the reform priorities for the next government since, when the next government assumes office, it is useful to have a 100-day, a 200-day and a 365-day agenda so as to be able to hit the ground running. While each economist will have a separate list, the simple answer is to do what the government failed to do this time around. And while the list of what has been achieved is a long one, from GST to Insolvency Bankruptcy Code (IBC) and so many pro-poor programmes like Direct Benefit Transfers (DBT), so is the list of the unfinished agenda.
Agriculture, needless to say, has to top this list, not just because of the fact that close to half the workforce is dependent upon it, but also because this is the area where prime minister Narendra Modi seemed to have got the policy options totally right from the very beginning. He appointed the Shanta Kumar committee on restructuring FCI’s operations, and that recommended a modified income-transfer scheme—what is now called a Quasi Universal Basic Income (QUBI)—to farmers each month as a substitute for the MSP-led procurement that only a small fraction of farmers, and that too in just a few states, get today. For reasons best known to Modi, he never took this forward and, instead, tried to extend the UPA’s failed MSP policy. While he has been forced to implement a QUBI now, the next government has to replace all agriculture subsidies—fertiliser, water, electricity, interest—with a QUBI. In its present form of being an add-on to existing subsidies, it achieves nothing and is just another sop.
Next on the list is industrial reforms and, for all the talk of improving India’s DoingBusiness score, the falling level of both domestic and foreign investment—as a share of GDP—is testimony to the fact that the government has missed very big reform opportunities. Apart from the problems associated with the government backing a telecom regulator that has done more harm to the industry than good and whose actions show a lot of bias, the government hasn’t been able to do something as simple as cut the exorbitant annual licence fee levies that were first imposed at a time when spectrum was given to telcos for free; this is not a favour, it is simply correcting a UPA wrong but the government has not been able to summon the courage to do so. Meanwhile, the industry is on its deathbed, and not all of this can be blamed on RJio’s pricing.
After refusing to execute the UPA’s plan—for over two years—to deregulate prices of natural gas even though this was required, the NDA government was forced to raise them when fresh investments in exploration started drying up. Even then, the oil and gas reforms were hesitant as well as inadequate and, while an attempt was made to fix this last month, the moves were still grudging; and given how the government went back on its promises and tried to harass industry, it will be a long time till investors fully trust the government.
And while the government did well to finally come out with a pragmatic mining policy earlier this month, this needs to be translated into action by the next government. Royalty and other levies need to be, as promised, kept at global levels and there are huge delays in various mining clearances—at both the Central and state levels—that need to be dealt with. Important to note, in this context, is the fact that despite the government announcing that commercial mining of coal would be allowed several years ago, this has not yet happened. And given that Coal India Limited managed to ensure the government had to go back on its policy, it is not clear how the government will fulfill its latest promise of taking away acreage that PSUs have—but are not mining—and auction this to the private sector; this is important because India’s largest imports of minerals, including oil, take place in sectors dominated by PSUs and where they have mostly already got the best acreages
And while the government has tried to get RBI to back down on its February 12 circular—even the new Governor, appointed after the last one was forced to resign, hasn’t obliged—since a lot of loans taken for creating fresh power capacity would turn into NPAs as a result of it, as this newspaper has pointed out earlier, the real issue is faulty government policy. In the case of the sugarcane sector, similarly, while the government periodically comes up with sugar ‘packages’ to help the industry clear its dues—it was `20,159 crore on February 22—to farmers, it has failed to address the real issue of an incorrect policy that sets artificially high prices for cane and mandates that every mill buy whatever cane is brought to it by farmers in its area of operations. And as the ongoing brouhaha over the angel tax made clear, nor has the issue of tax terrorism been addressed adequately; ditto for the retrospective tax.
None of this is to take away from the reforms Modi has carried out, from GST to the IBC or the plethora of reforms in pro-poor expenditure, from DBT to LPG connections for rural households, subsidised insurance, Swachh Bharat, etc. Indeed, even if economic growth—and jobs—had picked up to desired levels in the last five years, it would still take time for the benefits to truly reach the poor; to that extent, measures like DBT and the LPG or subsidised insurance schemes have helped ensure the poor get a better deal till such time they get to share the fruits of higher economic and employment growth. But since there is no substitute for economic growth—indeed, even higher pro-poor expenditure requires the economy, and hence the tax base, to grow rapidly—the next government, whether headed by Modi or not, needs to get these issues right at the earliest.