To attract investors, the govt needs to address their pain points; that requires the PM to take some basic decisions.
Going by the series of meetings prime minister Modi held last week, it would appear he is quite worried—and rightly so—about how his government is putting off investors. Given there is yet another China opportunity, as foreign investors there are looking to leave, the anxiety is understandable. It is to be hoped that, this time around, Modi’s ministers will act upon what he wants, but some basic rules will help: Keep It Simple, Stupid (KISS). And, since the prime minister is probably meeting as many doctors as economists in this coronavirus season, he probably recalls the part of the Hippocratic oath that says “first, do no harm”.
The ministry of power, to cite a recent example of government policies that don’t quite address the issue, has just come up with an elaborate new plan to bring state electricity boards (SEBs) on track after the last bailout (Uday) failed—expectedly, given it had more carrots than sticks. Some parts of the old policy that fostered competition—like open access and separation of ‘carriage and content’—have inexplicably been watered down or dropped, with there being a new focus on the franchisee model and the state paying subsidies on time, as well as tariffs that reflect costs.
Given the complete failure to fix SEBs for decades despite a series of bailouts, it is not clear this one will work, but why not opt for a simpler solution? Empower RBI to automatically deduct SEB dues from the bank account in which the Centre deposits the states’ share of taxes. With their revenues at stake, states will automatically pay subsidies on time, ensure tariffs are raised, cut losses, and find other ways to raise efficiency. Indeed, a good example of how government policies are so convoluted is the spate of announcements and funds set up to help beleaguered real estate firms/NBFCs etc over the past year or two.
If Modi asks, he will find the funds have achieved little because there were so many caveats attached, in which case, why even announce a relief package? While this newspaper routinely gives examples of how performing investors have been repeatedly hit by government policy, the most recent example of this is the mindless rule—under the
Disaster Management Act—that prevents industry from laying off workers or cutting their salary. When industry has no turnover, how can it survive with such a stipulation? And, it is to the Supreme Court’s discredit that it has not even stayed such a draconian and illogical order. Equally draconian was the order put out by various states that an FIR would be filed against the CEO of a firm if there was any Covid-positive employee! In a generally anti-industry atmosphere, it is easy for such policies to get through.
If nearly 75 years after independence, the PM doesn’t realise that India’s rigid labour laws have pushed industry away to China, Vietnam, and Bangladesh, there is little point in him asking his ministers to pro-actively woo industry. And, how can he hope to boost the coal and mining sector when Indian royalties and other levies are so high compared to other countries, to say nothing of the never-ending environment and other clearances?
Instead of constantly touting, as he does, India’s progress in the meaningless Ease Of Doing Business rankings, Modi needs to promise not to impose sapping price controls. Just see how much of Indian pharma production is exported as a result, and how this has prevented agriculture exports from realising their potential. If something as basic as a telecom package hasn’t been finalised despite the sector being on its knees for so long—and with such clear evidence of government policy being rapacious—it is really ambitious to expect India will be able to woo the bulk of the investment seeking to leave China.