The BJP government under Sh. Narendra Modi has embarked upon a number of ambitious campaigns to spur growth, reinvigorate the economy and execute difficult administrative reforms. Campaigns like “Clean India”, “Make in India”, “Maximum Governance Minimum Government”, “100 Smart cities initiative” and so on. I give below some humble suggestions.
The Keynesian Congress Government, in its 10 horrendous years, dipped its hands deep by being the largest borrower and spender and crowded out non-Government institutions from the lenders. The Government borrowed so much from the market that there was very less left in the hands of the Financial Institutions to allocate resources to the efficient spenders. Coupled was high inflation germinating from huge Government spending – leading to RBI raising interest rates to life highs. Companies in India are thus paying humongous interest on debt. Contrast this with 2-3% that companies in Japan and US pay on their loans. The BJP Government needs to institute far-reaching administrative reforms and stop appropriating huge resources from the Market by sticking to Fiscal discipline. The recent directives from the Government on austerity is a step in the right direction.
Owing to persistent high inflation since almost 10 years, the middle class earning Rs. 2 lacs per month or less, has seen its standard of living dip, with discretionary spending getting diverted to basics. GDP growth needs to rise much higher and inflation fall needed to sane levels of 3-4% to correct this Congress created situation.
A strong INR
India is a consumption driven economy, rather than one reliant on exports, unlike China or Asean nations. Imports being high, the Rupee needs to be strong. Investments need to rise and capital creation accentuated. Strong FDI is needed and the GoI needs to invest more in infrastructure rather than on wasteful subsidies. At PPP, Indian Rupee to USD is a factor of 9. NDA’s policies had brought the Rupee at 35, while Congress took it to historic lows, at almost 69. Needed is an INR @ 15-20 to a USD in the short-term and @ 9 in the long-term. Yuan @ 6 to the USD has not hampered growth but only boosted Forex in China’s hands and hence Chinese purchases across the globe.
Boosting the INR can be done by utilising India’s 300+ billion forex reserves, which are lying idle in US Treasury bonds, earning pittance in interest and being used by the Americans to subsidize their monster deficits. Taking a lesson from the South East Asian crisis, the safety of Indian economy from herds of Trillion dollar gangs who would descend to India in the event when our “Forex Reserves” (sic) would become less, can be ensured by signing INR-USD/ USD-‘Friendly country currency’ swap lines with big USD holders like Japan, Asean, Russia et al. That would be an end to the USD as world’s reserve currency and stop the free Lunch Americans are having at the expense of poor countries.
There is a need for realising that exports will not resolve India’s payment problems. India’s bane is lack of administrative reform and corruption. Administrative reform only can create a Manufacturing powerhouse in India and that is the way forward for a robust GDP.
Make in India
India’s structural problem is lack of monster manufacturing capacity within the country. PM Modi has identified the right solution with his “Make in India” campaign. I suggest readers read the book “Hitler’s economy”. Hitler brought tremendous economic growth in Germany without inviting investments from outside the economy. He did so by reinvigorating the internal sectors of the German economy.
The BJP Government aims for 50th position in ease of doing business worldwide rankings. In a sense, ease of doing business is just like Gross Happiness Index of Bhutan.
I further suggest Death penalty for corruption by any Government employee – for both bribe givers and takers. The country needs iron hand to weed out corruption, which has become systemic and embedded in the culture of many Institutions.
Companies like Air India, BSNL, MTNL, SAIL, BHEL, ONGC, which have been strategically kept for market competitiveness sectorally, are losing market-share, competitiveness and hence their value. This strategy of keeping one PSU for competitive pricing in markets, is proving detrimental with time. Contrast this with the sale of Corus to Tata’s, by the British Government ensuring that it fetches maximum price (in a smartly conducted e-auction). The Government needs a right disinvestment policy, which shuts down loss-making PSU’s and divests majority control in most others. The land bank with these firms needs to be hived off to a special Government undertaking, which can then e-auction the land to private industrial houses.
Education and Health sectors
The sectors plagued most by socialist disease are Education and Health. Only non-profit Societies and Trusts can operate statutorily-recognized organizations in these sectors. I call this as “Non-profit profiteering” since by and large, profit accrues to these institutions, but is merely not reported. Outcome? – These sectors are perennially crippled by lack of access to debt. Lack of investor oversight has also meant that these bodies have become opaque, undemocratic and prone to financial manipulation. Ultimately how humanely one runs the initiative, depends on the intentions of the individuals, not on Laws. We can definitely do better by removing NGO’s/ Societies/ Trusts in education/ health thereby improving their access to financial and technological up gradation.
US universities receive large corpus of donations from ex-students, set up endowment funds and sponsor patented technological innovations, thereby earning massively. These funds are then invested in expansion and modernisation. Lack of private companies ails these sectors in India and inhibits development of propriety technologies. I find it strange that NRI’s donate to their alma mater in US rather than Indian educational institutions from which they studied.
The Defence sector in India also keeps its technological innovations away from these opaque institutions, thereby resulting in lack of mass production of innovative products by Indian companies (a la the internet).
Converting these not-for-profit institutions into private companies requires painstaking effort and clear guidelines from the GoI. These sectors also suffer from high Real Estate values and hence black money. Reforms would also mean tremendous FDI in the education/ health sectors, given the middle class’s aspirations and propensity to spend on them.
I suggest Municipal bodies should compulsorily have segregated bins for organic and plastic waste in each city. The example to follow is Sweden, which has such an efficient waste management system that it actually imports waste to meet its energy needs.
GST is a must – to integrate the nation, remove time wastage/ corruption at chungi’s (border bottlenecks) and add 2-3% to the GDP. I also suggest tax on agriculture – but only on wealthy farmers, say those making above Rs. 10 lacs p.a.
Reservations should only be on the basis of income, barring SC/ ST (who have suffered historical wrongs).
An economy without fetters allows creative destruction. It allows easy creation of entrepreneurial ventures and in times of inability to cope up with competition or non-workability of the business case, easy folding-up of companies. Inflexible Labour laws in India coupled with disallowing company closures, makes the Indian economy less creative. An entrepreneur faces myriad laws and their interpretations, red tape and corruption and that stifles his/ her creativity. The biggest factor is curbing of risk-taking ability, since Government disallows closure of business in case of failure. A viable Bankruptcy law, on lines of that in the US, is suggested.
Municipal bodies and Smart Cities
Per Goldman Sachs, there are 270 high potential cities in India. This is second, worldwide, only to China, which has 300.
China and American Municipal bodies raise mammoth funds through Bonds for building world-class infrastructure. Backed by merit-driven bureaucracy; the result is huge employment and asset generation. Statistics show, that this model has been quite successful. Given the slothy performance of our own Municipal agencies due to lack of accountable management, we need to corporatize these bodies and allow them to develop required infrastructure by raising bonds.
Similarly, to have world-class cities, auto’s should be replaced by swanky Taxi’s and old ageing Taxi’s should be moved out of city, to small towns.
Real Estate (RE) boom in India till now has been driven by investors queuing up to buy hard assets in anticipation of a fast exit and incremental return. While this worked till a while back, but RE prices seem to have risen beyond affordability of the middle-class. High RE prices also stifle entrepreneurship by making launch of business costly. They also deter manufacturing/ Retail. RE builders need to have a new mantra of earning from expansion and volumes and not only through escalated pricing.
Government also needs to bring transparency in the sector by following some state governments who have instituted e-approvals, put all Real Estate documents on internet and ushered in e-Governance.
Continuity in decision-making
Is our spiritual upbringing, which advises us to choose our own path, a hurdle in continuity of policy making? Government needs to be mindful of the abject need of continuity in policies for improving business confidence.
India’s brilliant committee’s
There is no dearth of Committee’s and their brilliant recommendations with the Government. Almost every problem of the country has its answer with the recommendations of these committees. However, the problem is implementation. Lokpal was conceived by one such Committee 25 years back but lay in the files.
Shun Socialist mindset
I suggest India’s urgently needs a Capitalist model for National parks. Countries rich in flora and fauna charge high for visitors to these nature parks. This allows them to maintain and preserve their environment. India, on the other hand, charges a pittance and thereby is always facing a resource crunch. We have to make our Tiger/ Nature tourism as profitable as South Africa and provide the best facilities. Re-introduce the cheetah from Africa and Lions throughout national reserves in India.
Another leftover of Socialist moorings is extremely low penalties laid down in law. Ranbaxy has been fined USD 500 mn in the US but continues to sell similar medicines in India. Fines in US are punitive and meant to deter probable law-breakers. Fines in India are a pittance and don’t discourage law-breaking by financial means. It’s high time to raise the fines we levy on law breakers. Recently, Traffic fines have been raised substantially and it’s a welcome step.
Maids and Construction workers
Maid agencies need regulation – they are fast becoming a conduit for human trafficking. I suggest Six sigma for Maid/ Construction Labour. In a largely unorganised workforce, some examples shine like the Dabbawalla’s of Mumbai or the Amul cooperative movement in Gujarat. Suggest its time to borrow work practices and learning’s from our own home-grown institutions to make our construction/ maid labour efficient and instill more pride of work in them.
I also am of the firm belief that prostitution has a perfect solution for India. The solution is to criminalize solicitation of such services but de-criminalize offering of such services by women. This is what the example of Sweden successfully shows.
Most of the Court cases in India are intra-Government, or involving the GoI as one party. A case once lost by a Government agency has to be appealed in Higher Courts, as per Indian law. The Government should set up separate Courts for these cases and unclog the legal system. Solutions to the Judicial mess – Attorney Journal Mukul Rohatgi Interview by Vivek Law, Bloomberg
Further, Indian Parliament and Courts function with long recesses, a leftover from the British Raj, when ruling Britishers used to Travel to Britain in Indian summers. We should stop this wasteful British era legacy.
Our constitution says it’s “Secular” yet Government has control over temples but not Islamic and Christian bodies! Suggest either bring land-rich Waqf Boards and money-rich Christian missions too under the ambit of Government or abolish control over Temple Managements.
Suggest follow example of China which treats Religion as geography – China has its own Church. It makes religion contingent on geography and thereby desists its citizens from owing allegiance to institutions outside Chinese boundaries. Suggest all religions in India only have national religious bodies controlling them.
Further, suggest law to free 1800+ temples over which Mosques are currently standing. And UCC (Uniform Civil Code) immediately.
India would also do better by trifurcating J and K into Kashmir, Jammu and Ladakh. (Similarly, Uttar Pradesh should be segregated into 4 states, Maharashtra into 2 and a separate Gorkhaland from West Bengal – but these not on religious reasons).
There is urgent need to have politics divorced from election posturing – Governments have become short-sighted, prone to appeasement and election expenditure. We should have simultaneous state and central elections after every 5 years, so that electoral politics becomes intermittent.
Another eminently important requirement is institutionalizing internal democracy in political parties. Parties in India run dynastically – Congress by Gandhi’s, Samajwadi by Yadav’s, BJD by Patnaik’s, DMK by Karunanidhi clan, Shiv Sena by Thackeray’s, RJD by Yadav’s, YSR Congress by Reddy’s, Akali’s by Badal’s, NC by Abdullah’s, PDP by Sayeed’s and the NCP by Pawar’s etc. BJP is the only party which runs on true democracy at its helm.
Asia, the largest and fastest growth engine of world economy, needs better integration. It’s time for a custom’s union, followed by common passport/ currency for the region.
India, along with BRICS, have founded the “New Development Bank”. Similarly, India has partnered with China and other countries to found the “Asian Infrastructure Investment Bank”. These are steps in the right direction.
China has its own international rating agency “Dagong”. This is since the western rating agencies have traditionally kept American, European countries at the peak rating, inspite of West’s falling GDP’s, extremely negative economic indicators, high levels of Debt/ GDP ratios and weakening economies. What more – these rating agencies have kept fast growing BRIC nations on a low rating. The capacity of a country to solicit investments in foreign currency and the interest paid on foreign borrowings depend on ratings issued by Standard and Poor, Moody’s and Fitch – Hence, Indian companies are not on a level playing field. Suggest India sets up its own rating agency on the lines of Dagong.
Suggest ISD rates between all nations become much lower – PM Modi said this in Nepalese Parliament. I reckon this would add 2-3% to world GDP growth.
Recently, Iran and Pakistan border has seen skirmishes. Similarly, sentiment in Afghanistan is also anti-Pak. I see this as a window to squeeze Pak since it’s the primary aggressor with its neighbours.
The best case scenario against China would be to have Russians against China. Japan and Vietnam are already against China. Myanmar has come outside the circle of influence of China, after elections. India-Asean need to be fully integrated with seamless road, sea, air and economic connectivity to squeeze China and have our own circle of influence in Asia. Likewise, India and Sri Lanka need to be connected by a sea-bridge.
India should strive to breakup Pakistan and China. Tibet is a cultural extension of India and was annexed by China only in 1950’s. It’s always been a buffer between the great civilizations of India and China. Nehru, blinded by Communism and inspite of Sardar Patel’s warning, didn’t act in time to save Tibet from Chinese occupation. A large part of the mistrust between the two countries comes from having no memory of dealing with each other as neighbours. For Indians, a China at its doorsteps is a figure of hate and mistrust. Solution is to separate Xinxiang and Tibet from China and a separate Sindh, Baluchistan, NWFP from Pak with PoK being integrated with India.
I look forward to your inputs on these suggestions for the BJP Government.