Five Simple Steps To Give A Powerful Boost To India’s Economy

Five Simple Steps To Give A Powerful Boost To India’s Economy

by Jaithirth Rao - Friday, January 12, 2018 07:47 PM IST
Five Simple Steps To Give A Powerful Boost To India’s EconomyJob creation for the youth of India is crucial. (GettyImages)
  • To give a powerful boost to the economy that will also be a vote getter, the government needs to do some bold basic tinkering.

One of the heartening features of the present government’s behaviour is that there is considerable focus not only on short-term goodies, e.g. loan waivers, but on tough longer-term measures that would involve ensuring an adequate tax-GDP ratio so that India does not inexorably decay into a failed state. There is also a new and unusual attempt to communicate with citizens, seeing them as active agents in the development story and not as passive subjects to be manipulated, as has been the habit of the Indian state for several decades.

The people of India will go along with belt-tightening, with sacrifices, with transitional problems, provided they feel that the government is not made up of self-serving crooks, but of relatively honest and hard-working folks. The Indian bureaucracy continues to try its best to act as a barrier between the political leadership and the citizen and sets up as many hurdles as possible to ensure that economic reform is stymied or sabotaged, or at a minimum, delayed. The continuing wrangles and even public spats between different ministries pursuing their own pet agendas subtly defying the new strong leadership which wants to break logjams, is worthy of the best Applebys. It is now time for the government to prove that they are willing to grasp difficult and long-delayed nettles in the economic area. Surprisingly, addressing some long-term gridlock items may also throw up quick and perceptible gains that can be capitalised on politically.

Between demonetisation, the Real Estate Regulation Act (RERA), re-auctioning of mines, tough positions on non-performing assets (NPA), actions against benami assets and the introduction of the goods and services tax (GST), traditional Indian businesspersons are a bit nonplussed. They have been accustomed to years of lip service to reform while cozy crony capitalism has flourished on the side, ignoring the rhetoric of reform. The present situation represents one of acute discomfort to many as they are yet to be convinced that things have changed fundamentally. Who knows, things may just slide back. In order to remove this fear and eliminate reservations about the purity and the emphatic nature of reforms, there is one major action that the government can take.

The government can announce and implement a universal “no appeals” strategy. Any time the government loses a case in a tribunal or in an arbitration council or in a court, the government can and should unilaterally state that it will not appeal the decision. It can go further — any payments resulting from the verdict should be promptly made within seven days and should be in the public domain on a website.

The bureaucracy which makes a sumptuous living from appeals and from postponing legitimate government payments, will oppose this move with all the shrillness and hysteria they have at their command. This will result in a loss of revenues; this will set up bad precedents; this will kill government flexibility; this will leave us at the mercy of corrupt tribunals which are fixed by scheming businesspersons; this will be seen as a pro-suit and pro-boot measure; this will be an attack on our sovereignty; this will attract allegations of corruption; this will devastate our already weakened public sector entities; this will result in our blowing our fiscal deficit commitment — a tacit acceptance that we as a country try to meet these commitments on the backs of vendors and tax-payers, by denying them their dues. Needless to say all of these are bogus self-serving arguments.

To suggest that lower tribunals are dishonest or fixable is an insult not just to the tribunals but to all of us. Let’s get rid of corrupt tribunal members. Let’s not tar all of them with the same brush and sabotage the very purpose with which the state has set them up. The endless saga of appeals which makes the Indian state the largest and most obdurate, if not vexatious, of litigants, has resulted in the clogging up of our courts and a conviction on the part of citizens that the Indian state is immoral (how else would you describe one who does not pay his dues — he who denies his “runa”, that virtue-laden Sanskrit word) and anti-citizen.

The government must work on a programme where exporters will get their dues. (GettyImages)
The government must work on a programme where exporters will get their dues. (GettyImages)

This single decision will strengthen the moral sinews of a dharmic state. It will eliminate large chunks of backlogs in our courts, freeing them up considerably. From a short-term economic perspective, it will unleash a cash flow bonanza which will unlock stupendous amounts of business energy and invigorate the prospects of a boom in legitimate investment. Tax-payers will get refunds; they will not be told to wait for next quarter or next year. Exporters will get their dues. Highway contractors will get their bills paid. The sugar and the fertiliser industries will receive their promised payments. Foreign investors who win legitimate arbitration judgements in tribunals, which we as a country have agreed to abide by, will suddenly witness a lowering of tensions. Many of the slings and arrows of GST will get muted. Public sector banks will be happy, as their borrowers will now collect on their government receivables and have money to service their loans. And judgemental, case-by-case bureaucratic corruption will suffer a death sentence.

By making this an overarching government policy decision and, if necessary, giving it statutory protection, honest bureaucrats who now complain that they cannot act for fear of being accused of favouritism or corruption, will also get freed. There will be no real loss of state revenues. The actual collections from appeals have been so pathetically low that this argument is a laughable one. Yes — the fiscal deficit target may take a one-time hit. But the GDP growth on account of de-bottlenecking the government’s payment pipes will be considerable, resulting in vigorous growth, which in turn will lead to higher taxes.

The government of India has now, over several decades, acquired the dishonest habit of meeting fiscal targets by the simple and atrocious act of delaying legitimate payments. Let us not forget that Greece paid a very heavy price for such accounting shenanigans. When their accounting crimes caught up with the Greek government, their economy simply collapsed. We should meet targets with legitimate revenue growth and with legitimate expense control — not by welshing on our bills. If you are not convinced by my arguments, you might want to listen to Bhishma in the Mahabharata or to Kautilya in his masterpiece. Incidentally, a one-time clearing up of pending bills and dues is unlikely to cause rating agencies to look down on us. They might even compliment us on our transparency and probity.

The second area where firm, resolute, honest and technologically savvy action can get the government both short-term and long-term benefits has to do with land. Land, as we know, is the greatest source of angst, litigation, sibling quarrels, family tensions and endless irresolution in the lives of Indians. You can kill a spouse (not that I advocate that!) — but land and the quarrels, the heartaches and the kacheri cases associated with land will not be killed and they pursue all of us — rich and poor, high or low caste, Hindu or Muslim. If you undertook a citizen survey (not that I am suggesting one), the patwari/kulkarni/karnam/shanbhog might end up appearing as the most unpopular person in the country. Of course, no government wants to actually simplify land issues. Instead, we have passed laws every year to make land a frozen asset and a source of everything except peace of mind. This government has shown its capacity to tackle hard problems and not to run away from them. This government is committed to technology and to making sure that India leapfrogs its way ahead of other countries. Here is a unique opportunity.

A complete geo-physical, three-dimensional, cadastral survey of land once and for all, reconciling the incomprehensible tehsildar revenue survey map with ground reality, and with the less comprehensible panchayat khata/satbarra/patta records — that is something that this country could do with. We can move away from presumptive title the source of millions of lawsuits to legally verifiable titles in a digital lockbox. Any disputes should be identified in six months and disposed off. No more litigations based on 50-year-old bogus entries, family trees and affidavits. We have demonstrated as a country that even as we find it difficult to build and clean storm water drains in the physical world, we can and we have built the world’s largest authentic database of names, addresses, fingerprints and irises. Let us play to our digital strengths.

In order to complete this survey, we will need a gigantic labour pool of surveyors, photographers, their assistants and of data entry operators. Most of these jobs can and should be filled up with Class X and Class VIII graduates. They will emerge at the end of the survey with skills and disciplined work habits which they can then deploy usefully elsewhere. The argument that land is a state subject is a weak one. Let us start with states controlled by the ruling party. Incidentally, this exercise can become a meaningful source of revenue for the government, as owners will be willing to pay for title insurance if only the titles could be insured! Many countries tap into this revenue source.

The government must ease urbanisation rules. (GettyImages)
The government must ease urbanisation rules. (GettyImages)

Along with this survey, the government can ease many rules — land within urban agglomerations (part of urban/metropolitan masterplans) and on both sides of highways should be automatically considered non-agricultural on payment of a modest fee. The notorious “A” to “NA” conversion, which is the source of so much corruption and heartache will disappear. Any attempt to rationalise and modernise land records will be opposed by patwaris, tehsildars, all the office staff working in the district commissioner’s office, sundry middlemen, self-appointed political padrones and many others.

But then this government is not scared to take on vested interests, if these actions help the citizens at large.

The economic impact of de-freezing the asset called land and dramatically reducing the transaction costs associated with it, will result in a definite multi-year GDP surge. If stamp duty can be covered by GST at the same time (something already under consideration), then success in our efforts will be assured. This will be a really big and transformative project. Luckily, it can be done state by state, all the time learning what to avoid and what to emphasise. Will this be a vote-winner? Well — some 30 years ago, an IAS officer friend of mine told me that any government act, which is seen as anti-patwari will be a vote-winner on a gigantic scale. I rest my case. If this exercise is pursued vigorously, it is bound to give a tremendous long-term gain to the country. Its short-term gains would be considerable too.

The third area which the government would do well to address is the silly and sad hole that the country has dug itself into — where there are disincentives for job creation. As part of the new direct taxes code, the government should do away with all subsidies, accelerated depreciation etc for capital goods and investments. I have nothing against labour-saving machinery. Businesses are welcome to buy them. But for us to subsidise the purchase of these machines is a self-inflicted wound bordering on the farcical. Instead, if we wish to subsidise anything, why not labour? Why not offer a double deduction (a 100 per cent extra deduction) to any provident fund (PF) payments, without any ceiling, made to any new employees? This means that the employer cannot get this break by using contract labour or temporaries. The employer needs to actually employ more people on the regular payrolls and enroll the workers for PF.

The employer is not constrained to contribute only one month’s salary. There will be no ceiling. The employee’s savings can go up dramatically. And the employer gets an incentive to keep adding to his/her labour force permanently into the future, while at the same time having a powerful anti-attrition device. The PF, needless to say, should not be controlled by the employer. We do not want companies like Enron, which looted their employees’ retirement funds. A far fairer and more sensible idea than giving accelerated depreciation on capital equipment, something that Indian finance ministers have loved since the 1950s.

Privatisation of Air India is a step in the right direction. (GettyImages)
Privatisation of Air India is a step in the right direction. (GettyImages)

We have been coy about disinvestment and privatisation. Oftentimes, we have seen this as a revenue source to help with the fiscal deficit. We need to go back to former UK prime minister Margaret Thatcher as our source of inspiration. We are talking about the retreat of the gargantuan neo-Stalinist state. We are talking about our leader’s dictum of “minimum government, maximum governance”. We should not get paralysed by the frequent criticisms about selling the family silver cheaply or helping friendly capitalists. We should simply institute a weekly sale of PSU shares on the exchanges until the level drops below 50 per cent and perhaps keep going on after that till we hit 26 and even lower.

Yes, we will lose a bit on the control premium. But this process is so much faster and so much less susceptible to accusations of sweetheart deals. And Securities and Exchange Board of Indain (SEBI) has enough controls over people acting in concert and obtaining control and how minority shareholders are treated. This will ensure that a large chunk of the control premium will stay with the government. I particularly like the government’s idea of spinning off the excess land with the PSUs before selling down. Once again, land and its so-called sale at low prices becomes the obsession of the opposition and of the media. Take land off the table, even if it means we get a lower value. At least we keep moving and don’t get trapped in traffic jams of our own making. The land can be used for mass housing — another imaginative idea. This dispensation has disproportionate popularity and support in urban areas. Increasing urban concentration by leveraging PSU lands can end up being a clever vote-winner.

Again, let’s remember Thatcher. She sold council houses to tenants and made then Tory voters. One smart lady! Every time I drive past Richardson and Cruddas (1972) Ltd and see the unused land — which is gradually being encroached on, I think of the tragedy of wasted urban land. Let’s finally do something about it. PSUs have land all over the place. Let’s quickly spin off the land, use the land sensibly and privatise (yes — let’s not be coy and call it disinvestment) the firms themselves. The government can build a digital highway as a public utility. It does not need to own and run industries of yesteryear. Public markets can and will price them and manage them at least with greater efficiency than the state.

The last and in many ways the most important economic act that our government needs to stay focused on is to continue with many of the brilliant administrative measures that have been undertaken. We must relentlessly pursue the ease of doing business. As an example, a new business needs an address in order to get a registration. It needs an address to get a PAN card and open a bank account. Aha — it needs a bank account to sign a lease and pay the advance and get an address. A brilliant logical circle of inaction — the Nyaya and Vaiseshika scholars of yesteryear would have loved the paradoxes here. We need to make sure that feedback on these strange rules keeps surfacing in the public domain. Given our GST experience, we do know that this government is open to constructive feedback; it does not freeze itself into inaction based on prestige; it tries hard to be citizen-friendly.

Let’s understand that many of our problems arise from what Steve Bannon refers to as the over-reach of the administrative state. India is the only country in the world that I know of (and I have done business in at least 17 other countries) which requires people to obtain several “NOCs” — “no objection certificates”, implying that there are numerous agencies/ agents/ departments/ organisations/ institutions/ councils/ commissioners/ commissars who have a god-given right to “object” to whatever it is that the citizen wants to do. Within the next two years, perhaps the next one year, can we destroy this NOC culture? Can we make this a country where legitimate economic activity, even if not encouraged, is at least not objected to and stymied?

The Indian economy in the last 70 years has progressed, largely despite the state and the state’s best efforts to strangle business activity. We have now reached a new understanding that this need not be the case. The pursuit of artha — or economic activity in a dharmic or virtuous way — is something that any benign and enlightened sovereign should look upon with favour, for that is the sovereign’s dharmic obligation. And that is what we citizens seek and we are hopeful we will get.

The author is the former CEO of MphasiS, and was head of Citibank’s Global Technology Division. He is currently the Chairman of Value and Budget Housing Corporation (VBHC), an affordable housing venture.

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