Friday, 8 June 2012

An economic blueprint for India

It isn't enough to just criticise. A critic must also state what is the alternative.There have been lots of criticism of India's economic performance in recent times and the government's seeming inability to do anything right, economically. The blogger has been one such critic too. But precious few have really laid down a comprehensive argument of what needs to be done , and equally how this can be done; for we cannot, and should not,  wish away political realities.

Government action should be for sustained long term economic development - not short term fixes. Improving "sentiments" , like trying to bolster the stock market, is a waste of time and should not be anywhere in government's priorities. Issues like FDI in retail, fiddling with tax laws, which are getting a disproportionate amount of airtime, are all side shows - they won't make or break India.

This blogger is no expert on anything. He is just a concerned citizen. So here's one citizen's blueprint of what can be done and how it can be done. This blog is not a research paper, so there are a few ideas but no space to present data and research to back this

Stimulate agricultural growth:  Right through the last two decades, agricultural growth has lagged way behind GDP growth. This is unsustainable in a country where the majority depends on agriculture and therefore do not see the country's growth as inclusive. Some thoughts
  • Significant investment in agricultural research and wholehearted acceptance of genetically modified crops . In doing so, insist on clear labelling of genetically modified crops and let the consumer choose - take on the environmental lobby and stand firm.
  • Large investment in the power and water sectors of infrastructure referred to in manufacturing is also important for agriculture. Remove the freebies like free power (what use is free power when rural India has 14 hour power cuts).
  • Revamp the APMC rules that distort trade and let the agricultural sector freely export - there is a massive opportunity to feed China.
  • `Drive cooperatisation of agriculture ( a al Amul model) and even allow corporotisation without allowing any of these entities to acquire land.

Arrest the fall in manufacturing :   India's growth story is stalling primarily due to the decline in manufacturing. In Jan-Mar 2012, Manufacturing actually declined by 0.2 %. Manufacturing growth is the only route to creating jobs for the large population of India. Here's what can be done to drive the manufacturing sector
  • Setting a land acquisition policy that is sensible (the current one is not). This is an incredibly difficult thing to do; no country, including China, has managed this and there is unfortunately  no easy way. The current attempt in India is a step backwards. We must learn from states like Gujarat which have managed this well.
  • Decide on mega projects that require high level government approval quickly. Today every large project is in complete paralysis as the government is terrified of doing anything for getting dragged into controversy and accusations of scams. You can't be accused of a scam if you do nothing !
  • Significantly step up investment in infrastructure. The government has actually done a great job in two sectors - roads and telecom (although the misguided courts are trying their best to reverse the gains in telecom). It has performed abysmally in Railways, Power, Water and Urban Development. These are the four sectors for concentration
  • Implement the Goods & Services Tax, Direct Taxes Code and the new Companies Bill.
  • Do nothing else and let both private and public sectors drive the growth 

Fiscal Responsibility : Both central and state governments have to adopt fiscal responsibility. Do the following
  •  Statutorily fix a ceiling (low) on deficits as a % of GDP . Neither the Centre nor the states can breach this under any circumstance.
  • Phase out subsidies slowly - it is impossible to phase them out in one shot, but over 5-10 years they can be phased out. In order of priority, they should be petroleum , fertilizer and then finally food. Some component of food subsidy can never be phased out and should always remain as an anti poverty safety net.
  • Reduce significantly doles such as the Rural Employment Guarantee Scheme
  • Increase tax revenue by broadbasing tax - remove the exemption for capital gains and agricultural income and go after taxing property transactions
Fight Inflation : Fighting inflation must assume almost religious proportions (a la Germany).
  • Make RBI truly an independent Central Bank and task it with monetary policy. The government must abdicate its right to tinker with monetary policy. In the current environment, RBI is completely right to keep interest rates high
  • Fiscal responsibility referred to above, will automatically reduce inflation
  • Fight inflation supply side; boosting GDP growth is a good way to fight inflation.
Inclusive Growth : Mere GDP growth, without benefiting most (all is impossible) is not sustainable in any society. Growth must touch a large proportion of the population.
  • That is why, agricultural growth is at the top of my list
  • Invest massively in education. Inequity must be tackled at the level of opportunity. It is NOT an objective to achieve equity of outcome.
  • We should establish a social security net. No Indian shall starve and nobody will go naked. No child will be unable to go to school. Everybody will get basic medical care (note the word basic). Anything more than this is an agenda item after 10 years.
That's it. Do nothing else. Results come from doing a few things very well rather than lots of things poorly. 

None of this is new, and I am not vain enough to believe that this is an earth shattering blueprint. Wiser minds exist in government who know all this and more. The problem is the political will for implementation. Politics and economics cannot be divorced. So how do we make all these things happen politically ?? That's for tomorrow's post.


RS said...

*Respects, Bows and salutes*.

Waiting for tomorrow's post...

Venkat said...

Wise thoughts truly from your heart, loved the place you give for agriculture. agri is the only industry where working and living place can be one, where we don’t need to spend extra time in gym or medical to take care of health, which can stop migration from rural to urban and effect of reduce in migration will solve lot of issues like real estate, commodity price rise, living congestion, lack of services etc.

Adding to the power and water infrastructure, sewerage and waste management is another area which needs lot of attention.

From my childhood to now i witnessed major economic growth had brushed away small scale industries, which provided huge employment for rural population on those days. encouraging this industry on food products, service industry, production of electronics and mechanical spare parts at rural level, by products of agricultural wastes etc, etc, etc is also a need for growth.
(i am a believer of this say- world shrinks with BIG corporates)

Ramesh said...

@RS - Awwwww. Totally floored.

@Venkat - I knew you would like the agriculture bit. Actually agriculture has been under performing for decades now. We need another MS Swaminathan and and another Green Revolution.

sriram khe said...

Hey, your opening lines interest me the most :)

It is totally ok to be a critic--as long as we are being constructive critics.  The problem is that most criticisms are destructive.  Like when, here in the US, the leader of the Senate Republicans, McConnell, flatly stated quite some time ago that their priority was to defeat Obama, which then leads him and his ilk to forever engage in destructive approaches.  (Democrats are way too wimpy to ever play that kind of a game; call me up when they develop a spine!)

As a grad student, I was delighted to be at a session where during the Q/A, Pranab Bardhan was asked whether he was content being a critic, or whether he felt compelled to be a minister, for instance.  He said his contributions were through the analysis and criticisms he provides.  (I wish he didn't do that awful comb-over though!)

So, ....

As for the rest of the content, not much to disagree with your observations. Like Venkat, I too have always felt that India has marginalized ag/rural for decades ... so, yes, we need a Green_Revolution_2.0
BTW, I notice a complementary op-ed in The Hindu

gils said...

thala...u r the master here. intha kelvi romba abathamaanatha iruntha lighta maatum thuppitu vitrunga :) but arent these the very things which are there in every election manifesto of evry goddamn party?? ithelaam thaaan pananum elaarum solraanga..aana en panna maatengaranga?? are they too difficult to implement? sarcastica ileenga..seriousavay kekaren. sounds simple..aana en seiya mudiarthilla??

Ramesh said...

@sriram - Mmmmm. Don't agree on this one. Most issues in life are complex - there isn't an easy answer and every answer can be criticised logically if criticism was the sole objective. In matters such as what this post deals with, there has to be a balance as there is no perfect answer. Bravery as a critic would be to suggest an alternative which can also be equally criticised.

Its a different world when you are reviewing something - say a movie or a play. Pure criticism is valid then. But I submit that when it comes to issues , one would be a more effective critic if he also had a counterpoint to make. Having said that, what the heck - its a free world; so anybody can do exactly as he pleases :)

@Gilsu - Oh nothing in this is new, but I don't agree that political parties have something like this in their manifesto. There is no cogent economic manifesto at all in any political party other than homilies. Manifestos usually have free power, or free colour TVs etc in the belief that that would win them the coming election and to hell with future consequences.

sriram khe said...

Hmmmm .... so, ok, we shall agree to disagree on the role of criticism :)

Anyway, it appears that wherever I look, there is something serious about India ... This time, the Economist ... excerpt:

The Congress-led coalition government, with Brezhnev-grade complacency, insists things will bounce back. But India’s slowdown is due mainly to problems at home and has been looming for a while. The state is borrowing too much, crowding out private firms and keeping inflation high. It has not passed a big reform for years. Graft, confusion and red tape have infuriated domestic businesses and harmed investment. A high-handed view of foreign investors has made a big current-account deficit harder to finance, and the rupee has plunged.

Sandhya Sriram said...

Wow, Ramesh. now a days, i feel completely out of place in this space.

You obviously deal with very complex topics in your inimitably simple yet profound ways, but your commenters are equally profound and deep that i get into a severe inferiority complex on whether i can come on here and post a stupid comment from me :-)

But still, given your big heart to put up with people like me, i make my small views here.

I think, one of the biggest challenges that we are facing is an economist on top and not a leader. an economist however clean can never make up for a great leader (even though less knowledgeable and maybe really corrupt).

Its that ability to balance political and economic ambitions (which unfortunately are contradictory in many cases) which existed in many of our past leaders that is lacking today.

The other point, i feel, is the role of press. what has reached masses are the ones that are high on trp and non value adding news. the better ones have kind of left themselves to the educated group who are smaller in number but give them adequate revenue to meet their profit ambitions. there is a definite gap in translating the larger economic objective into smaller people subjects and i think an unbiassed press reaching to the masses can make a big intervention here to bridge the aspiration vs ambition gap. this is actually a big growth opportunity as well for them that they are missing.

A third point is villification of profit ambitions. a healthy profit ambition can also create a healthy growth climate. i think corporates need to crack this communication gap. they should find a way to reach out to public at large that they are creating value by creating profit and foster public support to industrial ambitions. If singur had stood up for Tatas and not the other way round, i dont think they would have had to exit leaving another black mark on the economic climate of the ailing didi's state.

i know my points are very stupid and very small and i was in a double mind to delete this comment off but i am taking advantage of the kind person you are and letting it be :-)

Ramesh said...

@Sandhya - Very true. Commenters in this blog are more profound and wise than this blogger. Given that you are a top commenter, this is most true for you :) Agree with all your three points. The third one is a world over problem - getting rich seems to be a sin everywhere. We need a modern day Deng Xiaoping, who transformed China with his saying - "Its not a sin to be rich". And on equitable growth, he said "Its OK for a few to get rich first. We'll think of making everybody rich later".

Connecter said...

To add to your list, free scheme should be completely abolished. State governments are exercising free option by borrowing and this adds to the burden of the common man. We miss today leadership at execution level - ms swaminathan, e sreedharan, vikram sarabhai and jrd tata to quote a few. Power crisis is increasing year by year and the amount of money spent on free schemes could have gone into power projects which could have helped to setup manufacturing units. I am sure you will all agree that economic freedom to the socially / economicaly backward people will be achieved when they get good education and employment in manufacturing / service industries.

Ramesh said...

@Connecter - Totally agree. Freebies never work - they don't even most elections. In any case I understand the Supreme Court is considering whether grant of colour televisions is unconstitutional. Alas; their judgement will only come after 100 years.

Appu said...

I have asked Shashi Tharoor to pass this as well as the follow up post to Montek ;)

Ramesh said...

@zeno - OMG OMG

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