Ten Steps to Maximise Growth
It is not just that growth is down but that there is a secular slide and is yet to bottom out. The timing of the release of the GDP data sets up the focus for Modi 2.0 — to minimise the sarkar and maximise growth.
By Shankkar Aiyar | Published: 02nd June 2019 04:00 AM |
On Friday, the day for movie releases, the Dark Phoenix returned to haunt the economy and occupy the theatres of public discourse. Employment, rather job creation, is at a historic low. The news on the GDP front is not just that growth is down but that there is a secular slide — and the high-frequency indicators suggest it is yet to bottom out.
The timing of the release of the GDP data sets up the focus for Modi 2.0 — to minimise the sarkar and maximise growth.
Here are some steps to recast the economy and revive the virtuous cycle of consumption, growth, investment and jobs.
Find the Money: The essential dictum of budgeting is about leveraging resources — and there are three streams of opportunities. The government of India is the biggest business house. Must it manage what it owns? It is time the government got out of management of PSEs and housed its holdings in a sovereign fund a la Temasek — list it as ETF and use the resources.
Deploy the NIIF: The National Investment and Infrastructure Fund was never meant to be just another hole in the wall fund. It must be inducted into the playbook of growth. It can be deployed as the vehicle for radical funding solutions — for instance to raise dollar resources via a New India Perpetual Bond, to host a bad loans bank, and also, now that information exchange protocols have been tied up, it could be the channel for an amnesty scheme for domestically alienated funds — in Brunei, Barbados or Bermuda.
Monetise Idle Land: It is estimated that the Central government is sitting over 15,000 sq km of land. A large chunk of this land is idle — with railways, sick PSEs et al — and can be consolidated into a land bank, and monetised by making it available for affordable housing and new projects.. For instance, new defence projects can be accommodated on existing ordnance estates — or land with sick enterprises could be leased/sold to the next Foxconn or whoever.
Implement Expenditure Management: Money saved is money earned. Budget 2014–15 announced an expenditure management commission headed by Bimal Jalan. Five years later it is not clear if any of its recommendations have been implemented. The report must be first made public, an action taken report tabled and a time-bound schedule and targets should be announced for the next five years.
Retire Public Debt: The good news is that the panel of Bimal Jalan and Rakesh Mohan finds merit in RBI releasing some of its reserves. The money, estimated at between Rs 1 lakh crore and Rs 3 lakh crore, resources garnered via land monetisation and NIIF bonds should be used to retire debt, bring down borrowings and trim the cost of capital that hurts the competitiveness of investments in India. The interim budget for 2019- 20 places the cost of interest payments at over Rs 6.65 lakh crore — that is, Rs 1,822 crore a day. This pretend-and-extend, borrow-and-spend model is not sustainable.
Liberate Agriculture: Agriculture is a like any other business — the farmer needs the freedom to enter into contracts, use it to raise credit, tie up insurance, seek advisory and inputs to get a fair return on his land. The instrument for this is contract farming — whether individually or in a group backed by a regulatory mechanism. Paracetamol policies like loan waivers have detained the modernisation of agriculture, resulting in poor output from a large mass of precious land and half the workforce.
MSMEs Matter: Micro, small and medium enterprises are virtually the infantry brigade of the economy and reflect the state of the economy best. Their viability is hit on multiple fronts — inspector and permission raj, poor credit access, usurious cost of capital, poor infrastructure and connectivity to markets. It is time the gaming of EODB rankings is replaced by a strategy to actually improve the ease of doing business. A commission must flow chart Central-state permissions and ruthlessly shrink the clearance regime to save time and costs. MSMEs account for a bulk of the output and jobs and ergo merit a special tax and compliance dispensation.
Spinoff Gains from the Sino-US Trade War: India’s policymakers are hypnotised by a mistaken notion that without stirring from sloth India can lure investment as a consequence of rising wages in China and the US-China trade war. Fact is investments are flowing into places like Vietnam, Bangladesh and Mexico. India needs a special cell to engage with investors and competitors from these sectors — to lure them into the Make in India net.
Plug and Operate Projects: It is not enough to plaster the world with PowerPoints peddling seven per cent GDP growth. India needs to identify five sectors with a domestic market, import dependence and competitive edge — say textiles, jewellery, consumer electronics, e-mobility, renewables et al — and offer global investors plug-and-operate projects with all clearances in the folder.
Decentralise Decision-making: Finally, India needs a commission to decentralise a large part of governance. There is no justification for a number of ministries at the Centre. The confounding confusion created by the 42nd Amendment must be cleared — by reverting to the states the power to formulate policies on critical issues of human development, urbanisation, infrastructure and investment. This colonisation of states by the Centre must end.
The massive mandate affords and demands the revival and implementation of the promise of minimum government, maximum governance.
Shankkar Aiyar, political economy analyst and Visiting Fellow at IDFC Institute, is author of Aadhaar: A Biometric History of India’s 12 Digit Revolution&Accidental India. You can email him at email@example.com and follow him on Twitter @ShankkarAiyar. His previous columns can be found here. This column was first published here.