This piece was also published in Sakal Times May 21 2009. To read article click here.
The incoming Central Government has many challenges: ballooning fiscal deficit, corporate slowdown, infrastructure bottlenecks, internal security, unstable neighbors and what not. The article suggests solutions that could change sentiment, create quick impact and hopefully help the Indian economy move on to the high growth trajectory once again.
India’s biggest problem is lack of Power (bijli). Mega power plants have their merits but the need of the hour is to enhance availability of power quickly. Also high Aggregate Technical & Commercial (AT&C) losses have compounded the problem. Between 2002-03 and 2006-07 losses peaked at 34.8% in 2002-03 and were 32.07% in 2006-07.
Political will is the need of the hour. Possible solutions are: make small run of the river projects and storage dams where India has the necessary expertise. Two - GOI must declare a WAR on AT&C losses. Three - create a regulatory environment which makes investment in wind power attractive to Investors. Against a potential of 45000 MW India added only 1800 MW of wind power in 2008 as compared to China’s 6300 MW. Four -allow the private sector in coal mining.
If India can even partly meets its power deficit the multiplier effect of enhanced production could increase GDP by atleast .50%.
Much has been written about the merits of the National Highway Development Program started by the NDA and neglected by the UPA. India must now undertake its biggest development of Border Roads esp. in Ladakh and Arunachal Pradesh. This will stimulate demand for the core sectors of cement and steel, increase economic activity and generate employment in these areas. If this requires the monopoly of the Border Roads Organization be broken, so be it. National interest and return on investment, not tax breaks, should motivate companies to undertake these projects.
One of the reasons for the post 2004 stock market boom was the successful disinvestment program started by the NDA government. The aam aadmi got shares of PSU jewels at throw away prices for e.g. Maruti at Rs 125/ and ONGC at Rs 500 (effective price) which enabled investors to book substantial profits. Today, six of the top ten companies by market capitalization are PSU’s having a combined M-CAP of Rs 505,464 crs (12/5/09). GOI must selectively disinvest PSU shares at an attractive discount to their average market price over the last 24 months. If this move revives the market, it could encourage private companies to raise equity rather than borrow at rates that are likely to move northwards due to an ambitious government borrowing program in 2009-10.
Importantly sale proceeds should be used to fund capital expenditure and not be frittered away on subsidies.
The existing policy for defense related manufacturing allows for FDI up to 26%. This has failed to be attractive for foreign companies. We must trust the private sector’s ability to protect national interest in dealing with foreign companies and enhance FDI limit to 40%. This would not only provide employment to millions but also enable Indians companies’ avail of Offset Clause contracts that currently lie under utilized. According to reliable sources for every one billion dollars of arms imports by India, the exporting country generates 30,000 high tech jobs.
I believe that strides in defense technology must be used for the civilian sector. This can happen when the private sector has a greater role in manufacture of defense products. Remember that the Internet was first used by Pentagaon for defense purposes. See how it has changed our lives today.
The Central government must undertake the largest E Governance program ever with an annual budget of atleast Rs 10,000 crs. The program must aim to improve the quality of services to citizens and increase transparency.
GOI must seek to enhance revenue from direct taxes by asking all IT cos with a turnover beyond a pre determined number and in existence for more than five years to pay tax at 20% for the first three years and at normal rates from year 4. Secondly, all FII’s must pay taxes on profits accrued from investments in India. According to S S Bhalla, Tax loss from FII investments in the financial years 1993 to 2006 was Rs 16,363 crs of which Rs 9,949 crs was in 2006 alone (Business Standard 22/8/2006). Thirdly every Finance Minister must submit an annual plan supported by appropriate provisions to reduce the Tax foregone by 25 %.
I have always believed in the economic benefits of Tourism and their impact on local employment, incomes. Inspite of best efforts India is yet to realize her potential. The focus should be on encouraging Indians to discover their own country. The tax break on Leave Travel Allowance should be replaced with a ‘See India’ deduction. All resident Indians who travel within their country are allowed a deduction of Rs 50,000/ from their gross total incomes. The deduction is available for spends on rail/road travel, hotel but excludes amounts spent in four/five star hotels, air travel.
It is a well known fact that an over regulated and under serviced education sector forces parents to send their children abroad for higher education. Deregulation should allow Corporates to enter the sector and allow collaborations, not investments, with foreign universities. 10% of the seats can be provided to economically backward students.
With the financial year just having ended, it has become clear that most of the Centrally-sponsored social and infrastructure development programs are unlikely to have hit their targets.
Every Central government announces grand schemes in education, health and irrigation all of which are the primary responsibility of the State Governments. It would be better for the GOI to focus on areas within its control for e.g. disinvestment, fiscal consolidation, banking and labor reforms. Let the State government work on these areas for which result based funding can be provided by the central government.
In order to improve health care services in Tier 3 and Tier 4 cities the Central government pays 50% of all mediclaim premiums (sum insured Rs 1 lakh) for those who want to get insured and simultaneously provide incentives to the private sector to set up medical facilities in these areas. This would encourage doctors to work there and improve the quality of health care facilities overall.
Due to increase regionalism the feeling of belonging to one area or caste has become stronger then ever before. This could be used by our opponents to start separatist movements and weaken India. A strong leader has to, while retaining our local identities,
make us think as Indians first.
India seems to be oasis of peace in the midst of a troubled neighborhood. Most Pakistanis have probably realized that India and Indians worldwide have moved far ahead of them in every sphere, not only in cricket alone. India must continue to make rapid strides notwithstanding Pakistan’s support to terror. Remember the day Pakistan decides to love India, it would cease to exist as a nation.
We must be very watchful of Chinese moves. It could create unrest in Arunachal through infiltration of Chinese guised as Tibetans or launch a swift attack and capture Twang. India needs to assert itself with neighbors who have extensive trade and people ties with it namely Nepal, Bangladesh and Sri Lanka. Remember good boys do not win matches.
India must redefine its vision in the Obama era and be guided by nothing but ‘National Interest’ just as the USA and China do so well.
Lastly, Indians need to change their mindset. Instead of criticizing the government for inaction we must ask what is each one of us is doing for the country. Are we sponsoring the education of our employee’s children, donating money to hospitals or schools and taking part in community work?
The above ideas are probably known to most. The article seeks to give an Action Plan on key fronts rather than a functional topic like economics alone. Having said that, we need to popularize and follow Indira Gandhi’s emergency slogan ‘Talk less work more’.