Rolling out of reforms

BRP Bhaskar
Gulf Today

Pressure is mounting on the Narendra Modi government from domestic and foreign business interests to roll out economic reforms promised by the Bharatiya Janata Party in its election manifesto.

The Paris-based Organisation for Economic Cooperation and Development (OECD) said last week the Indian economy had shown signs of a turnaround and imbalances had lessened. It forecast that the economy, which registered a growth rate of only 5.3 per cent during the July-September quarter, could go up to 6.6 per cent in 2013-16 and to 6.8 per cent in 2016-17.

These rates are by no means too modest in the context of current global conditions. However, the Indian government is eager to push the rate up to the eight per cent level achieved before the global meltdown of 2008. Finance Minister Arun Jaitley told Parliament a few days ago that the government was committed to go ahead with reform measures “to take India back to the original potential of eight per cent economic growth”.

The Western economies have a stake in accelerated growth of the Indian economy since it will boost their own recovery plans. On its part, the Indian government is looking forward to infusion of fresh foreign capital to expand economic activity and generate jobs. The rub lies in some local laws which both domestic and foreign investors consider a stumbling block.

The World Bank’s Ease of Doing Business report ranked India at 142nd among the 189 countries surveyed. This meant a decline from last year when it was at the 140th place. The Prime Minister has reportedly set for himself a highly ambitious goal of putting the country among the top 50.

An action plan drawn up by the Confederation of Indian Industry, with the help of the consulting firm KPMG, contains a set of proposals to make India the “best place for doing business”. It envisages, among other things, rationalisation of the tax regime, easing of land acquisition process and streamlining of procedures for investment approval and provision of utilities.

Some proposals, like the one regarding e-filing of applications, will certainly help cut red tape, reduce corruption and improve efficiency. Some are couched in euphemistic terms. An example is the proposal for creation of an appropriate labour development ecosystem. It talks of 44 Central laws, many of which are old and outdated and impose a heavy compliance burden, and says there is urgent need to realign them to new economic needs. This is a scarcely disguised plea to scrap laws that protect the workers against exploitation.

The OECD’s prescription for curing the economy’s ills also includes many of the CII-KPMG proposals but it presents them in a wider context giving the impression that it is sensitive to the needs of the workers and other weaker sections of the society. It asks the government to boost manufacturing jobs by simplifying labour laws, improving access to education and improving the business climate. It also proposes increasing female economic participation and improving access to quality healthcare.

The proposals of CII and OECD are not new. The Congress-led United Progressive Alliance government had seriously considered similar proposals but could not go ahead with them because of strong opposition not only from the Left parties but also some of its own partners.

Soon Modi will have before him yet another set of proposals drawn up by a World Bank team, which is now in India. It comprises experts on trade and competitiveness practices and was sent by Bank president Jim Yong Kim at Modi’s request to suggest measures to improve the business environment.

The team was reportedly holding discussions with public and private sector stakeholders in New Delhi and Mumbai on the reform initiatives and discussing various reform options and feasibility of their implementation. Its recommendations are bound to be on the same lines as those of the CII and OECD.

Parliament is now in session, and the government may try to push some reform proposals through it. However, major reforms must wait till the budget session which begins in February.

With a clear majority in the Lok Sabha, the lower house of Parliament, the BJP has more elbow room than the Congress had. However, it is in a minority in the Rajya Sabha, the upper house, and needs the support of other parties to push any changes in law. Some of the reform proposals may require changes in the Constitution, for which a two-thirds majority in both houses is necessary. -- Gulf Today, Sharjah, December 9, 2014.

The Make-in-India mantra

BRP Bhaskar
Gulf Today

Will India be the next big manufacturing hub of the world? The question is being discussed at home and aboard following the launch of Prime Minister Narendra Modi’s Make in India programme and its vigorous marketing.

Modi, who took office in May, outlined the programme first in the traditional Prime Minister’s address to the nation on August 15, Independence Day. “Be it plastics or cars or satellites or agricultural products, come, make in India,” he told the world. When he visited Washington he sought support for the programme from the US administration and industrialists.

In September the government launched the programme with fanfare. A website set up to market it features its logo — a stylised figure of the lion on which is imposed the mantra “Make in India”.

The government describes it as a new national programme, designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property, and build best-in-class manufacturing infrastructure. “There’s never been a better time to make in India,” it proclaims.

The website lists 25 sectors, from Automobiles to Wellness, in alphabetical order, where the government is looking for investment. These include Defence Manufacturing, Media and Entertainment, Oil and Gas, Ports, Railways and Space. Some of these are areas where the previous government was proceeding with caution in view of their sensitive nature.

Doing business just got easier, it proclaims, and mentions a series of steps which the government has taken or is contemplating for this purpose. India is at the 134th position in the World Bank’s most recent Ease of Doing Business list. Modi reportedly has set a modest goal: raising the country to the 85th place.

Modi’s programme is modelled on the one which made China the biggest manufacturing hub of the world. China had to pay a heavy price in terms of environmental degradation for its phenomenal success. It redeemed itself somewhat by launching, under strong international pressure, an ambitious clean-up programme ahead of the Beijing Olympics.

China began reforms under Deng Xiaoping in 1978. By the time India embarked upon reforms hesitantly in 1991 it had already made much progress in manufacturing by attracting investments from overseas Chinese businessmen as well as others. It is generally believed that with the Communist Party holding the reins China could move ahead faster than India which was struggling with unstable democratic governments.

Modi, who heads a stable government, is making an-out bid to attract global investors as rising costs and an appreciating currency are making China increasingly unattractive. If he succeeds, India’s share of manufacturing, which is now only about 12 per cent of the GDP, will go up to 25 per cent by 2022. Also, part of the labour now in the primary sector may shift to the secondary sector.

To make things easy for investors the government is planning to remove all hurdles in their way and provide in a maximum of 72 hours the clearances needed to start or do business.

It is likely to take a favourable view of the proposals placed before it by the Confederation of Indian Industry and the global financial and business advisory group KPMG to create conditions conducive to large-scale manufacturing. These include streamlining approval procedures, speeding up land acquisition proceedings, creating a proper labour development system, facilitating easy cross-border transactions and rationalising the taxation regime.

While there is a strong case for speeding up the process of clearance, the three-day time-frame cannot be achieved without relaxing legal provisions which safeguard the interests of the workers and protect the environment. Such steps may invite the hostility of the working class movements and involve the risk of ecological disaster.

According to Janice Bellace, professor of legalstudies and business ethics, at Wharton, poor infrastructure, crony capitalism and corruption have done more to dissuade investment than labour laws. She wants Indian labour law reform to focus on ‘decent work’, an International Labour Organisation term which includes security, adequate remuneration and freedom of association.

KPMG has given a boost to the Make in India programme by featuring it in its 100 Most Innovative Global Projects as “one of the world’s most innovative and inspiring infrastructure projects”. Another hopeful development is that Standard and Poor’s, which had lowered India’s credit rating to “negative” in the wake of the economic downturn of the last few years, has now raised it to “stable”.

Last week Home Minister Rajnath Singh, on a visit to Israel, asked that country to set up industries in India in the defence sector. Prime Minister Benjamin Netanyahu responded favourably. --Gulf Today, Sharjah, November 11, 2014.