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 It talks of 44 Central laws, many of which are old and outdated and impose a heavy compliance burden, and says there is urgent need to realign them to new economic needs.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.

Economy: Hope and despair

BRP Bhaskar
Gulf Today

India’s $1.9 trillion economy is showing signs of slow recovery but the big rebound which the recession-hit countries are looking for, in their own interest, is still not in sight.

Data released by the Central Statistical Organisation last week shows that the economy registered a growth of five per cent during the financial year which ended on March 31. Growth in the previous year was 6.2 per cent.

The new figure is in line with the CSO’s previous estimate which Finance Minister P Chidambaram had discounted, saying it was based on outdated data. Clearly the minister and his advisers are out of tune with ground realities. 

The current growth rate is the lowest in a decade. Many challenges have to be overcome to push it back to the previous best of nine per cent and fulfil the expectation of becoming a major driver of global economic recovery.

All sectors of the economy declined last year. In agriculture the growth rate was down from 3.6 per cent to 1.9 per cent, in manufacturing from 2.7 per cent to one per cent and in the services sector from 8.2 per cent to 7.1 per cent. The mining sector witnessed a drop of 0.6 per cent for the second successive year. There was, however, a slight all-round improvement during January-March, the last quarter of the financial year, raising hopes of a turnaround.

One factor, which retarded the growth rate during the year, was the cut-down on public spending. The government deliberately held down expenditure to prevent a slide in the country’s investment-grade sovereign rating. Incidentally, this did some good to the economy by reducing the fiscal deficit to 4.9 per cent of the gross domestic product from 5.8 per cent last year.

Another factor which kept the growth rate down was the inflationary pressure which reduced private spending. Capital investment was also low.

Foreign and domestic business interests have been pressing for acceleration of the reform process to attract more investment. The government, which opened up retail trade and the aviation and insurance sectors to foreign direct investment last year, is ready to do more but the political climate is not conducive to quick forward movement.

The Congress-led United Progressive Alliance is in a minority in parliament and is surviving on the goodwill of several parties which are not supportive of reforms. It is keen to make changes in the law to make it easy to acquire land for mega projects and grant environmental clearance. The Bharatiya Janata Party, the main opposition, is in agreement with the government on these issues but foiled its efforts to pass the necessary legislation during the last session of parliament by repeatedly disrupting the proceedings on the issue of corruption.

Even if the government has its way, it will have to overcome widespread popular sentiments against alienation of land and destruction of the environment. Many big projects are in trouble because of stiff opposition from the people, not because of inadequacy of laws. Repressive measures are not an easily exercisable option when elections are less than a year away.

Notwithstanding the current low growth rate, the Paris-based Organisation for Economic Cooperation and Development reckons that India may have already overtaken Japan, which has been in the doldrums for many years, and become the world’s third largest economy after the United States and China.

The OECD’s Economic Outlook report, released last week, says China is likely to overtake the US and emerge as the world’s largest economy in the next few years. It expects China to continue to record the highest growth rate among major countries till about 2030 before experiencing a slowdown which will enable India to get ahead of it. 

It adds, “Between now and 2060, GDP per capita is seen to increase more than eight-fold in India and six-fold in Indonesia and China.”

Can this rosy forecast come true while poverty dogs the nation’s footsteps? A World Bank study released in April said India accounts for one-third of the world’s poor. Many of the measures the government is contemplating to promote economic growth will directly hurt the poor and make their lives more miserable.

The mowing down of 27 Congress leaders of the predominantly tribal Chhattisgarh state by ultra-left guerrillas in a daring attack on May 25 is a bloody reminder of the dangers of pushing ahead with reforms, ignoring the widening gap between the rich and the poor. -- Gulf Today, Sharjah, June 4, 2013.