India Banao!

I came across a post on Shri Advani-ji’s speech at the AGM of FICCI in India. Here is the specific link:‘Offstumped’ has made some extremely valid observations on Shri Advani-ji’s post. One of the key stumbling blocks to good governance is the non-proximity of the rulers from the ruled.

One is reminded of the famous R. K. Laxman cartoon in which a bevy of doctors surrounds a considerably shrunk patient on the bed. The man’s assistant is seen telling the doctors: “Don’t know what happened, doctor. He just said that he would try to live like the ordinary man”. What a devastating message!

So, when ‘Offstumped’ asks Advani-ji to clarify if his enunciation of a Swadeshi model of development whether it meant empowerment of local governments and devolution, he is absolutely asking the right questions.The post and his comments triggered the following thoughts in me:It is very hard to add to the important points he has made in his post. The difficulty with enunciation of principles is that it is hard to be critical or acclaim them. There is not enough meat to grip.

All that he has said is fine. But, it is not obvious to me as to what useful economic purpose they serve. If we look at the key priorities of India - to go to the next stage of growth, which is to sustain 8-10% growth rate, what do we need? There are many ways to approach this. I will choose the simple framework of savings-investment.

Savings have to go up for investments to go up and combined with capital productivity, investment delivers economic returns (economic growth in a macro context).

Savings consists of household savings, corporate savings and public sector (incl. governments in Centre and States) savings.

Household savings have stagnated at around 24% since 2003-04. Not gone up. Savings rise when incomes rise. Incomes rise when people are afforded opportunities and time to participate in economic activity.

This statement of principle can then encompass specific actions on

liberalizing education choices (subsidies through vouchers)

legal reforms (including such minute details as limiting the no. of adjournments and appeals, increasing judges, creating and empowering alternative dispute settlement mechanisms, using information technology for creating databases of case histories)

administrative reforms that reduce transactions costs for the public in dealing with various organs and levels of government. Even RTI can and should be part of administrative reforms.

One of the important feedbacks that ‘Offstumped’ touches on is the devolution of genuine power to local administration. That can also be subsumed under this head - facilitating economic activity for the masses since they will spend less time dealing with districts and state level administrations. To the best of my knowledge, most States have failed to devolve financial powers and resources to the local governments.

Even pension reforms can fall under the head of augmenting household savings (or income)

Corporate savings: economically viable interest charges. Guaranteed returns on EPF is an example of illiberal financial regime. That serves to set an artificial floor on costs. What does the BJP have to say on that? It criticized the UPA for a good decision to lower the guaranteed minimum return from 9.5% to 8.5%. That is not a valid criticism and a wrong one, plainly.

Labour reforms: it kills two birds in one stone. It increases corporate freedom and flexibility and also augments employment opportunities. 

Public sector savings:
Subsidies: fertilizer subsidies, oil subsidies, PDS and electricity pricing, incentives for private participation in distribution (simply removing all barriers to the implementation of the Electricity Act of 2003), taxation of agricultural income. Dealing with these will raise public sector savings.

With States, there has to be removal of octroi, removal of barriers that stand in the way of creating a single national market in various goods and services (like removing octroi, Central Sales Tax, etc.).

Urban land ceiling reforms (many States have not either notified them or are not implementing them even if they had removed them from the statutes), raising the FSI limits, reductions in stamp duty, etc. fall under this too. They are likely to unleash more land transactions and more of it as legitimate ‘white money’ transactions.

As I had outlined at the beginning, growth comes through elevated savings and outlay in combination with capital and labour productivity. Notice how many of the above measures also serve to enhance productivity if the government removes obstacles to economic activity.

How do we achieve these goals?

1) Explicitly announce these goals
2) Set a timeline
3) Public displays and information on progress or lack of it, through posters, billboards in important junctions in cities and through web sites. Creates a sense of involvement for the public. Transparency and accountability go up.
4) Ceaselessly work for political consensus so that no one single party can afford to sabotage and no single party finds itself threatened in the short-term if it chooses to reform and others do not. There should be no free riders.
5) Take the message of reforms/liberal economics  (as this group defines it) to the public. The truth is that the public in India itself is ambivalent about more choice, more freedom, more competition and the consequences that follow from these. I have enough empirical and survey evidence to back up this assertion. Hence, if leadership is about change, change has to be articulated.

How do we put all these under the five principles of integrated development that he has enunciated? Do they even fit into this artificial dichotomy between India and Bharat and Swadeshi vs. Swaraj economics, etc?

I will go one step further and advocate removing these labels, titles and descriptors. They constrain rather than liberate thinking. It applies to all of us as much as it does to Shri. Advani-ji or the BJP.

Postscript:

After reading the post at http://offstumped.nationalinterest.in and writing the above comments, I visited the web site of BJP. I was pleasantly surprised to notice that the BJP had held an important daylong consultation with many eminent economists in the country. (See ‘press releases’ for the release dated 14th February 2009 on this topic).

It was also personally satisfying to note that many of them have made the same points that came to my mind on reading his remarks at the FICCI AGM as posted by ‘Offstumped’.

It was also encouraging to see Shri. Advani-ji himself feeling that labour laws have failed in creating jobs and that they needed a fresh look. Further, his remarks at the Fourth Annual ‘Mindmine’ Summit hosted by the Munjals (Hero Group) were equally clear, precise and indicative of a new, bold and essential vision for the country.

Clearly, he needs to evolve a consensus even among NDA allies and taking Opposition along, if he comes to power, is also crucial. India needs but sorely lacks bipartisanship on critical issues of national importance.

Unmindful of the global financial and economic crisis, China is focused on strengthening its manufacturing base by tying up resources. Further, the President is undertaking yet another visit of African States. If nothing else, India needs to emulate China’s strategic vision, focus and determination.

In this emphasis on building consensus and articulating change, I must note with extreme sadness an initiative that the Shri Vajpayee-ji government took but which failed to see the light of the day.

Yours truly wrote an article in newspapertoday.com (an earlier initiative of ‘India Today’) in July 2001 (see attachment). Coincidence or not, PM Vajpayee called for a summit on the same lines outlined in the attached article . CM S.M. Krishna agreed to host it in Karnataka and Infosys was to play host in its campus. It was called off at the last minute because the present UPA Chairperson did not approve of it.

But, Shri Advani-ji has to try again and try tirelessly.

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