At a recent investors summit, PM Narendra Modi spoke about how investment worth $100 billion was waiting to come in from the US, Japan and China. It is for the states to seize this opportunity, he said at that meeting.
Since becoming PM, Modi has tried to talk up confidence among investors and business — by announcing the “Make In India” campaign; by interacting with CEOs on his trips to Japan and the US; and by affirming how he is committed to getting India’s economy back on track. These sound bites do send out the right signals to local and foreign investors but if Modi wants to spur investments, boost growth and create jobs, his government will have to bite some bullets, many of them not sugarcoated.
Business lobbies have a laundry list of the policies they want changed — that’s pretty much everything since Independence! Here is a shorter to-do list that may be more pragmatic to hope for but still fraught with risks.
Resetting diesel prices. Instead of subsidising oil companies, the government should use the latest fall in global crude oil prices to let the market decide diesel pricing. That would slash subsidies, help reduce the fiscal deficit and align fuel prices with global levels. Risk: When crude oil prices rise, market-linked pricing would mean higher costs for consumers and even stoke inflation — not an ideal situation for winning elections.
Privatising key PSUs. If Modi really believes that the government has no business being in business, he should walk the talk by privatising both Air India and Coal India — the former is a bleeding mess (accumulated losses: Rs 30,000 crore) that has consistently lost market-share; and the latter, a near monopoly, is run badly and delivers poor-quality coal. Selling them off, especially a big stake in Coal India, can go a long way in bridging the fiscal gap. Risk: Finding a buyer for the battered airline won’t be easy; and the coal conglomerate’s strong trade unions may be a showstopper.
Fixing a faulty PDS. India’s public distribution system for food-grain and other essentials is a leaky mess. Intended to benefit the poor (a third of the population is below the poverty line), it ends up being exploited by the unscrupulous. If the government wants to ensure that the right people get the benefit of the Food Security Act, it should implement a direct cash transfer system that is foolproof. Risk: None really, because the Aadhar ID network and the Jan Dhan banking scheme can combine to ensure that benefits reach the poor.
Revising gas prices. Natural gas prices (around $4 a unit) have not been revised since 2004 and a move to double the rate is stuck in litigation. India’s oil and gas import bill last year was $145 billion. While India is oil-deficit, it has gas reserves that could meet demand for the next 25 years. But investors in gas production would want prices that are worth it; at $4 they aren’t. Risk: Higher gas prices will push up fertiliser prices and gas-based power tariffs, dealing a dual blow — a bigger subsidy bill for the government and higher inflation.
Simplifying land buying. Large projects that can generate employment get mired in land acquisition laws. Poor compensation, ambiguous title deeds, environment issues and social concerns are hurdles faced by industry. Simpler, yet equitable and environment-friendly land buying rules can ease such impediments. Risk: It is a formidable task to ensure simplicity, equity and environmental balance and can turn into a political battlefield between the Centre and the states.
Making it one market. The Goods and Services Tax, which would make India a common market by doing away with varying rates of local tax, is the single-biggest indirect tax reform that can make things easier for business. Risk: Can’t happen without a consensus among states, which fear it will rob them of their powers to control their exchequers.
Those are just six bullets. There are plenty more. But biting these could be a beginning.