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HindustanTimes Thu,27 Nov 2014
The next government must improve the ease of doing business
NK Singh, Hindustan Times
New Delhi, April 28, 2014
First Published: 22:47 IST(28/4/2014)
Last Updated: 01:33 IST(29/4/2014)

We are towards the end of the voting for the 16th Lok Sabha. There is credible evidence that this would be a vote for change. Everyone hopes for a decisive one at that. The consequences of a fractured verdict, we are warned, have serious implications for the economy. India came to the brink of a downgrade by rating agencies.

The situation was salvaged by a less-than-honest interim budget — dressing up of numbers instead of decisive action left to the successor government. So the issue is not what needs to be done but what can be done. Parliamentary institutions grind somewhat slowly.

While the outcome of the Lok Sabha election will be apparent soon, the composition of the Rajya Sabha changes very slowly. The Rajya Sabha does not mirror contemporary electorate preference but is always a mix of the past and the present.

In the current Rajya Sabha, the NDA does not have a clear majority. Broadly speaking, the UPA currently leads with 90 in a House of 244, the NDA comes second with 72 with the balance resting with regional parties and independent members. Assuming that the NDA comes to power, legislative changes may remain problematic, needing a broader coalition of support from other regional parties. Depending on how decisive the Lok Sabha verdict is and even making allowances for the honeymoon period it is not clear if this broader support in the Rajya Sabha would be readily available.

Early decisive action would, therefore, need to be non-legislative, namely in the domain of the executive. A lot is possible here. The poor quality of governance of the UPA has implied poor leadership and a crippling environment for the executive to act decisively. The persistent feeling that the leadership was not able to protect bona fide decision-making led to creeping administrative paralysis and slower implementation.

Some state governments with more decisive leaderships ducked this trend. However, what happens at the Centre casts a shadow on even the better governed states. So in the domain of the executive what can be done quickly? And somewhat decisively to reverse expectations and assure rating agencies that action has commenced.

Rating agency Standard & Poor’s in its latest report titled ‘The new government’s reform policies will be critical to the credit profile of Indian corporates and banks’, apart from wishing a stable government and a decisive leadership, has mentioned serious structural issues in key sectors of the economy. Many of these issues fall in the domain of the executive and are implementable within the existing legislative framework.

First, these include, on the macro side, a credible but doable fiscal consolidation plan. This will mean that the expenditure policy should be reprogrammed. The 12th Five-Year Plan is now outdated. A mid-term review is due anyway and should receive priority. It should be discussed more meaningfully in the National Development Council than in the past. States need to be fully involved to optimise benefits from large public outlays.

This also implies revamping the Centre-state relations and activating the dormant Inter-State Council. The Planning Commission should be restructured to make it a statutory body as also the National Development Council. Five-Year Plans, including mid-term reviews, are usually embedded with implicit policy action and parliamentary endorsement would give them impetus.

Second, on the structural side some key sectors of the economy need decisive action: The power sector has a problem of fuel shortage; improving the financial health of state electricity boards and timely tariff revision.

The coal economy needs to be run on market-based principles and open competitive auction will enhance competition and productivity.

Infrastructure needs an independent regulator with a dispute resolution body. This regulator can also facilitate land acquisitions and environmental clearance.

The petroleum sector needs better aligning of fuel prices with market prices; the existing subsidy-sharing mechanism is ad hoc without formal regulatory contract; oil companies face uncertainty, which discourages both private and public investments.

The health of the banking sector is suspect. There are problems of asset qualities, the need for sizeable recapitalisation and issues of large exposure to sectors where without structural reforms further progress is difficult.

Third, the new government would inherit a wide variety of entitlement-driven laws that  may be difficult to change. So within the existing laws some changes need to be effected; in the MGNREGA enhancing capital-creating assets and linking wages to productivity; allowing flexibility to states on labour laws, as well as in the implementation of the new Land Acquisition Act; exploring alternative delivery mechanisms for the Food Security Act and seeking improved outcome under the Right to Education Act. Many of these may be possible under the Constitution through enabling provision and exception within the existing laws.

Seeking legislative changes may prove onerous. Empowering the executive can be easier with multiplier gains if there is an atmosphere that encourages decision making and rewards implementation. Empowering the executive also implies the return to merit-based appointments to heads of public institutions, secretaries to key ministries and the financial sector. Restoring the credibility of the office of the Cabinet secretary would be central in discouraging excessively patronage-driven appointments.

Over the last 10 years excessive patronage in disregard of meritocracy stymied the executive. The impending reshuffle of the executive fabric should demonstrate this new commitment. 

All these will improve the ease of doing business. It will certainly abort the threat of any sovereign downgrade. This is the path forward and the agenda is doable.

NK Singh is a former Rajya Sabha member. He has recently joined the BJP

The  views expressed by the author are personal


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