Will is required as much as skill
The NDA cannot deliver on its budget promises until it removes performance bottlenecks and elevates us to a new level of execution, writes MS ‘Vindi’ Banga.ht view Updated: Jul 11, 2014 23:17 IST
Union finance minister Arun Jaitley in one of the longer budget speeches in recent times outlined a very long list of initiatives, aimed at kick-starting growth.
He was understandably short on how these would get executed. And that has been India’s main challenge historically. Too many ideas and too few executed. Let’s look at some of the key initiatives, identify the execution challenge and offer a few thoughts on how these can be addressed.
Jaitley has rightly stuck to the commitment to both reduce the fiscal deficit in absolute and the time taken to achieve it.
Anything else would have been irresponsible and unsustainable. However, this will have to come mainly through a significant reduction in spending as tax revenues will grow modestly, given the anaemic level of GDP growth.
His recipe of a high-level commission to control expenditure will either kick the ball along as so many other commissions have; or it will act impartially and decisively and succeed.
This will depend both on the will and skill of the government to cut its costs. ‘Skill’ because it will need to identify waste and not impact capability and ‘will’ because everyone will defend their particular patch.
The intention to deliver savings by more effective implementation of subsidies will find lots of support as the previous government was seen as lacking in this respect. The government now has the task of identifying the best ways to do this.
Various ideas have been debated for many years. If the government has already issued 500-plus million Aadhaar cards can these be used for better delivery of subsidies?
The focus on kick-starting infrastructure is commendable as everyone agrees that India needs more and better roads, more and smarter cities, more airports, etc. The Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts are welcome and innovative steps towards bringing in funds.
However, getting infrastructure projects implemented requires intensive dialogue and coordinated action between the Centre and state; between different ministries and agencies and between NGOs and society. Project management skills of the highest order will be required and success or failure will depend on the quality of execution.
The Union finance minister has committed to implementing the long-awaited catalyst of the Goods and Services Tax. It is widely believed that this could itself deliver up to 2% of growth.
And yet no one has been able to persuade several states to shed their powers without adequate guarantee of revenue protection. This challenge remains and getting the GST executed will require enormous focus and energy to reach a successful negotiated outcome.
The Union finance minister should entrust this to an empowered and trusted negotiator and be prepared to accept the give-and-take that will be needed to get it done.
Agriculture is identified as a key focus area and several initiatives have been identified such as improving productivity in farming; starting a protein revolution; more soil testing facilities; investment in irrigation and storage infrastructure, etc.
This is possibly the area with the greatest execution challenge. Many agriculture ministers have failed to create a single common market for food across the country. This too like the GST requires the Centre to reach an agreement with the states on how this must work.
In addition, step changing agricultural production requires all the many initiatives identified to work in a specific geography at the same time. One way to achieve this would be to establish National Agricultural Zones (NAZs) like the SEZs and Manufacturing Zones.
These NAZs could focus on key crops and help farmers to access all they need to improve productivity.
Foreign Direct Investment (FDI) has been a very important enabler for growth and much more needs to be done beyond what is stated in the budget speech so far.
Raising the cap on FDI to 49% may have some positive benefits in the insurance sector but is unlikely to have any material impact in the large and crucial defence sector where clear control is necessary before international firms will transfer innovative technology.
An FDI cap of 49% with full operating control by the foreign partner rather than the current proposal of retaining control for the Indian partner would have a better chance of success.
Setting up such foreign-controlled defence production units would also provide much-needed jobs as they would create multiple circles of component supplier companies in addition to the core company.
Further, international investors were hoping for more clarity on the vexatious and high-profile retrospective tax amendment of 2012.
I continue to believe that the government should do more than it has indicated so far to demonstrate that India can be trusted to have a fair and stable tax regime.
Stating that retrospective taxation will be applied very carefully and after high-level approval is still inadequate to restore confidence. It is worth remembering that FDI operates in a globally competitive environment and many chairpersons and boards have put India on hold till this issue is settled.
In conclusion, we can all add to the list of initiatives identified so far. However, the need of the hour is to ensure effective and speedy implementation of the current measures. This is no small challenge and one where the previous government was woefully wanting.
What can Jaitley do in this respect? First, winning agreement with the states on several issues identified above is crucial. The decisive national mandate should give the Centre a greater level of moral authority.
In addition, it will require the personal engagement of the prime minister and senior ministers in an attitude of give-and-take which is customary in any negotiation. Second, by upping the game on project management skills. There is ambivalence on the continued role of the Planning Commission.
Perhaps this can be relaunched as the Implementation Mission working directly under the prime minister with the task of helping to monitor critical projects, removing bottlenecks and getting us to a new level of execution.
(MS ‘Vindi’ Banga is partner, Clayton, Dubilier & Rice and former Unilever executive board member. The views expressed by the author are personal.)