I’ll start by saying what I’ve always been saying for about three to four years. I think the world is very uncertain and volatile. In such a world, there’s a lot of premium attached to risk capital. Therefore, capital tends to go in the direction where perceived risk is lower. So every time the US government seems to be getting close to an agreement on the fiscal cliff, the Indian stock market goes up, the rupee appreciates. And then the next day the reverse happens, the fiscal cliff looks like it’s going to happen, the rupee depreciates, the stock market goes down, and I think it’s because people today attach a lot of importance to risk. The moment people say, oh, fiscal cliff is going to happen, they say, let’s take money out of the risky parts of the world.
Now, with that context, one of our government’s critical jobs is to increase certainty in the environment and reduce risk, which will accelerate investments in India, by Indian companies, in long-term projects investments through foreign direct investments (FDIs). Everything is about how do we create more certainty and less risk. That will kick-start the economy for the long term.
What that’ll also do is make India much more competitive compared with other countries in an uncertain world as capital searches lower risk.
There are six specific measures that the government should think and act on:
l Announce a tax and fiscal policies framework that lays it out for the long term, a long-term tax policy that says, “This is what it’ll be, it will not change.” The advantage is then everyone who calculates return on investments and makes decisions has a certainty to cash flow projections, to the flow of taxes. In fact, it’s okay to raise taxes, but please tell people, “This is what it’s going to be for the next 1-20 years, I’m not going to change it.”
l Increase the speed of decision-making in everything, whether it is policies around opening up retail, or new investment norms for insurance. I think the government has completely underestimated the importance of speed in today’s world. Speed of decision-making in policies, speed of approval in investments, speed of approval for FDI, speed of approval for setting up power plants, speed for getting an environmental clearance.
If you walk into a typical large company today, there is a huge focus on improving cycle time for everything. Why isn’t the government focused on this? I’ve never heard a government official say, “My job is to improve cycle time.” Measure cycle time and reduce it because that immediately reduces risk and improves return, so appetite to invest increases.
l For a range of approvals and decisions, communicate the decision-making process, communicate the cycle time and publish them transparently. Tell people when an approval will come clearly and track to it and show that it is improving because the moment you show something is improving through metrics, confidence builds up. Capital comes in, risk reduces.
l Decision-making has been paralyzed for many years now. Clearly, in the last few months that paralysis seems to have reduced. There’s hyper-action to take decisions, but really you have to show sustained conviction and consistency. Focus on infrastructure decisions.
l Everyone says this country is about intellectual capital and people and there’s a demographic dividend. Therefore, I think the focus of the government on education has to be 10 times more than it is today. This will drive capital and investment to flow into education. Create competition in education. It’ll drive innovation.
l And finally, on corruption the government should go for punishing the culprits at rocket speed and such punishment should be publicized. It requires courage, and you have to stand up and tell people you’re doing it. You have to show people you’re doing it.