Annus horribilis.2011 has been a horrible year for India and much of the world.The earth shook with ferocity in Chile and Japan.he euro hung on by a thread.Unemployment rose, real incomes dropped, inflation spiked and markets collapsed.In India, another set of bombs exploded in Mumbai with loss of life and limb.Government stopped, was held to ransom, and brought to account for alleged corruption.Among others, we marked the passing of Bhimsen Joshi, Mansur Ali Khan Pataudi, Anant ‘Uncle’ Pai, Suresh Tendulkar, Har Gobind Khorana, Shammi Kapoor and Dev Anand.
Amid the despair, there were events that brought hope.In Tunisia, Egypt and Libya and in other parts of the Middle East arose a promise of more freedom.The US military left Iraq and has made plans to exit Afghanistan.India won the cricket World Cup.
What can policymakers do to make 2012 a better year? Here is a five-point plan. The points of action have been developed balancing their priority with an ability to achieve impact in the next year. There is one specific plan of “inaction”.
Pass these Bills in Parliament: PRS Legislative Research notes that there are 23 Bills introduced in Parliament’s winter session for consideration and passing. Of these the four most important Bills are the Pension Fund Regulatory and Development Authority (PFRDA) Bill, the National Identification Authority of India (NIAI) Bill, the Direct Taxes Code (DTC) and the Lokpal Bill. The PFRDA Bill is important because the National Pension System will, over time, ensure retirement benefits and create a domestic pool of investment capital. The NIAI Bill has already been delayed by the standing committee, caught in a whirlpool of politics within and without the government. The Aadhaar project enjoys bipartisan support but is being slowed by petty politics. Enough. Much has been said about the DTC and even more about the Lokpal Bill. These should be passed, if for no other reason than getting the distraction out of the way.
Decide on the basics of land ownership and acquisition: The minister for rural development had introduced a Land Acquisition, Rehabilitation and Resettlement (LARR) Bill during the monsoon session of Parliament. Though land is a state subject, the acquisition and requisitioning of property is on the Concurrent List—hence the need for a law at the Centre. Land is becoming a constraining resource for almost any field of economic activity. A clear statement of land rights, transparent and clear title, reductions in restrictions on leasing and tenancy and comprehensive LARR are necessary conditions to implement the next generation of reforms.
Kick-start the power sector: India is at great risk of compounding its twin fiscal/current deficit with a debilitating power deficit. Land, fuel supply and tariff increases are the major impediments to power supply improvement. Fuel supply and tariffs can easily be handled under the existing legislative framework. Otherwise it is “lights out” on India’s development.
Reduce friction in the supply chain for grain and food products: There are five constituents directly affected by the proposal to allow foreign direct investment in the retail sector—farmers, intermediaries, transporters, small retailers and consumers. Farmers and consumers will benefit greatly. Transporters, small retailers and intermediaries will have to innovate and compete in a changed environment. The shrill public debate is short on logic and long on completely misguided politics (farmers and consumers are a much bigger “vote bank” than traders).
Establish strong credit infrastructure: The Raghuram Rajan committee report calls for the creation of a robust infrastructure for credit. This infrastructure should have clear information about borrowers, cheaper ways to pledge assets as collateral, be able to enforce penalties in case of default and renegotiate claims in an orderly way. Smooth flow of credit and working capital is essential for distributed growth in the economy.
Balance the revenue deficit: In a risk -averse world, India’s primary deficit (fiscal deficit excluding interest on debt) of approximately 2% of gross domestic product (GDP) is a dangerously shameful statistic. This deficit arises because of a small tax base, wasteful subsidies and new (and large) entitlement programmes. If this is not controlled and reversed, debt (as a percentage of GDP) will inexorably rise with very unpleasant consequences for large sections of society. India should complete the actions on eliminating the petroleum subsidy by applying it to diesel as well. It should begin the phased implementation of the removal of fertilizer and electricity subsidies. These are deemed to be politically difficult, but inflation and debt default are far worse. Without matching revenue sources, India cannot afford the food security Bill at this time. It should be shelved.
Felix sit annus novus!
PS: John Dryden’s epic poem Annus Mirabilis paradoxically describes London’s providential escape from the full impact of the Great Fire and Great Plague of 1665.
Narayan Ramachandran is an investor and entrepreneur based in Bangalore. He writes on the interaction between society, government and markets. Comments are welcome at email@example.com
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