A few days ago, the department of industrial policy and promotion notified the start-up policy in the gazette, following up on its announcement in mid-January. An inter-ministerial board of certification would declare a start-up to be an innovative start-up so that it could avail of the tax benefits under the policy. To be fair, this was not new. This was already flagged in mid-January. Jerry Rao, in a thought-provoking article in Swarajya, had noted correctly that committees and start-ups do not go together. The gazette notification offered an interesting contrast. On the one hand, applicants could use a mobile app/online portal to upload their application with any one of the prescribed six documents. Yet, an inter-ministerial board would have to approve it. This could be a bureaucratic compromise. Therein lies a vital clue to India’s achievement to aspiration ratio being less than one.

The approval process reflects many things. One, it reflects a trust deficit that is an endemic feature of Indian society. Indeed, this government has gone further than most in providing for self-attestation and self-certification in many areas. These are not merely about easing business conditions and interaction with government. This is more than that. It is about bridging the large and persistent trust deficit in the country. Without that, procedures and oversight would dominate much of the economic activity. Opportunity cost of lost economic growth is immense. It adds up over time. In his recent Pataudi Memorial Lecture, Rahul Dravid spoke about India’s pursuit of short-term goals achieved through shortcuts. Part of the problem of non-performing assets in the Indian banking system is the betrayal of trust by borrowers-promoters. That is why the government should persist with its carrot approach to building trust by broadening the areas of self-certification and self-attestation in the society, but carry a big stick. Importantly, with such a trusting policy, it should not be afraid to wield the stick, without fear or favour. That would lend credibility and meaning to its initiatives.

Second, it also reflects a fear of being accused by overzealous watchdog bodies—the office of the comptroller and auditor general or the courts—of corruption and favouritism down the road. Some of these agencies compete with networks for TRPs (television rating points) with their theatrical and rhetorical questions. They need to reflect and urgently too.

Third, it reflects a continuing mindset that the goal of the regulatory regime is to ensure zero frauds. In the pursuit of the last scoundrel, the government makes life difficult for a substantial majority that operates honestly. Objectives of control and submission were logical for a colonial regime. Indians developed a taste for it and have never let go of it, since then. Even in the era of economic liberalization, it never retreated fully. The interesting paradox is that the start-up policy has allowed for self-certification on compliance with labour and environmental laws, with random checks to discourage fraud and abuse. A similar approach could have been adopted here.

Of course, no policy needs to be adopted forever. It can be relaxed further or tightened depending on experience. That requires the recognition of the need for and collection of relevant data from policy inception and setting an example of conducting policy debates and evaluation with data than with rhetoric.

That brings us to our second example that captures the data deficit issue: the news that the commerce ministry would like all tax concessions for special economic zones (SEZs) to remain, for their removal would hurt exports and employment generation. A quick Internet search reveals that this has been a refrain with the commerce ministry.

While it may not be reasonable, it may be natural for the ministry to bat for its policies. But, in showing how to bat for them, it could set an example. It should make a case for its demand through reliable data backed up by meaningful and rigorous analysis. I searched for such an analytical and data-driven case by the ministry. It was in vain. Press notes and some academic papers did not do the job. A statement made in Parliament on 9 December 2013 showed that the share of SEZs in overall exports had remained unchanged at around 27% for around four years. A case for continuing with the favourable tax treatment for SEZs has to be made by demonstrating incremental productivity, value-addition, export and employment gains from units located within SEZs. More importantly, the ministry had to satisfy itself and the country that SEZs did not merely displace but added to export capacity that would not have come into existence otherwise.

Lastly, the ministry should be aware that its demand reflects a silo mentality and undermines a collective policy initiative. The finance minister told us at the time of the last budget that the budgets in the coming years would focus on lowering the corporate tax rate and removing ad-hoc exemptions. That was a sound decision. There is a role here for the prime minister to ensure that the government is an ensemble and not a motley collection of solos in silos. Such process improvements in government are, arguably, more important than the wish-lists that circulate in the public domain.

V. Anantha Nageswaran is an independent financial markets consultant based in Singapore.

Comments are welcome at baretalk@livemint.com. To read V. Anantha Nageswaran’s previous columns, go to www.livemint.com/baretalk

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