|A to Z of India's reforms agenda|
|Tuesday, 26 June 2012 00:09|
Aviation FDI, Bonds of RIB kind, Cairn's expansion approval, DMICDC clearance, there's an easy shortlist
Fixing collapse in public sector savings as this led to growth crisis, so need oil price hikes. Reforms like aviation FDI, putting DMICDC on fast track and Vodafone on slow track need less political will but can boost investor morale
A for aviation reforms; allowing airlines to invest in India’s aviation sector won’t get too many buyers right now but will signal a reforms agenda—and the good thing is that not too many political parties, barring Mamata’s, will object.
B for bonds, of the Resurgent India Bond (RIB) kind, that are needed to shore up forex reserves. Get SBI to raise $15-20 billion immediately. Monday’s measures add at best $15 billion to inflows—“risk off” lowers crude prices but also lowers FII and other hot money inflows, thereby reducing India’s ability to finance even a reduced current account deficit of $65-70 billion in FY13. Keep in mind Citibank says ratio of India’s forex reserves to its external financing needs is already down to 1.5, from 3 in 2007. Zero opposition.
C for Cairn, the oil major continues to wait for government permission to allow it to develop fields that could get another 65,000 bpd of oil. Means $15 billion more revenues for Rajasthan, Centre and ONGC (http://goo.gl/ K0WXw), but government yet to approve it. Zero opposition.
D for DMICDC; the Delhi Mumbai Industrial Corridor Development Corporation plans to build 24 ‘smart’ industrial cities over 5,500 sq km but remains stuck in paperwork. Government took forever to remove IL&FS, then finance ministry sat on clearance to sell equity to Japanese government arms. Still needs Cabinet approval. Zero opposition.
E for EPFO and the reforms needed to allow 45 crore Indians to get a good return on their life savings. EPFO already has a R50,000 crore hole while providing pension cover to just 3-4% of workforce; Left stalled pension reforms but government cleared the New Pension Scheme many years ago—why not allow people held captive by EPFO to opt for NPS if they like? Will need political will, but can be handled well since NPS already exists, so simple to allow migration.
F for food subsidy reforms. Need to move to cash transfers through Aadhar to replace the creaking PDS system which eats up R75,000 crore a year and doesn’t deliver more than a fifth of this to the poor. Won’t be opposed if done in select constituencies to begin with—Budget promised to start Aadhar-based subsidy payments in 50 districts!
G for GST, which has seen progress, more so with some states willing to put even petroleum products in the list. Requires constant pushing, convincing the states the Centre will play fair, perhaps agreeing to limited compensation if it doesn’t deliver in the initial years.
H for hidden subsidies that the FM doesn’t account for in the budget, like the 1.5-2% of GDP which oil PSUs pay for, but are eventually paid for by taxpayer as oil PSU share prices tank. Huge opposition.
I for the investment versus subsidies tradeoff that continues to plague agriculture—with government subsidies nearly four times its investment, government investment in agriculture has been falling steadily. Not talking of freeing up agricultural markets here, as that is vital, but a state subject.
J for Joint Entrance Examinations. Given the mess in the education system and the near-complete lack of learning at the school level, removing what government thinks is elite bias of IITs can wait. Only requires convincing UPA.
K for kerosene subsidies that eat up R27,000 crore and don’t reach the intended beneficiaries. Kirit Parikh, in 2010, showed government could hike prices by R6 per litre and leave consumers unaffected in relative terms, due to the hike in per capita incomes. But forget that, let’s work on Aadhar transfers increasing.
L for land acquisition that is India Inc’s single-biggest worry. The Land Acquisition Bill proposed by Standing Committee won’t help, so political capital needs to be expended to fix this.
M for mining reforms. While the law already allows auction of mines for captive users—not paying attention to the law is what led to the CAG’s R10.7 lakh crore loss report. But, more than that, allow commercial mining by changing law, ensures India not held ransom to Coal India’s inefficiency. Requires less political will than imagined.
N for restructuring NELP to take a flat royalty from revenues instead of linking it, as now, to investment levels—right now, whatever the oil company spends is deducted from the oil revenues first, and government gets a profit-share after this. A full column on this later, but once there’s a royalty-share, only top line of oil companies matters, and government no longer needs to look at whether they’re padding costs. Bye bye to RIL KGD6 type reports by CAG! Ever wondered why CAG doesn’t talk of Bharti or Vodafone’s ‘cost padding’? Because it doesn’t matter if they’re buying equipment at higher prices. Zero political cost.
O for open access; though the law provides for this, electricity regulators never enforced this move which is vital to bring in more competition in the sector. Zero political cost.
P for public sector savings which collapsed from 5% of GDP in FY08 to 1.7% in FY11, and are mainly responsible for India’s savings rate fall and, therefore, the lowered investment rates. Means hiking diesel prices, for instance, to reduce public sector losses. Need to move, though cautiously.
Q for Qualcomm where it took nearly 1.5 years to give it a licence it won in a government bid and then government penalised it again by reducing this from the licence’s life. Qualcomm is synonymous with the government’s anti-industry stance. Zero political cost.
R for regulators, not FDI in retail which is needed but given the wide opposition, may not be worth the immediate effort. Regulators, as in the power sector, don’t even hike tariffs regularly, leading to accumulated power losses spiralling to R2 lakh crore. States will oppose this.
S for spectrum which threatens to derail a well-functioning sector. Need to get a new head for the EGoM on this. Zero political cost.
T for taxman who has got way too aggressive, and we’re not even talking of just Vodafone, but even income tax disputes have doubled to R4.37 lakh crore in the one year till December 2011. Zero political cost.
U for UTI which may now finally get a chance to appoint a new head without the finance ministry breathing down its neck to get its favoured bureaucrat the job. Zero political cost.
V for Vodafone and the regressive retrospective tax amendment which showed the government’s contempt for not just industry, but even the Supreme Court as it followed the SC ruling in Vodafone’s favour. Zero political cost.
W for world growth being very low, so don’t expect large forex flows or even high exports to bail us out.
X for exiting some areas like aviation and telecom where private firms are doing a much better job than government ones—will also fetch some good money. Unions will oppose.
Y for the inviolable identity Y=C+I+G+X-M which means GDP can’t grow unless government reduces deficits and does something to stimulate private investments. Neither G nor X offers much scope for growth.
Z for zzzz … if the government moves quickly in some areas—A, B, C, D, E, G, Q, to name some—it can go back to sleep.