Small, but regular, reforms are what India needs
Finance minister Arun Jaitley is right in calling the desire for “big-bang reforms” a “column writer’s favourite”, in an interview to Business Standard. While big-bang reforms sound good, more can be achieved with smaller but regular reforms. Announcing the privatisation of an Air India or a BSNL would certainly qualify as a big-bang reform, but how many takers will there be for the large employee base both PSUs have? Selling a stake in PSUs banks, similarly, makes for good optics but little else given the poor value they will fetch—full-scale privatisation of several banks is a good idea, but cannot be done without getting Parliament’s approval and so is ruled out. In such a situation, plucking the low-hanging fruit is critical. The government lost two years in the oil and gas sector by not clearing stuck projects such as Cairn’s application for extending its oil mining lease in Rajasthan’s Barmer and in not freeing up prices of natural gas. In the case of telecom, another area where investors were lining up two years ago, the government needlessly got embroiled in the call-drop matter instead of focusing on getting more spectrum for telcos—in both cases, the government appears to have learned its lessons and is working on fixing the investment environment.
On subsidies, similarly, trying to limit the subsidised foodgrain entitlement under the Food Security Act (FSA) is impossible given Parliament passed it, but it would be wise to take the opportunity provided—FSA allows a review after 3 years—and raise the issue prices moderately. Focussing on getting the Aadhaar Act through and on eliminating the 40-50% leakage levels through Aadhaar-seeding, as the government is doing, is the way to go, though it needs considerable speeding up. Also, if the government wants to move foodgrains cultivation to eastern India, the only way to do this is to offer cash support to farmers and that can only be got by disbanding the hugely inefficient FCI—that, however, is rarely considered big-bang. LPG and kerosene subsidies are under control thanks to low oil prices but, were their subsidy to be cut gradually as the UPA did with diesel, this would qualify as a big reform albeit in baby steps. Indeed, funding the NDA’s crop- and other insurance-schemes—all of which add up to a big bang for both the poor and rural India—also need subsidies to be rationalised. If there is a criticism here, it is that the government didn’t get BJP states like Maharashtra to repeal the APMC Act or Punjab and Haryana to repeal their mandi taxes—all are small-bang reforms which would enable big farm reforms.
Ironically, the one big bang the government tried, to amend the UPA’s disastrous land acquisition law, backfired and gave wind to the suit-boot-ki-sarkaar tag which, primarily, ensured the government couldn’t move on the retrospective tax cases such as Vodafone and Cairn. Indeed, tax changes such as removing the tax on FIIs had a larger financial impact—or not appealing the Shell tax judgment—got through because they were low-profile. Reducing small savings rates by linking them to GSecs is also a big reform but was seen as low-profile and so escaped attention. Flying under the radar is always a good thing provided you don’t fly so low, you ground the plane.