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Beej se lekar bazaar tak PDF Print E-mail
Wednesday, 16 August 2017 04:35
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PM Modi identifies the problem rightly, India needs more market reforms, and not just in agriculture sector

Farmers lose by no access to markets while loss-making PSUs are sheltered from discipline of markets. Just using markets instead of FCI would save R40,000cr a year …

Few can question the efficacy of the big initiatives made by the Narendra Modi government, whether it is the all-important macro stability that we have today or the impact of the 29.5 crore JanDhan accounts with Rs 66,000 crore in them, the Rs 75,000 crore distributed in FY17 by way of Direct Benefit Transfers or the impact of the Rs 12,800 crore spent in FY17 under the Swachh Bharat Abhiyan or the13.3 crore people who avail of low-cost accident/life insurance or the jump in the PM Fasal Bima Yojana cover from 3.3 crore farmers three years ago to 5.7 crore today. And the 2.7 crore rural women who have got first-time LPG connections would be welcoming this, not just for the subsidy, but for the liberation from the pollution of wood/coal stoves.

But despite the initiatives the prime minister spoke of at Red Fort on Tuesday, as the Economic Survey puts it, India will be hard put to cross a 7% growth this year. In the penultimate year before the general elections, that can’t be good news even if there is no viable alternative to the BJP on the horizon.

Apart from the visible impact of these social schemes, another Rs 96,000 crore has been approved under the housing-for-all scheme in the last three years—versus Rs 33,000 crore in 2004-14. More important, had it not been for the massive growth in government capex – in April-June this year, it doubled over the same period last year—GDP growth would have been much lower than it is right now. If the government has been able to do this while keeping deficits under check, it is because of a massive hike in the tax-to-GDP ratio, from 10.1% in FY14 to 11.1% in FY17—that is a combination of getting more people into the tax net (the PM spoke of `1.25 lakh crore of black money being caught in the last three years) and dramatically hiking taxes on petrol/diesel when global prices crashed; GST will help raise this further. Yet, GDP remains a problem and India Inc is in terrible shape as its poor investment growth and profits make clear.

There is no quick solution to India’s poor growth or lack-of-jobs problem, but there are several pieces of the puzzle that Modi is simply not addressing despite their powerful impact. Privatisation has been mostly symbolic with one PSU (generally LIC) buying shares of others to meet the disinvestment targets—while attention is focused on Air India, in FY16, there were 78 sick PSUs that made a loss of Rs 28,750 crore. While precious money is being wasted here, in the case of banks, starving them of capital has meant their market share is further collapsing. In the 12 months to December 2016, PSU banks accounted for just 8% of incremental lending but got 70% of incremental deposits—since stealth privatisation is happening anyway, why not privatise banks and issue bonds to give the required levels of capital to strengthen the rest? Right now, even the big PSU banks are too weak to do well.

Despite all Modi’s assurances, agriculture remains trapped in a boom-bust cycle with the government refusing to move from the old assured-subsidy-assured-procurement mindset that benefits just a small proportion of farmers. Beej se Bazaar Tak, as he said at Red Fort, is a great idea but there are few signs of this being implemented (goo.gl/18wnM2) and farmers access to lucrative markets is all but choked off. Retail FDI, as the PM said, is an antidote to the huge spoilage in fruits and vegetables, but the opening up has been tortured, slow and inadequate. Indeed, if the FCI process is wound up (goo.gl/S3s7tc), apart from benefiting farmers, the government would save Rs 40,000 crore per year even while continuing with the absurd policy of giving huge food subsidies to two-thirds of the population.

While Modi spoke of ease of doing business and how Mudra loans were helping SMEs, surely he cannot be oblivious to how this segment has, through poor policy, been denied access to lucrative markets and also been crippled at birth. Bad labour laws including deductions like those on compulsory provident funds has ensured, in the apparel sector, that 99% of all firms employ less than two persons—this ensures they fare poorly in export markets that are booming with China vacating this space (goo.gl/Cbs7YC). So, while poor policy has hobbled these firms, the tax arbitrage that was their only competitive advantage is being taken away by demonetisation and GST—in the short run, the damage can be considerable.

In sum, while Modi has talked of Beej se Bazaar Tak, this needs to be implemented across the board, not just in agriculture. By and large, however, this is not happening and more controls are coming in, whether on GM cotton seed pricing or natural gas pricing (this was removed after more than two years) and almost the entire local pharmaceuticals industry is subject to some form of price control—telecom, once a high-growth sector, is a good example of an industry being killed by a combination of market-pricing of spectrum with old-style licence fees. Indeed, with a uniform minimum wage proposed, even labour markets are being stifled. Surely, after 70 years, economic freedom is not too much to ask for, particularly when it is the key to most other freedoms

 

 

 

 

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