Ignore Dalal Street, Keep the Focus on Main Street
By Shankkar Aiyar | Published: 06th July 2014 06:00 AM |
Dark humour often delivers defining eloquence. A question doing the rounds on the WhatsApp network among investment bankers will set you thinking. The question: If India can grow by 4.6 per cent without a government, how fast can it grow without an opposition? The more pertinent question to ask is how fast can the economy grow with a real government? Governments have often taken refuge in the ghettos of alibis, citing complexity and scale as excuses. India cannot escape from its scale or its complexity. The saga of the many deficits is less about money and more about the deficit in governance. India needs to recapitalise the economy to revitalise growth.
Set up Amul II: Food price inflation has fuelled the rise in overall inflation and the fall in GDP growth. India faced scarcity and price spikes in milk in the 60s and 70s till Amul came along. India needs to grow more, store longer and distribute better. India needs Amul II, a farm-to-fork distribution network. (I suggested this last year http://bit.ly/1pfJUiz). India’s cooperatives, with over 250 million members spread across the country, can do this. The government must set up a real-time information network and help cooperatives build and own the chain for procurement, storage and distribution.
Invest in Financial Inclusion: India cannot aspire to grow if barely four of ten Indians have a bank account. This is why India struggles to ramp up its savings rate, improve the GDP/tax ratio, expand savings in financial instruments and why so many Indians still invest in gold. The idea of brick-mortar banks has played out. India needs to adopt technology to expand inclusion–through NPR/Aadhar registrations, through mobiles and Post Office Banks. If it costs money to include the poor in the financial grid, the government must pay for it.
Transfer Subsidies by Cash: India spends close to `700 crore a day on subsidies based on policies with dubious promise and doubtful outcomes. This can only be curbed if the government invests in a system for direct transfer of subsidies–to students, households and farmers. There may be a case for caution in the case of food subsidies but, even there, the government can give people the choice of cash or kind.
Create the Offsets Corporation: India acquires arms and other equipment for defence worth billions of dollars, airlines buy dozens of aircraft, entrepreneurs purchase capital equipment. Depending on the nature of the contract/purchase India gets offsets–the right to supply components to the selling parties. Till date–since 2005–these opportunities lie wasted for want of a cogent policy. Government must set up an offsets corporation so these opportunities – from public and private sector acquisitions–can be aggregated and auctioned to Indian companies or to newly set up joint ventures with multinationals. India can earn dollars and, at the base minimum, create jobs.
Fund a National Power Discom: Depending on who is asked, the outstanding dues of state electricity boards range between Rs 2 lakh crore and `3 lakh crore. The causality we are told is located in imperfect pricing and leakage–which essentially means appropriation of private resources for political ends. Every few years, the government bails out SEBs just so that they can pay power producers. Till such time, distribution–and collection of charges–is with state government-run electricity boards, the episodes of bailouts will continue. India needs a national distribution company; it can bring scale into play for pricing while buying power from different sources and the law into play for collecting dues. If state governments want to buy votes, they must write out the cheques.
Invest in Open Apprentice University: Every year, 14 million Indians join the job market. That equals the 2.3-million-strong Chinese Army multiplied six times or 10 times the number of Indian Railways employees. A large number of them are smart, intelligent school dropouts. But the Indian job market is wedded to the ceremonial status of graduates. On the flip side, entrepreneurs in construction, logistics, aviation, manufacturing, mining and even accounting firms are starved for skilled staff. India needs an assembly line, an open apprentice university that can take people for 100-300 days and certify them as employable. These apprentices could be given a combination of theory and practice on premises–as is done in Europe and as used to be done at ordnance factories–so they are both certified and employable. The stipend could be funded by a kitty carved out of a combination of government allocation and CSR contribution. India must find a way to deploy, employ its demographic dividend before it turns into a disaster.
Link the Rivers: A drought or a failed monsoon cannot continue to haunt India like famines in the 19th century. Arguments in favour of linking rivers have been made for over three decades now. It is time to operationalise the idea. This will enable India to harness hydro-power potential. Creating links within basin areas and between smaller basins would be a good beginning. There is nothing like demonstration effect, whether it is economics or politics.
Create an India First Fund: Many initiatives will require upfront funding and given the state of finances that will be a challenge for this government. Create a National Revival Fund by disinvesting a basket of PSU shares into an exchange traded fund. Fund utilisation should be only for stated purposes–say funding a power discom or for skills development–and not for plugging the deficit in the budget. The template is already there: the cess on diesel to fund national highways and rural roads. The Modi Sarkar may not invest in the idea of privatisation but it must disinvest from the idea of government ownership and transfer public assets to the people of India–and fund the future.
Finally, this budget must articulate the real challenges and the opportunities embedded therein. Budgets are often judged on how Dalal Street reacts to the details–mostly measures in gooey sectors that benefit listed entities. Politicians are prone to flattery and governments are vulnerable to the politics of optics. Budget 2014 must detoxify the government from the addictive short-term of highs of Sensex, ignore Dalal Street and focus on the main street–the real economy. For Sensex and Dalal Street cannot afford to ignore the dividends of good governance.
(The writer has authored Accidental India: A History of the Nation’s Passage through Crisis and Change)