Placing three big reforms on new govt’s table

Here are three crucial 'pro-poor' reforms that need the attention of Modi 3.0 to further transform India.
BJP President Jagat Prakash Nadda welcomes Prime Minister Narendra Modi during the NDA parliamentary party meeting at Samvidhan Sadan.
BJP President Jagat Prakash Nadda welcomes Prime Minister Narendra Modi during the NDA parliamentary party meeting at Samvidhan Sadan.Photo | PTI

While political analysts are frothing at the mouth trying to decode the unexpected verdict of the Lok Sabha elections that’s a tight slap for the BJP, economic and business analysts are spending sleepless nights worrying about the future of “reforms”. The problem is, what reforms are we talking and worrying about? It depends on what your income and educational status is. A poorly-educated-yet-rich trader will be more worried about reforms in an extortionate local machinery. An educated-and-rich corporate professional will be worried about taxes. A poorly educated and poor Indian will wonder what the fuss is all about.

Yet, beyond the rhetoric and polemics, economic reforms matter. It is the much-maligned economic reforms since 1991 that have lifted more than 500 million Indians out of degrading poverty under regimes of various hues. But the task and the process, as almost all sensible economists agree, is far from over. Forget the coalition jostling. The more important question is: what are the most important reforms that need the attention of Modi 3.0? I want to highlight three ‘pro-poor’ reforms that could further transform India.

One of the biggest failures of Modi 2.0 was its dismal letdown in effectively communicating how farm reform laws would actually help the poor. It first rammed down the farm laws and then abjectly surrendered to street power. I am still convinced the farm laws would immensely benefit small farmers and landless labourers. The fact is that more than 85 percent of farmers in India own less than two hectares. Contract farming, freedom to sell anywhere in the world via digital platforms instead of being hostage to mandi middlemen and pooling land to form cooperatives (it has been a huge success in pockets where attempted, à la Amul) may not help rich farmers. But they will be a boon for farmers who are described as marginal.

More important, contract farming et al will incentivise large private investors with deep pockets to set up massive cold storage facilities across India that will provide hundreds of thousands of jobs, if not millions. Of course, cold storage investors will make tonnes of money. But so will marginal farmers and landless labourers, who will get jobs they cannot dream of even now. Barely a quarter of the fruits and vegetables produced are processed now. Imagine the spectacular impact on rural incomes when three-fourths are stored and processed. As for the fear that the likes of Adanis will grab the land of poor farmers, it is just hogwash.

Even with this, too many will still depend on agriculture and allied activities for a livelihood (about 50 percent do now). The only solution is for tens of millions of them to move to other sources of livelihood. The only available option is large-scale factories. The solution is in even more emphasis on schemes like production-linked incentive (PLI) that encourage domestic manufacturing. A lot of economists argue that PLI is not just a waste of money, but also fails to create a genuine value-added manufacturing ecosystem. That’s a flawed argument at best, if not inspired by Modi Derangement Syndrome. Every country in East and Southeast Asia has created successful manufacturing ecosystems by ruthlessly implementing schemes like PLI that effectively provided massive subsidies to domestic entrepreneurs. You can call it crony capitalism. But fewer citizens in these countries are poor since such schemes kicked in. It is only massive factories that will enable citizens dependent on agriculture to permanently escape the low-productivity-low-income trap.

That brings us to the third critical reform: labour laws. Somehow, many Indians reflexively oppose labour law reforms as being anti-labour and a licence to industrialists to exploit workers even more. Once again, that is hogwash. About 90 percent of workers are in the unorganised sector, and they are being ruthlessly exploited anyway. Labour law reforms can do two things. First, they will enable workers to work longer hours and earn more. Second, massive factories will come up only when entrepreneurs have the flexibility to hire based on orders and not be stuck with so-called ‘permanent’ employees.

I wrote in this paper about the DMK-led government in Tamil Nadu tweaking the law to enable 12-hour work shifts. Workers welcomed this move. But so fierce was the opposition from ‘pro-worker’ vested interests that the move was abandoned. Massive manufacturing investments will come only when both PLI-like schemes and labour reforms are brought in. Sure, it will enable tycoons to earn billions. But it will also ensure tens of millions of workers to see their family incomes skyrocket. We can argue about income and wealth inequality. But I am convinced the worker whose income goes up from Rs 10,000 a month to Rs 30,000 doesn’t give a damn about inequality.

Can a weakened coalition deliver reforms? One example from the Vajpayee era shows it is possible. The most transformational reform measure of the coalition Vajpayee regime was dropping fixed annual licence fees for mobile telephone operators and moving to a revenue-sharing model. In just about six years, the number of mobile phone subscribers zoomed from about 2 million to more than 100 million. Today, the more-than-a-billion active mobile phone subscriptions are the backbone of the JAM revolution. Back then, the regime was slammed for crony capitalism. If that was crony capitalism, let’s have more of it in Modi 3.0.

(Views are personal)

Sutanu Guru

Journalist and author; Executive Director, C Voter Foundation

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