Taking India Forward in 2013

Economic Times, December 31, 2012

By Pradeep S Mehta

Government must implement National Competition Policy, push reforms like GST to spur growth

This month we saw some sanity revert in our law making process when law makers passed laws and pushed the reforms agenda. Thanks to the adroit handling of cantankerous issues and dissonance by the new parliamentary affairs minister Kamal Nath. Whether, we agree with everything that the government has done well or not, we look forward to a resolute and smart government to take the growth agenda forward in 2013 as well.

One of the ratchetting measures for growth that the government has laid stress on is to arrest the slowdown and raise the contribution of manufacturing in GDP from the existing 15.5 % to 25 % by 2025. This is not to ignore the role of services or the farm sector, but we know that factories will help create more jobs.

Among other things, the National Manufacturing Plan has addressed the economic governance agenda in many ways that will also benefit the services sector. Without underplaying a host of equally important financial, administrative and political issues, we need to improve the ‘doing business in India’ benchmarks and curb rent seeking.

Looking at a non-exhaustive list, the first priority should be to put in motion the National Competition Policy (NCP) in its full splendour. This could well become the second biggest wave of economic reforms. It has been designed to curb market distortions and improve governance such as facilitating business, curbing corruption, improving consumer welfare and so on. Its implementation will be tough and needs political will.

One important measure in the NCP is to build an integrated and seamless national market, that on its own can add at least 2% to the country’s growth. This will require the implementation of Article 307 of the Constitution that calls for an Inter-State Trade and Commerce Commission. Alas, the same has not happened since the time we adopted the Constitution. However, an important game changer is the goods and services tax that needs to be adopted quickly.

Secondly, to address the infrastructure sector architecture by enabling healthy regulatory frameworks that could offer a predictable legal environment for businesses and consumers. We are looking at an investment of $1.00 trillion over the 12th plan to achieve goals in sectors such as power, roads, ports etc. This would require the enactment of infrastructure Regulatory Reform Bill that Prime Minister Manmohan Singh spoke about in his 2010 Independence Day address. But, turf issues have marred progress.

Thirdly, red tape must be cut. For that, we need to institutionalise regulatory impact assessments. Byzantine and archaic rules and practices cost huge amounts to set up and run a business. Again, the reform needs political will. The proposal is to reform the overall regulatory architecture and allow true independence in regulation with direct accountability to the parliament.

Independence and effective implementation can only happen if institutions are run professionally, a promise made in the 2004 UPA’s Common Minimum Programme. Alas, most of the appointments are held by manipulative, malleable and egotistical retired bureaucrats, and the results are evident in how many of our actions have been counter productive. The latest one is the failure of the 2G auctions.

Indeed, there are exceptions, especially where the body is independent. For example, to make a case for independent regulators, the Election Commission launched long lasting electoral reforms under T N Seshan’s stewardship, or the CAG that under Vinod Rai has shaken up the governance system.

Fourthly, implementing the recommendations of the Ashok Chawla Committee on Natural Resources that does not seem to be moving forward due to vested interests. It has also called for better regulatory architecture, suggesting an arms-length relationship between regulators and line ministries. The committee was set up to address the exponential corruption that the government claims to be its priority, but action is lacking. It has made sound recommendations to reform the ‘resource raj’ that will curb crony capitalism and promote economic democracy. As a starter, the report should be made public and debated in order to gain some traction. Only then can we hope to achieve higher growth than what pundits are predicting.

Fifthly, many of these steps can be successful only if states are brought on board. Because, reforms will need to be done in our states, not just in Delhi. In 2002, the then PM, Atal Behari Vajpayee had proposed that states should talk to each other and learn from good practices that also needs to be institutionalised. However, the Inter State Council headed by a union minister, which is dysfunctional, does not have the framework to promote this type of exchange among states.

In conclusion, considering the nature of our fractious polity, the central government will need to become a true union government. The writing is on the wall, and unless we accept these changes, we will continue to meander along, And that will not be good for the country. Let me end with good wishes for an exciting new year. Things could have been worse! .

The author is Secretary General of CUTS International.

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