An economy that needs to break free

Questions about the economy do not change. Only the answers keep changing. The competitive landscape in the recent past has swiftly moved in favour of the US.

Today, Brazil is more expensive centre of production than the US. According to the Boston Consulting Group, there is only a five per cent difference in cost competitiveness between China and the US today.

If inflation continues to grow at the same pace with the consequent increase in input costs and several cascading taxes which are not set off, India could easily lose its competitive cost edge as well as its ability to attract FDI. In fact, some multinationals have already started leaving the country.

Infrastructure investments are becoming unglamorous and falling out of favour with banks. If you had walked on the streets of New York recently, visited LaGuardia Airport or travelled during peak hours in the London tube, you would have had first-hand knowledge of the world’s infrastructure deficit.

According to a World Economic Forum report, the gap in basic infrastructure spending, namely transport, power, water and communication, is almost $1trillion — half of India’s GDP.

With the contraction of quantitative easing by the US, a struggling Euro Zone and increased Basel III requirements, money is going to flow only where it finds its optimal return.

With our worsening NPAs, declining savings rate, and an increase in government borrowings which takes away half our incremental savings every year, the new government has little room for manoeuvre. We need FDI to grow, particularly in infrastructure.

In these circumstances what should be the priority of the new government?

Establish a national infrastructure delivery unit This could serve as a permanent form of support to the existing Cabinet Committee on Investment. This office should co-ordinate with various arms of the Government, monitor schedules and facilitate timely implementation. The Government needs to move towards digitised sourcing for vendor selection and performance to increase transparency and reduce subjectivity.

We need to reinforce property rights, primarily by demarcating land holding through geospatial surveys and providing standardised title to land owners by leveraging technology. The recently passed Land Acquisition and Resettlement Act, 2013 has made the process of land acquisition more difficult, time-consuming and expensive. It needs to be revisited.

Instead of the present practice of requiring developers to purchase land, the Government, after obtaining all the relevant approvals, can procure and sell the land to developers who could be made responsible to build the required infrastructure.

Remove tax and product market distortions The sheer multiplicity of taxes and their considerable differences across states and sectors results in huge compliance cost and fragments the national market into smaller markets. This prevents business from achieving economies of scale. We have been speaking about the harmonised consumption tax across all goods and services, namely GST, which would be a huge step towards bringing in a level playing field, reducing complexity and increasing revenue.

Build skills Ensuring a well-trained workforce is an acute challenge in our country. Since most of our businesses are small and fragmented, they are not in a position to provide training opportunities. Initiatives such as the National Skill Development Council have been around developing models for workers in urban areas. To make economic growth inclusive we need to provide vocational education to those who live in rural areas.

While a few organisations are beginning to cater to this segment, the scope is enormous. IL&FS Skills, a public-private partnership, has done commendable work in this regard in training rural youth in the electrical, leather, welding, construction and other such sectors. It also trains high school graduates to work in retail. Its deliverable model emphasises low cost operations and interactive learning.

Decentralised working The sheer size of the country and its diversity heighten the challenges of governance. We need to devolve powers to gram panchayats as well as involve community participation, especially from women. Serious efforts need to be made to strengthen the financial autonomy of local governments.

Easing the path for start-ups and reducing the burden of inspections are crucial areas in administrative reform. We need to create a one-stop shop to consolidate virtually all the approvals required and ensure that all the relevant agencies are housed in a single office. Smaller countries including Colombia and Latvia have achieved significant improvement in this regard. These countries have also standardised the inspection process and procedures and created greater transparency. Free trade agreements should ensure a level playing field for domestic industry. Reviving investment in the manufacturing sector is extremely critical for growth and job creation. A technology fund may be created to support MSMEs particularly for the growth of exports.

We need to make social spending more effective by selecting the right delivery model. Some countries including Brazil and Mexico have successfully adopted conditional cash transfer programmes by linking education subsidy to the child attending school for a minimum number of days. We should also use digital learning tools that would improve the quality of education. The content has to be user-friendly to allow students to follow the lesson/lecture at their own pace at home.

We spend 0.6 per cent of the planned Budget on digital technology. We need to scale up investment in digital technology to speed up public transactions and service delivery. The national broadband network too needs to be scaled up.

Every good company knows that a customer-centric focus enables them to enhance the value for all its stakeholders. Every good government knows that credible policies with accountability and governance enable the country and the people to prosper. The key is effective implementation and execution.

The writer is the president and group CFO of Tractors and Farm Equipment Limited

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