Much happened over the past two weeks: key glimpses of current economic thought (the finance minister’s Budget speech, minister of state Jayant Sinha’s interactions at Ficci, the prime minister’s statement in Parliament), commotion over EPF, the NPA debate, Parliament able to get work done, and some welcome policy steps.
Rather than enter into meaningless debates on possible pro-poor or anti-rich shifts which assume a needless political colour, I view the Budget in its entirety as “doing the right thing”. In economic terms it stays on the course of a development-driven-employment agenda.
Roads or railways are core infrastructure not just for economic but also social development. In a period of investment famine, no one can argue that enhanced spending on creating opportunities for employment and incomes at base levels is not the best idea.
So I have reason to hope the Government will soon have the conviction and political courage to hold that all incomes above ₹15 lakh classifies the earner as well-to-do and therefore capable of bearing taxation. I have always held that — both from a point of equity and promoting financial hygiene — leaving large swathes of population legally out of the tax net is not reasonable. All incomes above a level must be taxed irrespective of source. What is sauce for the goose must be sauce for the gander.
It is just a few days since chess champion Garry Kasparov spoke in reference to the problems in more developed jurisdictions (including shift of wealth from labour to capital) and their proposed solutions. He adds, “a society relying too much on redistributing wealth eventually runs out of wealth to redistribute”.
It is a daily occurrence that no one fully agrees to the solutions that India needs. Everyone agrees that the Government must change its ways — just that some want it to do more and some want it to do less. Traditional templates show we are on the upward incline, yet daily discourses show that people are upset about the present and circumspect about the future.
Implementation issues The PM’s vote of thanks to the President’s address gave us insights into his vision and approach to governance and development agendas. It reinforced what I have believed for a long time that, while he has given us grand visions and big concepts for India, he is also a man of great detail and strength of implementation. He has not moved from his core developmental agenda. What does this hold out for businesses and investors?
Contrary to regular calls for transformational reform, I think many of us understand that the real benefits to the nation will come from robust implementation of plans and enhanced mutual trust between government and business, even if much of this is at a incremental pace. This ties in neatly to the enhanced governance standards the PM spoke of — transparency, accountability, decentralisation and efficient delivery.
The key drivers to fresh private investments will be revival of demand (which the Budget should achieve in some measure) and the emergence of a much more conducive atmosphere in terms of governmental permissions and interactions, with a fair regulatory environment where laws and their implementation are precise.
Drafting of laws A significant issue that has emerged in recent law making is the gap between intent articulated at the highest levels and the actual drafting of the statute. Rather than make conduct of business easier this creates uncertainties. The quality of writing laws needs significant overhaul.
Another point worth critical examination is the physical capacity of both judicial and regulatory enforcement systems. Speedier delivery of judgments even in complex commercial litigation is a pre-requisite for contract enforcement. We need to rapidly create substantial and effective (i.e. expert) capacity for alternate dispute resolution as well as for National Company Law Tribunals. There will almost certainly be a shortage of adequately trained insolvency practitioners once the insolvency code is brought into effect. Fresh investment will need large resources from the financial sector. The health of banks is being repeatedly brought into question due to NPAs devolving (even if largely due to legacy) and the insufficient capitalisation plans. It is clear banks need much more and if these are provided from the government kitty, some other area will suffer.
So, a hard look is called for in terms of creating a roadmap to restructure banks via government strategic control with larger public ownership. A lot will depend on how professionally existing NPAs are tackled. The government has correctly articulated a stern policy but a high decibel public discourse may well distort outcomes. The point I wish to make is that knee-jerk and emotive reactions (as we have seen in the policy and decision making space) tend to queer the pitch for posterity.
Resource availability may not be a material issue going forward; but just now the same cannot be said about the terms and covenants at which they will be available. It will be a strange dilemma when investment conditions turn better and the spirit rekindles, yet real investment gets hampered due to financial non-closure.
The government is trying to resolve statutes to prevent punishment for decisions taken in good faith. The need of the hour is to make sure that decisions in the financial sector are similarly safeguarded at both lender and borrower ends. In sum, my understanding of the present mix of sentiments is exactly as minister Sinha hinted: we are probably over-estimating the short term but certainly under-estimating the long term.
The writer is an entrepreneur and former president of Ficci. The views are personal