Modi 2.0 should do away with socialist policies, and shift focus from increasing tax rates to improving quality of expenditure
The historic mandate for the BJP government provides an opportunity to change the destiny of the nation. The political steps taken in Kashmir indicate a willingness to take courageous decisions which provide equality of opportunity for all.
Today, the world order is changing, with the US singularly focussed on their own economic agenda; The EU struggling with multiple challenges, including Brexit and the changing dynamics within member nations; and China increasingly asserting its economic might in the backdrop of slowing economic growth and changing demographic trends.
With a decisive majority, Modi 2.0 should attempt to debunk socialist policies, and create a focussed, competitive, inclusive and largely free market economy. India’s strengths originate from its domestic consumption and the power of local entrepreneurship. In the Indian context, there is an urgent need to dismantle 60 years of socialism and anti-business bias and function as a true free-market and enterprise-driven economy. The economy cannot be any further driven by government fiat, grossly inefficient public sector enterprises or government-focussed job creation and doles.
Job creation is the country’s biggest challenge. Eighty three per cent of India’s labourforce works in the unorganised sector. The lacklustre performance of Indian manufacturing has prevented the absorption of labourforce, especially for those displaced from agriculture. Today, the country needs a fundamental economic overhaul, not just a tinkering with the financial indicators, minor incentives or disbursement ease.
India has been a trusting society with entrepreneurial instincts for centuries. This is evident from the MSME sector, which contributes 31 per cent of the GDP, 45 per cent of exports, employs over 124 million people and creates nearly 1.3 million jobs every year. Entrepreneurial growth and development are not restricted to the urban sector only; of the 55.8 million MSMEs, 59 per cent are based in rural India.
India has over the centuries been a manufacturing and services outsourcing destination for leading economies. Post-independence, for 60 years we followed socialistic policies which did nothing but stifle innovation and honest enterprise in the guise of protecting the customer and workers from bad businesses. But as Margaret Thatcher famously said, “The problem with socialism is that you eventually run out of other people’s money”.
The government must urgently shift focus from increasing tax rates to improving the quality of expenditure. It needs to set hard limits on increases in revenue expenses and set targets for expense reduction. Each Ministry must be asked to reduce 10 per cent of the CTC of employees, with a part of that paid as performance incentives. The exemplary work done on DBT and the technology stack now allows for each rupee of government spending to be carefully scrutinised. This must be used to eliminate decades of wastage in public spending. Extensive unutilised government and defence land holdings can be monetised, by rental/leasing income to fund development projects.
Change in strategy
Growth in India has lately been dependent on capital inflows from international investors – direct or indirect – while Indian savings remain locked up on account of predatory taxes. We need to strongly incentivise domestic capital to activate and flow into economic activity, instead of remaining dormant in assets like gold and real estate. Strong investment-led incentives, along with the abolition of long-term capital gains tax will enable domestic capital to flow into sectors which create employment. This will also allow corporates which have unutilised land and buildings at low book values to monetise them at market value.
A majority of the laws of the past 60 years only helped to make it more difficult for honest businesses to focus on creating products and services, while creating ample avenues for those who wanted to game the system. In fact, our large economy has failed to create a single aspirational brand for global consumers. The government needs to dismantle the stifling array of outdated laws which do not scare the guilty, but certainly terrorise the innocent. US President Donald Trump signed an executive order forcing US federal agencies to dump two new laws for every new one they propose. Time we do the same in India, with five laws or statutes dropped for a new one.
Economic policies should encourage growth in domestic consumption and support local industry and capital, while businesses achieve world-class quality and reliability with ethical conduct. Establishing trust between the government and business is needed. We need to bring together the government, financial institutions and entrepreneurs to create industries which create jobs. Capital, labour and raw material are critical for Indian industry to become globally competitive. Time we do an Article 370-type of abolition for stifling regulations to create a level playing field, where meritocracy and job creation is rewarded and recognised, and ethical profit not a sin.