Event Reports

Space to create efficient entrepreneurs shrinking in India, feels P. Chidambaram

In delivering the inaugral address Chidambaram said space to create efficient entrepreneurs is shrinking in India

Economic Reforms,Entrepreneurs,Tax
Economic Reforms,Entrepreneurs,Tax
Economic Reforms,Entrepreneurs,Tax
Economic Reforms,Entrepreneurs,Tax
Economic Reforms,Entrepreneurs,Tax
Economic Reforms,Entrepreneurs,Tax
Economic Reforms,Entrepreneurs,Tax
Photolabs@ORF
2016
Nov
15

25 years of India’s liberalisation

Calling business establishments like Infosys, GMR, GVK, Wipro etc. as “children of 1991 reforms”, former Union Minister and Congress’s Member of Parliament P. Chidambaram said now the space to create efficient entrepreneurs is shrinking in India. He said that to remain at the edge of change, India must create opportunities for entrepreneurs to start brand new businesses from scratch.

Chidambaram was delivering the inaugural address at the conference on the occasion of 25 years of economic reforms in India: retrospect and prospects in Kolkata, organised by Observer Research Foundation, Kolkata, in collaboration with the Indian Institute of Management Calcutta on October 24 and 25. The conference brought together the thinkers of the past and present from various wakes of the economy, society, and polity with the idea of deliberating on various issues concerning: Challenges in Policy Making: Public Finance and Regulation; Opportunities and Challenges of Globalization: Digital India, International Trade and Economic Liberalization; Energy, Environment and Climate Change; Land and Agriculture, and Agenda for Economic Reforms 2.0: The Emerging Voices Forum.

Chidambaram, a former Minister of Finance, said “Twenty five years is not a long time in the life of a nation”. India has had other memorable periods of twenty five years; the period from 1919 to 1944; the Nehruvian era between 1947 to 1964, but in all of India’s history the twenty five years that have dramatically changed the face of India and altered the course of India’s history was a period 1991 to today. Citing examples from real life conditions 25 years ago, Chidambaram explained how the face of India has transformed over this period. For instance, India produced 263 million tonnes of food grains in 2014, which has further improved since then, and exported wheat, rice, cotton of which wheat, while not long ago, wheat was imported under PL-480 leading to a charming phrase that “India lived from ship to mouth”. India’s installed power capacity which was 2,34,600 MW around 2014 has also improved since then.

Chidambaram focused on India’s agenda for what it should attempt to achieve in the next twenty five years. Defining the scope of his agenda, which would have some red and green lines, Chidambaram desired to focus on getting closer to green lines and never crossing the red lines. Acknowledging that there are many red lines, a few red lines according to him would be: (i) India must achieve the target of fiscal deficit of 3 percent of GDP at least by 2017-18 and must always remain below that level. In this context, flexible fiscal target is a worrisome proposition, (ii) with the current account deficit to continue for some more years, Chidambaram suggested foreign investments (either FDI, FII, FPI or ECP) should be allowed for financing the deficit, and (iii) in a developing economy, aiming high growth, moderate inflation is inevitable. Hence, the monetary authority (particularly RBI) must strive to strike a balance between price stability and growth by formulating monetary policy. The final red line would be to be cautious of the civil service, which has indeed been a strong pillar of India’s governmental sector, but the rules and regulations, drafted by the civil service, must not stifle enterprise, initiative and growth. “Every law must have a sunset clause and must be mandatorily reviewed once in 5 or 10 years and laws which have survived for almost twenty years or so must be mandatorily replaced by laws written by new parliament or a new legislature” Chidambaram added.

The green lines (lines that India must actively pursue) represent targets India should aim to achieve: (i) restore the primacy of tax revenues; reliance on non-tax revenues, borrowings, aids, grants, must reduce. Taxation is a part of governance with many objectives and must restore the importance of tax revenues. They are needed to finance public infrastructure, education and health. Because India does not have adequate tax revenues, the public sector space in education and health is shrinking with severe consequences for the poor. They are being “priced out”.

Chidambaram felt that the society was moving away from the egalitarian system to a nation where basic health care and education is priced at a level beyond the capacity of the poor. The same applies to infrastructure as well as defence, law and order and justice delivery system in India. State has to play an important role and the primacy of tax revenues has to be restored. He urged that more and more people should come forward to pay taxes.

The second green line India must vigorously pursue is to create space and opportunities for new generation of private sector entrepreneurs.

Third green line which India must pursue vigorously is in reducing inequality and discrimination, which in the last few years has in fact increased. The growing inequality and a consequence of that the growing discrimination does not board well for India. And the one way to reduce inequality, among many ways, is to raise minimum wages across board. “A prosperous society cannot be built unless that society is tolerant of each other, unless it accepts more diversity and pluralism, unless it adopts the philosophy of live and let live” said Chidambaram. In the last few years, intolerance has grown in this country and it holds back the potential of the country to become prosperous and rich.

Chidambaram was hopeful of a bright future for India because India still is a vibrant democracy despite the setbacks from time-to- time. It is still an open society; an open polity where ideas can still clash. In his opinion, an open society, open economy, polity are the best assurances of prosperity. He was optimistic and confident that India will remain an open society, open polity and an open economy and in the next twenty five years India will grow at a much faster rate than in the last twenty five years.

Earlier,  Ashok Dhar, Director, ORF Kolkata chapter, and Saibal Chattopadhyay, Director, IIM Calcutta welcomed all the speakers, panellists, colleagues and students present at the conference on the silver jubilee year of economic reforms in India. The discussions were divided under four major themes and a separate forum was organised on “Agenda for Economic Reforms 2.0: the Emerging Voices”.

Challenges in policy making in India

The first panel of the conference focused on the challenges in policy making in India, particularly issues concerning public finance and regulation. The panel was chaired by Anup Sinha, Professor (Retd.) of Economics, IIM Calcutta. The panellists were: Rathin Roy, Director, National Institute of Public Finance and Policy (NIPFP), Ashish Kumar Chauhan, MD & CEO, Bombay Stock Exchange (BSE) and Ma Zhanwu, Consul-General, People’s Republic of China, Kolkata. Sharing the experience of reforms in China, the Consul-General, mentioned the role reforms have played in helping China grow consistently at about 10 per cent per annum. Explaining how both urban and rural areas have benefitted from the reforms and reasons for the reforms being revolutionary in transforming the economy of China, the Consul-General, presented some of the challenges encountered in the process of reforms, referring to ‘people’s communes’ and the host of new problems accompanying the reform process. Taking from where the Consul-General ended his talk, Chauhan presented his view on the 1991 reforms: (i) reforms happened under duress: India was on the threshold of a balance of payments crisis and it was under the IMF mandate that India liberalised its economy and opened its borders for freer trade, (ii) the evolution of the IT industry and the timing of reforms coincided: Infosys, Wipro and the others are all ‘children’ of the reforms, and, finally, (iii) India had surpassed China’s fertility rate primarily due to the one-child per family norm of China. Continuing on the challenges in policy making, Roy explained that the reform process of the 1990s, did not adequately consider the role of fiscal discipline in government spending, and as a result, ten years later the country had witnessed a fiscal crisis caused by a drastic increase in the total liabilities of the government. Roy talked in detail about the incentive mechanism used by the Centre to instil fiscal discipline even among the States through the successive Finance Commissions.

Opportunities and challenges of globalisation

The second panel on opportunities and challenges of globalisation: digital India, international trade and economic liberalisation was chaired by Parthapratim Pal, Professor of Economics, IIM Calcutta. The discussions in the panel were initiated by Saumitra Chaudhuri, Former Member of Economic Advisory Council to the Prime Minister and Former Member Planning Commission, Ranjan Das, Professor (Retd) of Strategic Management, IIM Calcutta and Sudip Chaudhuri, Professor, IIM Calcutta. Speaking on the progress of the reforms of 1991, Chaudhuri finds that the reform process created a restrictive environment with inward looking policies. Further, India took more time in changing path and reforming, as compared to China. India is still to address the challenge of increasing employment growth in non-agricultural sector, reducing inequality and avoiding over regulation. However, the biggest challenge for India at the moment is about catching up with the rapid technological change that is happening across the world. Talking about the ICT revolution in India, Ranjan Das presented companies response to the ICT revolution in India. The highlights of his presentation were: (i) digital India initiative of the government of India, (ii) challenges faced by companies due to digitalisation, (iii) unstructured data from social media creating huge data but competency is lacking in converting this data into corporate revenues, and (iv)increase in technological intermediaries creating as well as extracting share in the value. Sudip Chaudhuri appreciated the reform process of the 1980s and 1990s and the changes thereafter observed in early 2011. Chaudhuri approached the issue of opportunities and challenges of globalisation by providing his perspective on India’s international trade and investment in post reform period. He reviews a major change in the national manufacturing policy of 2011, which focuses on the development in the manufacturing sector through planning and State support.

Energy, environment and climate change

Panel three focused on energy, environment and climate change. The panel was chaired by Ashok Dhar, Director, ORF Kolkata Chapter. The panellists were J. Mauskar, Former Special Secretary, Ministry of Environment and Forests, Govt. Of India, Anil Razdan, Former Secretary of Power, Government of India and Jayanta Bandyopadhyay, Former Professor IIM Calcutta and Speaking first in the panel, Razdan focused on several issues in the Indian power sector, starting from the tremendous potential that India has in coal based power generation to coal industry of India; its accomplishments and bottlenecks, oil and natural gas sector of India, and transmission and distribution system in India. He also highlighted the financial health of the power sector in India. Speaking on India’s environment policy, Bandyopadhyay emphasised on the need for economic policies and environment regulations to work in tandem. The professor focused on two important reforms which are required from an environmental perspective: (i) Indian Forest System which is based on the archaic British era regulation needs to change urgently to reflect current situation, and (ii) reforms focusing on water management practices in India. Taking forward the discussion, Mauskar discussed the intricacies of international climate negotiations and the issues involved in the framework for climate change mitigation. Mauskar raised the concern of India being wrongly criticised as one of the five largest carbon emitters in the world, while the per capita emissions by India are well below global average. In his vision, the government must focus on the implementation aspect of the laws and regulations so as to ensure that India not only abides by the laws and maintains a sustainable level of emissions, but is also prepared to mitigate the effects of climate change.

Impact of economic reforms

Discussions on the impact of economic reforms on land and agriculture and the emerging challenges in the agricultural sector followed next. The session was chaired by Nilanjan Ghosh, Senior Fellow, ORF Kolkata and the panellists Y.K. Alagh, Former Union Minister, Government of India and also Former Chairman IRMA, and Prof. Abhijit Sen, former Member of the Planning Commission of India expressed their views on the panel theme. At the outset, Alagh started with a plea to look at agriculture in a larger context, taking into account both demand side and supply side factors. Explaining the contradictions in agriculture despite increasing investment in agriculture during the XII Plan, he highlighted on the poor growth rates witnessed in the agriculture during this period. Through the exposition of this contradiction, Alagh offered an explanation to the falling trend and put forth his solution to the problem. He raised the concern of poor incentive mechanism gripping Indian agriculture. In this regard, the issue of minimum support price (MSP) policy of the government also came-up which is flawed in its approach since it only targets four categories of food-grains. For the State to encourage agricultural diversification, Alagh stressed on the need for appropriate changes in policy. His talk covered issues like genetically modified technologies that may help in the future, dearth of studies in different agro-climatic regions of the country; basin development and transfer of water to different regions with scarce rainfall, role of producer cooperatives and producer companies in enhancing rural infrastructure, NABARD playing an active role in the enhancement and promotion of agriculture. Alagh was of the opinion that good land and water programmes could raise real wages by 30 per cent, thereby bringing about a huge improvement in the living conditions of the majority of the population in the rural areas of India. Sen commenced his talk highlighting an important lacuna in the reform process; agriculture being left out of this process. He substantiated his argument by indicating the growth trend in agriculture which was around 3 per cent before and after reforms, further strengthening his argument of reforms having played no part in boosting agriculture in the nation. Admitting that comparisons like the above are inadequate and incomplete, he urged that an in-depth understanding of such a phenomenon is the need of the hour. Explaining the stagnation in agriculture, Sen urged to consider this downfall in the backdrop of rising temperatures which has risen by 0.6-0.7 per cent across India in the last 25 years or so. Speaking on the productivity of the Indian agriculture, he urged studies to focus on estimating total factor productivity (TFP) in Indian agriculture which in his view is the most accurate assessment of productivity and also because productivity is as much about institutions as it is about technology.

Agenda for economic reforms 2.0

The last panel was on “agenda for economic reforms 2.0: the emerging voices” forum. The Panel was chaired by T.K. Arun, Senior Editor (Opinion), The Economic Times, New Delhi. Other panellists included: Ila Patnaik, Professor, NIPFP, Shiv Sidhdhant Kaul, MD, NICCO Engineering Services Ltd., Debashis Sen, IAS, Additional Chief Secretary, Urban Development Department, Govt. of West Bengal and M.R. Madhavan, President, PRS Legislative Research. Patnaik began by reflecting on the lacunae of Reforms 1.0. Explaining the pertinent issues that were left unaddressed in 1991, in her opinion, they could be a good starting point to plan Reforms 2.0. Patnaik talked about product market liberalisation, factor market liberalisation; land, labour, capital, banking, access to credit, and financial inclusion are some of the issues which require a unified policy across the country. Kaul talked about inclusive growth that benefits all sections of the society. He is of the view, that it is not sufficient to implement good reforms, but it is necessary to make people aware of the benefits accruing from this process. Emphasising on following a bottoms up approach, Kaul suggested that the government must focus at improving delivery mechanisms and build sufficient institutional capabilities involving private sector to create a ground level impact. Sen highlighted on the advantages of urbanisation, stating that 65 per cent of GDP in the country comes from its urban areas. Urbanisation creates positive externalities in the form of higher employment, better education, entertainment, healthcare and is a key path to India’s development. In this context, he spoke of the Bengal Theme Township Policy as an example for other States in the country to emulate. Finally, Madhavan spoke on striving towards ensuring functional participatory democracy in India,  judicial system reforms, political economy of the reform process and the success of legislative reforms in India.

In his concluding remarks, Saumitra Chaudhuri noted that the conference provided different perspectives of the last 25 years which has transformed the Indian economy; a transformation which in conjunction with improved access to education and has changed Indian society. Preeti Kapuria, Associate Fellow, ORF Kolkata, offered the vote of thanks.

This report is prepared by Dr. Preeti Kapuria, Associate Fellow, ORF Kolkata.