Modi must ensure administrative accountability, redraft coercive laws and end the trust deficit to unleash an Entrepreneurial Revolution in India
Taking crowdsourcing and governance participation to a level unseen, Prime Minister Narendra Modi has sought inputs for his 15 August 2019 Independence Day speech. “I am delighted to invite you all to share your valuable inputs for my speech on 15th August,” he wrote in a 19 July tweet. “Let your thoughts be heard by 130 crore Indians from the ramparts of the Red Fort.”
This is a good idea. It broadens the political engagement of voters. It brings voices of citizens together into a national conversation. It powers democratic urges, gives people the opportunity to have their ideas articulated. While a lot needs to be done, this essay seeks to direct policy attention to wealth creation. Our suggestion: Modi should embed this 156-word paragraph into his speech:
Sisters and brothers, without wealth creation there can be no jobs, no prosperity, no wealth redistribution. Across the world, there is not a single nation that has been able to end poverty without a sustained GDP growth over several decades. Growth is the most powerful anti-poverty policy. This can happen only through the creation and nurturing of private enterprises through the coming together of entrepreneurs, investors and consumers. While India has enough of these three components, what holds risk-takers back is a predatory and rent-seeking governance and regulatory climate. Over the next few months, we will remove all hurdles to entrepreneurship. We will ensure the State becomes an enabler of businesses, not a vehicle of crony capitalism; a catalyst to growth, not a barrier. We will facilitate the mushrooming of India’s entrepreneurial energies like never before by delivering an Entrepreneurial Revolution. And we will work with state governments to ensure this growth happens in Mission Mode.
With this paragraph in place and the policy intent announced, Modi will need to work with Central economic ministries and 29 Chief Ministers to ensure that on-ground reforms move ahead smoothly. This means, taking any form of rent-seeking – political or bureaucratic, at the Central, State or District level – out of the equation. In particular, Modi needs to follow through on three key changes.
Administrative accountability. Every Pay Commission raises the salaries of Central government servants, which percolates down to State governments, public sector enterprises, teachers, doctors, officials. This burdens the citizens through higher taxes. While these entitlements need to be questioned in themselves, what the citizens don’t get is an appropriate governance response. Day to day hassles on the factory floor has got entrepreneurs to exit industry and switch to services. A start has been made by compulsorily retiring 312 officers found to be corrupt or lacked integrity from Group ‘A’ and Group ‘B’ services between July 2014 and May 2019. This must continue down the line. In fact, the entire employment rules of government servants need to be redrafted keeping a 21st century India in mind, with administrative accountability and promotions based on outcomes than on seniority. The new administration must be entrepreneurial, quick to react to and profit from disruptive changes – India is losing the opportunity to attract large global companies to its shores, as they look to exit China in the aftermath of Washington-Beijing trade war.
Laws reframed. If we study the history of India’s policymaking over the past seven decades, we find that barring a mild opening up around 1991, not much has changed. Licence Raj may have reduced but the Inspector Raj continues to date. This is due to the underlying inertia in the lawmaking process. While nationalisation of industries – Air India in 1953, State Bank of India in 1955, life insurance in 1956, banks in 1969 and 1980, coal mines in 1971 – was the default solution till 1980s, privatisation remains a no-go area, even with this government. The Minimum Wages Act of 1949 has deteriorated into India having more than 1,900 minimum wages, the Factories Act of 1948 still has the installation of spittoons in factories. While most of these problems are at the state level, the problems the Centre inflicts on wealth creation are not few. Foreign direct investment policies are still arbitrary, the marginal rate of tax that had hit 93.5% in 1971 and had fallen to a stable three-slab structure since 1997 has been breached in Budget 2019 by increasing one slab to eat the rich. GST, the most successful and complex law of Modi Season 1, needs simplification, particularly on the refunds side.
Trust deficit. The 20th century answer to every problem in India was to use a hammer. This has no place in 21st century India. If one bank or one NBCF has breached a law, punish it by all means. If an auditor has been part of that breach, punish the auditor. And so with the other components that ensure businesses function – stock exchanges, credit rating agencies, independent directors, bankers. What is happening instead is that in an attempt to show that the government is ‘doing something’, the entire system is being looked at as a bunch of rogues, with agencies that oversee criminal breaches, such as the Serious Fraud Investigation Office or the Enforcement Directorate, becoming the policy weapons of choice. This is resulting in a lack of credibility of the institutions that enable an accurate assessment of wealth creation. As the Modi government nudges India away from the corrupt way of doing business through laws such as Benamni Transactions (Prohibition) Amendment Act of 2015, Insolvency and Bankruptcy Code of 2016, or GST, the new way is clear. What is fuzzy is the transition mechanism. If the government can fix this trust deficit over the next six months – along with ending rent-seeking as discussed above – wealth creation in India would be back. Otherwise, we’re back to the 1970s, with the state busy redistributing poverty.
Finally, Modi needs to shed the image that he shuns industry leaders. He needs to stop being a victim to Rahul Gandhi’s political slogan of ‘suit-boot ki sarkar’. The people have rejected Gandhi, Modi has nothing to fear and should follow the verdict. Nobody is arguing for elitist policies. Or crony capitalism. But if India is to become a $5 trillion economy over the next five years – the target is already off by one year – and a $10 trillion powerhouse by 2032, this governance contempt for wealth creators needs to end. With a 303-strong mandate, Modi has the opportunity. He must not let it fritter away. After the Green Revolution of the 1960s and the White Revolution of the 1970s, it’s time for India to deliver an Entrepreneurial Revolution and catalyse wealth creation.
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Gautam Chikermane is a Vice President at ORF. His areas of research are economics, politics and foreign policy. A Jefferson Fellow (Fall 2001) at the East-West ...Read More +
Guillermina French Fundacin Ambiente y Recursos Naturales (FARN)Read More +