“You have to dream before your dreams can come true.” This famous quote of former President APJ Abdul Kalam, who himself turned his dream into a reality as a nuclear scientist and has “ignited” many minds with his ideas, is perhaps the most appropriate theme for present day India aspiring to become an economic and knowledge superpower.
It is the culmination of the dreams of 1.2 billion people that has led Prime Minister Narendra Modi to ideate his plan of making the $2 trillion economy a $20 trillion behemoth within the next two decades, eradicating poverty and making India a knowledge society.
What has happened in the last one year is just the conceptualisation of the Big Dreams—Make in India, Digital India, Smart Cities, Jan Dhan and Swachh Bharat. The list is getting longer with every passing day–housing for all, 24×7 power for all, 100-GW solar energy capacity, Diamond Quadrilateral Network of High-Speed Rail, Sagar Mala port connectivity, Bharat Mala road network along borders and coasts and three more industrial corridors apart from the ongoing Delhi-Mumbai and Amritsar-Kolkata corridors.
Along with the flagship infrastructure projects, there has been a deluge of new social schemes that underline Modi’s core strategy of ameliorating the lives of millions of poor. Starting with Jan Dhan, Modi and his team unveiled more than a dozen initiatives like Pradhan Mantri Suraksha Bima Yojana, Atal Pension Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, Mudra Bank, Deen Dayal Upadhyay Gramin Kaushal Yojana, Pradhan Mantri Krishi Sinchai Yojana, Soil Health Card, Beti Padao Beti Bachao and Pradhan Mantri Vidya Lakshmi Karyakram.
Not surprising, US President Barack Obama in a TIME magazine article termed Modi as the “reformer-in-chief” going by his over-arching vision for India, the fury of reform wave and the speed of execution. Most important, Obama acknowledges the inclusive growth agenda of Modi’s reform tsunami.
“As a boy, Narendra Modi helped his father sell tea to support their family. Today, he’s the leader of the world’s largest democracy, and his life story—from poverty to Prime Minister—reflects the dynamism and potential of India’s rise. Determined to help more Indians follow in his path, he’s laid out an ambitious vision to reduce extreme poverty, improve education, empower women and girls and unleash India’s true economic potential…,” wrote the world’s most powerful leader.
At home, Modi’s announcements on mega schemes have raised eyebrows and critics started questioning whether things are actually changing on the ground. A closer look at what Modi is trying to drive at will throw some light. What is common to all of the ambitious schemes is the quantum of investment especially public capital expenditure that will have a multiplier effect on output growth and jobs. The schemes are a big stimulus to the economy that had started slowing at the end of UPA regime due to policy inertia. In the first year of Modi government, the growth rate has inched up to 7.3 per cent in FY15 from 6.9 per cent in FY14 (last year of UPA) as per CSO’s new data series.
Modi has deliberately pushed these long-term projects in the first year so that work can start now and gets completed in the next 5-10 years, which in turn would lay the foundation of $20 trillion economy. He has also become a frequent flyer to G7 nations to woo big doses of investment, secure energy supplies including nuclear fuel and invigorate trade amid a feeble global economic recovery.
While prima facie Modi’s strategies may look like “pro-industry”, the reality is somewhat different. An indepth insight of the government policies shows Modi has cleansed the power corridors of corruption and distanced himself from industrialists, lobbyists and crony capitalists.
But it will be wrong to say that Modi Government has become anti-industry. The government has carried out a series of changes in company laws and other rules to improve “ease of doing business”. In a recent speech, Modi vowed to end era of “red tape” and instead roll out “red carpet” that is built on trust. One of the most important reforms, according to Modi, was the self-certification in various activities of documents and processes. Many more are on the anvil.
Finance Minister Arun Jaitley has rightly pointed out that reforms have become “absolutely necessary” in the areas of land, labour and taxes to attract investors. The government’s push for Land Acquisition bill and Goods and Services Tax (GST) bill are necessary to unleash the true potential of the Indian economy.
Test of Modinomics
What Modi has achieved in Gujarat—10 per cent growth for a decade—with his common sense economic policies now coined as ModiNomics is under test for the entire country. The first year of the Modi Government has gone in shaking up the administration from inertia of policy paralysis and preparing the grounds for the country to leap forward. In his self appraisal of one year of government, Modi while addressing a rally in Mathura, said bad days of misgovernance was
passé, minimum government and maximum governance is a reality and farmers are at the heart of the government policies.
Economists and industrialists have taken cognisance and endorsed Modi’s performance in the first year saying that while not everything can be achieved in the first year, the broader policy outlook is now clear.
Modi has indeed ended the policy paralysis and set the reform agenda rolling. He has cleverly modified many of UPA government’s good policies and implemented them on a war-footing.
Making India $20 Trillion Economy: Modi has deliberately pushed these long-term projects in the first year so that work can start now and gets completed in the next 5-10 years, which in turn would lay the foundation of $20 trillion economy. He has also become a frequent flyer to G7 nations to woo big doses of investments.
Jan Dhan Yojana, for instance, is an extension of UPA’s Swabhimaan scheme of 2012 that envisaged opening no-frills bank accounts, and offer micro-insurance and micro-pension in the next stage. Modi carried forward the financial inclusion cause in a mission mode and brought more than 150 million poor into the banking network within a year. UPA’s National Manufacturing Policy was languishing but Modi rechristened it as “Make in India” and set the cog-wheels moving. The earlier National e-Governance Programme (NeGP) has been rebranded as Digital India.
In terms of legislative reforms, UPA’s unfinished reforms on GST, FDI hike in insurance; coal and mining reforms, black money bills and debt management are being aggressively taken forward by Team Modi. While former Finance Minister P Chidambaram’s dream work—Direct Tax Code (DTC)—has been scrapped, Jaitley has already incorporated DTC’s core idea of reducing corporate tax rate to 25 per cent.
ModiNomics is under test for the entire country. The first year of the Modi Government has gone in shaking up the administration from inertia of policy paralysis and preparing the grounds for the country to leap forward.
ModiNomics, 2014. Authored by Mr Sameer Kochhar
Former Prime Minister Manmohan Singh’s dream of revamping the Planning Commission was also done in letter and spirit—Modi has replaced the Nehruvian institution with the Niti Aayog.
While governments have changed, India’s reform process has continued. Manmohan Singh’s team picked up the threads from Atal Bihari Vajpayee-led NDA government’s reforms on FRBM, VAT and other tax reforms and infrastructure building. The Modi Government is no exception to this rule. What is exceptional for Modi is the pace of implementation.
UPA’s last few years had seen many of the good schemes including the social schemes languishing. Modi has to be credited for giving an impetus to social schemes that will ameliorate the lives of millions of poor in the days to come.
Destination… $20 trillion economy
Prime Minister Narendra Modi has called for making India a $20 trillion economy. The current size of the Indian economy is around $2 trillion. Taking it to $20 trillion looks a daunting task.
Experts call for adopting sector specific and region specific targets to accelerate growth. For example, a target should be set on what kind of banking system is required if India becomes a $20 trillion economy. The function of the banking system in the $20 trillion economy would be radically different from what it is in the $2 trillion economy. Similarly, what kind of insurance, payments and other financial system would be required? There needs to be specific targets for other services as also for manufacturing, agriculture and other sectors of the economy.
States would play a crucial role in achieving this ambitious target. The role of the states like Madhya Pradesh, Gujarat and Maharashtra would be the key. A healthy competition among the states would help boost growth and investments.
What makes states competitive? These are—presence of good physical infrastructure like road, electricity supply etc.; openness of states to private participation; extent to which a state is willing to use Information Technology; availability of land; labour relations; and, commitment of the government to good governance.
Anthony De Sa, Chief Secretary, Madhya Pradesh said, competitiveness of the states is extremely important as the Indian economy is largely driven by the domestic consumption and investments.
Chief Secretary of Maharashtra Swadheen Kshatriya added saying, although some states, like Maharashtra and Gujarat, have inherent advantage for business and industries due to geographical location and availability of physical infrastructure, others are pulling up their socks to woo investments.
Effective and credible institutions and a transparent ecosystem, especially in the areas of public procurement, infrastructure and services are essential to ensure long-term sustainable growth. Ashok Chawla, Chairman, Competition Commission of India, said a timeframe of say 15 years should be set to make India a $20 trillion economy from the current around $2 trillion. According to him, public procurement, infrastructure and services, are key areas where competition can play a catalytic role in unlocking growth potential for the whole economy.
Concrete steps to improve the perception of the country on ‘ease-of-doing-business’ on this count would be a pre-requisite for taking the economy to the $20 trillion threshold.
Ari Sarker, Division President – South Asia, MasterCard Worldwide, highlighted that the economy needs to grow 10 times to reach the $20 trillion mark and it would require capacity building in every sector. “A radical change is required in the payments system. All stakeholders need to work together to make India a cashless society. India currently spends Rs 4,500 crore in printing currency. The cost of cash is 0.5 to 1.5 per cent of GDP,” said Sarker adding, moving to the electronic system would help boost the overall economic growth. Group Country Manager for India and South Asia at Visa, T R Ramachandran also expressed similar view and said entry of new players and healthy competition would drive the growth of payments sector in the country.
Managing Director and CEO of National Payments Corporation of India (NPCI) A P Hota said the economy couldn’t grow 10 times if dependence on cash continued. Typically in a $1 trillion economy, the payments worth around $10 trillion take place. If the Indian economy becomes worth $20 trillion, payments volume would be to the tune of $200 trillion per day. This kind of payments volume cannot be handled through cash and therefore a coordinated effort should be made to make India a cashless economy.
But, why despite being global leader in IT services India remains predominantly a cash-driven economy? Only 5 per cent of the country’s personal consumption expenditure is done electronically. According to Deepak B Phatak, Professor, IIT-Bombay and Director, SKOCH Development Foundation, coordinated effort is lacking and despite presence of several players electronic payments system still remains out of the reach of the masses. He said masses would move to electronic payments only if it is made as simple as cash transaction. Not only cash-less, the need is to do away with even card transaction and develop a “cash-less, card-less” system of payments.
If the economy has to grow 10 times, the need is to think even bigger. “It requires radical thinking,” said Karan Bajwa, Managing Director, Microsoft Corporation (India). In order to make the economy 10 times bigger the need, according to Bajwa, is to think and plan for 20 times. He suggested that India should leverage global innovations, as there was no point in reinventing the wheels. For this, the need is to create a level-playing field. “Digital is the way. Technology has to be at the centre of everything we do,” said Pramod Saxena, Founder Director, Oxigen Services (India).
Business leaders call for predictability and stability in regulations. According to Anuj Agarwal, MD & CEO of Bajaj Allianz Life Insurance, there have been too many changes in regulations that stifle growth. He said the companies make their business strategies as per the existing regulation. A frequent change in regulation impact business negatively. “There have been too many changes…by the time the company gets ready for new regulation, the regulations get changed again,” he said.
What India needs is a stable regulatory environment, particularly in insurance sector, so that insurance penetration in India, which is among the lowest in the world, could grow rapidly.
Farm sector growth in India has been far below the potential, said H R Dave, Deputy Managing Director, NABARD, highlighting the need for more private investments in the sector. Generally targets for agriculture sector is 4-5 per cent. Some states like Madhya Pradesh have proved that agriculture sector can grow at 20 per cent consistently with proper thrust to the sector. He said agriculture credit is a big issue. As per the latest NSSO survey report, more than half the farmers have no debt. Even those who have debt, only around 60 per cent have access to formal banking system.
According to S S Bhat, CGM – Financial Inclusion, Canara Bank, in farm sector the focus should be on investment credits. Incentives are given for short-term loans. There is interest subvention scheme of the central government. Then there are subsidies from the states. In some states the effective interest rate on short-term farm loan is zero per cent. However, no such incentive is available for long-term investment in agriculture sector. There should be special focus for investment credit in agriculture sector, Bhat said.
The thrust of implementing social schemes outlines Modi’s focus on inclusive growth. The proof of the inclusive growth strategy can be gauged from the fact that the first scheme that has hit the ground running was the Jan Dhan Yojana. Indeed, the Pradhan Mantri Jan Dhan Yojana (PMJDY) created world records by roping in more than 150 million poor into the formal banking network in less than a year’s time, a feat that otherwise was beyond the dreams of policymakers in India or any other developing country.
Bankers may have complained of stiff targets but it is a fact that millions of poor are now under the banking network, a feat not achieved in more than six decades after Independence. While critics may still point out that more than half the accounts are still void of any funds, the spread of Aadhaar-based direct benefit transfer (DBT) will ensure that the poor have an operational bank account which will entail an overdraft facility.
The icing on the cake came when Modi launched three more social security schemes making a transformation from Jan Dhan to Jan Suraksha. From a mere bank account with a RuPay debit card, a health insurance cover and an overdraft facility, Jan Dhan has consolidated financial product that will try to cater to the basic financial needs of the poor—credit, health and life insurance and pension.
While the Pradhan Mantri Suraksha Bima Yojna will cover accidental death risk of Rs 200,000 for a premium of just Rs 12 per year, the Pradhan Mantri Jeevan Jyoti Bima Yojana will provide both natural and accidental death cover of Rs 200,000 for a premium of Rs 330 per year or less than one rupee per day for the age group 18-50 year.
The Atal Pension Yojana will provide a defined pension, depending on the contribution, and its period. The government will contribute 50 per cent of the beneficiaries’ premium limited to Rs 1,000 per year, for five years, in the new accounts opened before 31st December, 2015. Moreover, the government will use unclaimed deposits of about Rs 90 billion in the PPF and EPF corpus to create a Senior Citizen Welfare Fund to subsidise the premiums of vulnerable groups such as old age pensioners, BPL card-holders, small and marginal farmers and others.
Millions of poor are now under the banking network, a feat not achieved in more than six decades after Independence. While critics may still point out that more than half the accounts are still void of any funds, the spread of Aadhaar-based direct benefit transfer (DBT) will ensure that the poor have an operational bank account.
The government is also trying to dissuade the unbanked population from hoarding gold to a productive investment avenue through launch of Gold Monetisation Scheme, Sovereign Gold Bond and Indian Gold Coin. These schemes will be launched in the coming months.
More than anything else, the government has laid out the roadmap for making Jan Dhan an avenue to transfer all entitlements to the poor. The Jan Dhan-Aadhaar-Mobile (JAM) trinity to transfer benefits in a leakage-proof, well-targeted and cashless manner is a welcome move. What remains to be done is providing a legal backing to Aadhaar which would have made it more fool-proof. The government also has to deduplicate the Aadhaar accounts to prevent leakages.
While banks have done a commendable job in the opening of the Jan Dhan accounts, the government has nudged the Department of Posts to venture out as a payment bank. It may be a good start for the cash-strapped postal department, the ultimate aim of the government should be to make India Post a full-fledged bank that can offer credit apart from savings, investment and remittance facilities.
Another neglected area that has received some attention is the credit flow to the rural sector through Nabard. The Budget has allocated Rs 250 billion to RIDF administered by NABARD. Though such booster dose does offer temporary relief, it is high time that the institution is revamped as Nabard has failed to address the problem of rural poverty even if it keeps on pumping billions of rupees into the sector.
Though the formal banking sector has been aggressive in the noble cause of financial inclusion, it is MFIs that have deepened their roots in the remote areas. The Budget had proposed setting up of MUDRA Bank to refinance MFIs through bank finance. The Pradhan Mantri Mudra Yojana should be pursued with utmost urgency.
While financial inclusion is one important aspect of the overarching strategy of reducing poverty, the government has attempted to address the other aspect of skill development and self employment by allocating Rs 15 billion for Deen Dayal Upadhyay Gramin Kaushal Yojana. It would be better if the FLCCs were linked to all skill development programmes and monitoring the outcomes of RUDSETIs in job creation.
Jaitley has toed his predecessor P Chidambaram’s line of cutting capital expenditure to adhere to fiscal target. Since the FRBM target of attaining 3.0 per cent deficit has been pushed back by a year to FY18, Jaitley must now step up public capex significantly from FY16 onwards. But government should not take its eyes off the FRBM target.
On Swachh Bharat, it was good to see the government biting the bullet in the Budget by proposing a Swachh Bharat cess at 2 per cent on service charges apart from offering 100 per cent I-T deduction for contributions to Swachh Bharat Kosh.
Overall, the Budget took some great strides on accelerating inclusive growth but Modi’s team has to walk miles before it rests. It would have been a great idea to set up a fund for furthering the cause of Financial Inclusion just as government’s USOF for rural telephony.
Without social and digital inclusion, financial inclusion will not be enough to root out poverty. Here, the government has to work hard for empowerment of women, rural youth and the economically weaker sections. While DBT is a welcome move and subsidies need to be continued for some time, relying on doles alone will not take India to the next level in development. The country has to move over from doles to development.
Housing for All
One of the biggest steps towards inclusive growth came from the launch of Housing for All Mission. Empowering citizens to play the pivotal role in deciding the future course of their cities, Modi recently launched three major initiatives—Smart Cities Mission, Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Housing for All (Urban) to address the burning problems of growing urbanisation especially for the aspiring middle class and the poor.
The three ambitious schemes, which will entail an investment of over `4 trillion in the next five years, will provide a major booster dose to the real estate sector. “Urbanisation should be viewed as an opportunity and urban centres should be viewed as growth engines,” Modi said while launching the scheme.
For the first time in India, a challenge has been floated in which the citizens of urban India could contribute in the formulation of development vision of their cities. Those cities which were able to competitively meet the required parameters would be developed as smart cities. This competitive mechanism would end the top-down approach and lead to people-centric urban development.
The new urban development schemes were not prepared by the government alone, but involved perhaps the biggest consultation exercise ever taken by the government involving all stakeholders and examining global best practices.
Modi has set tall targets for the planning of smart cities saying it has to be a step or two ahead of people’s aspirations. Technology, transportation, energy efficiency, walk-to-work and cycling were some elements that are required in a smart city, he said.
The Prime Minister has directed policymakers and town planners to take the “collective responsibility” for bettering the quality of life for 40 per cent of India’s population that lived in cities or were dependent on cities for their livelihood.
Most importantly, the government aims to balance the aspirations of migrants from rural areas and slum dwellers with the changing global environment.
India’s housing shortage is estimated at 20 million units and the government aims to bridge the gap by 2022, which will be the 75th year after the Independence.
Till now, lack of holistic vision about urban planning has led to a situation where expansion was driven by property developers. Which is why, the policy framework of AMRUT has been designed in a way that will give cities themselves a chance to plan their future growth.
The Housing for All by 2022 scheme will aim at slum rehabilitation with participation of private developers using land as a resource, promotion of affordable housing for weaker section through credit linked subsidy, affordable housing through PPP mode and subsidy for beneficiary-led individual house construction or enhancement.
Public investment of Rs 480 billion has been budgeted for Smart Cities Mission and Rs 500 billion for AMRUT while it will be close to Rs 3 trillion for Housing for All.
The first uphill task ahead for team Modi is to revive the investment cycle. Modi’s tactful foreign policy must be backed by administrative reforms to attract big doses of FDI in coming years. Modi has already secured close to $50 billion investment from China, United States, Japan, South Korea and some other countries.
The government has identified 500 cities having 100,000 and more population for the AMRUT project, he said, adding that neither the Centre nor states will have any discretion in choosing 100 cities through a competition for smart cities scheme.
Once implemented, the housing scheme will be not just an engine of growth but one of the best inclusive growth strategies of the world.
Agenda For Coming Years
Modi can’t be blamed entirely if the economy has not shown a remarkable improvement in one year—CSO’s advance estimate puts FY15 GDP growth at 7.4 per cent as compared with 6.9 per cent in FY14, UPA’s last year in power. Chief Economic Adviser Arvind Subramanian says initial indications show GDP growing by 7.5 per cent and the government was adhering to FY16 growth target of 8-8.5 per cent. Monsoon rains in June has been above normal level. This is likely to push up rural demands.
Going forward, Modi has to aim at 10 per cent plus growth in the long-term through radical reforms and deft implementation of his ambitious policies if India has to transform a $2 trillion economy into a $20 trillion superpower within two decades. In the medium-term, the government should target 8-10 per cent growth in the next four years, something that UPA-I achieved between FY06-FY08.
The first uphill task ahead for Team Modi is to revive the investment cycle. Modi’s tactful foreign policy must be backed by administrative reforms to attract big doses of FDI in coming years. Modi has already secured close to $50 billion investment from China, United States, Japan, South Korea and some other countries.
While there was a scope in FY16 Budget, Jaitley must cut the corporate tax by 1-2 percentage points in FY17 and raise the income tax exemptions on savings (under Section 80C of I-T Act) to spur investment.
Working for a single-window clearance mechanism should be pursued actively both at the centre and state levels.
In case of legislative reforms, the first task before the government is to remove irritants in the tax regime and roll out GST, speed up clearances and easier land acquisition. Passage of GST and Land Acquisition bills will be crucial to speed up infrastructure development.
The Real Estate bill needs to be taken up for regulating the sector and facilitating faster urbanisation. Much of the success of Smart City, AMRUT and Housing for All missions depends on the regulation of the real estate sector. The country must have local regulators whose task is to prevent cartelisation and undue price rise. Smart Cities without sound regulation will result in miles of concrete jungle without much human habitation. Only a handful of rich will be the occupants in such cities.
Legislations to set up sectoral regulators including that for railways should also be taken up by the government. This will prevent operators from inflating fares and foster competition and efficiency in the sector.
The government has attempted to address the other aspect of skill development and self employment by allocating `15 billion for Deen Dayal Upadhyay Gramin Kaushal Yojana. It would be better if the FLCCs were linked to all skill development programmes and monitoring the outcomes of RUDSETIs in job creation.
Since India Inc’s balance sheet is stretched, the government must step up capital expenditure significantly even if it means a slower fiscal adjustment. In the first year, Jaitley has toed his predecessor P Chidambaram’s line of cutting capital expenditure to adhere to fiscal target. Since the FRBM target of attaining 3 per cent deficit has been pushed back by a year to FY18, Jaitley must now step up public capex significantly from FY16 onwards. But government should not take its eyes off the FRBM target.
Cash-rich PSUs like Coal India should be told to pull up their socks and invest more rather than building up reserves. Profitable PSUs should be asked to invest in related infrastructure that adds synergy in the operation—Coal India and SAIL, for instance, can invest in railway, port and logistic projects to enable faster transportation of minerals from mines to industrial units.
Socio-economic Census Highlights Plight of Poor
The Socio-Economic and Caste Census (SECC), the first of its kind survey since Independence, has highlighted the plight of poor in India. As per the survey conducted between 2011 and 2013, the main earning member in over 90 per cent of households makes less than Rs 10,000 a month. What’s worse, the highest earning member in 74 per cent households makes less than Rs 5,000 a month.
The total number of households in the country is 24.39 crore, of which 17.91 crore or 73.49 per cent are rural households. There are hardly any job opportunities in the rural India. Majority of the rural households are either manual casual labour or involved in agriculture. Source of income of more than half of the rural households, 51.14 per cent to be precise, are manual casual labour, while 5.39 crore or 30.10 per cent are dependent on cultivation.
|Key Findings from Rural India (Total Households 17.91 crore)||Quantity||Percentage|
|Households with only one room, kuccha walls and kuccha roof||2.37 crore||13.25%|
|No adult member in household between age 18-59 years||65.15 lakh||3.64%|
|Female headed household with no adult male member between 16-59 years||68.96 lakh||3.85%|
|Households with differently able member with no other able bodied adult member||7.16 lakh||0.40%|
|SC/ST Households||3.86 crore||21.53%|
|Households with no literate adult above age 25 years||4.21 crore||23.52%|
|Landless households deriving a major part of their income from manual labour||5.37 crore||29.97%|
This is the first socio-economic and caste survey in 82 years. The similar caste survey was conducted in 1931 during colonial period by the British. The recent survey covered all the 640 districts in the country. However, the government has not released caste data. According to the survey, 90 per cent of the households in Bihar are rural. This is the highest among all states. 56 per cent of the rural households have no land. The highest proportion of landless households is in Andhra Pradesh and Tamil Nadu, followed by Kerala, West Bengal, Punjab and Bihar. 73 per cent of the rural households in Andhra Pradesh and Tamil Nadu have no land. In Kerala, 72 per cent rural households are landless, while in West Bengal it is 70 per cent and Punjab and Bihar 65 per cent, each.
The survey highlights another interesting dimention of the socio-economic structure. Of the total rural households, 7.05 crore or 39.39 per cent are being considered automatically excluded from the socio-economically backward section. This automotic exclusion is based on fulfiling any of the 14 parameters:
i. motorised 2/3/4 wheeler/fishing boat;
ii. mechanised 3/4 wheeler agricultural equipment;
iii. Kisan Credit Card with credit limit of over Rs 50,000/-;
iv. household member government employee;
v. households with non-agricultural enterprises registered with government;
vi. any member of household earning more than Rs 10,000 per month;
vii. paying income tax;
viii. paying professional tax;
ix. 3 or more rooms with pucca walls and roof;
x. owns a refrigerator;
xi. owns landline phone;
xii. owns more than 2.5 acres of irrigated land with one irrigation equipment;
xiii. 5 acres or more of irrigated land for two or more crop season;
xiv. owning at least 7.5 acres of land or more with at least one irrigation equipment.
These figures would help in better targetting of subsidies and other welfare schemes. For example, if 39.39 per cent of the households are not economically backward, they need not be given subsidies under, say, Food Security Act.
With inflation coming into grips, RBI should not hesitate in reducing the interest rates in the coming months to lift investors’ sentiment. While Jaitley has been pitching for rate cuts, senior BJP leader Yashwant Sinha has recently said it is feasible for RBI to cut rates as much as 150 bps.
RBI Governor Raghuram Rajan is bound by the monetary policy framework of keeping CPI inflation within 6 per cent. He should not hesitate to cut rates now that inflation is below 5 per cent. RBI can always tighten if inflation goes beyond the mandated limit.
Make in India efforts to revive investment and cutting rates may not be enough to lure foreign firms unless the government offers sector specific incentives and improves ease-of-doing business. Given that 70 per cent of the clearances have to come from local authorities, states should be encouraged to compete with each other to make “Make in India” a success.
While full capital account convertibility may not be possible in a year, the government and RBI must open up the economy more to attract higher foreign investment and eventually make the rupee an international currency.
While the Land Acquisition Bill provides for easy land purchase rule across industrial corridors, states need to judiciously use their land bank to help build the corridors.
If cities are to drive growth and reduce the pressures of urbanisation in the coming decades, the government needs to quickly put in place the master plan and identify potential smart cities based on various criterions. States must also be infrastructure ready for such smart city projects including land, electricity, water and other amenities.
Bridging the digital divide and increasing efficiency in all spheres of life would be crucial for increasing the growth rate. The Digital India can be leveraged to improve connectivity, improve productivity and governance. The government should step up efforts in laying fibre optic network and extend state wide area network to connect all villages.
The time for labour reforms has come. Amendments in the Industrial Disputes Act to ease the restriction on hiring and firing may not be taken up by the centre in near-term but states can follow the footsteps of Rajasthan. The government needs to push for the comprehensive laws to ease labour law compliances. While full capital account convertibility may not be possible in a year, the government and RBI must open up the economy more to attract higher foreign investment and eventually make the rupee an international currency.
While Modi’s dynamism has helped in rolling out a series of initiatives in the first year, the coming years will test his power to implement these reforms and to roll out new initiatives.
What Narendra Modi should do…?
Jan Dhan and Beyond
- Jan Dhan has to be a financially viable proposition to alleviate poverty. Banks should be mandated to take up the cost of universal financial access as part of their business obligation or contribute a percentage of their net profit to a Universal Financial Services Obligation Fund (UFSOF), which has to be managed by the Jan Dhan mission. The contribution towards UFSOF should be treated in lieu of banks’ 2 per cent contribution for CSR.
- Department of Posts needs to be converted into a full-fledged bank—not just a payments bank, which it is already—that can offer all banking products including credit.
- RSBY should be universalised and hence should be part of Jan Dhan scheme. This will ensure that all Indians have a minimum health insurance cover. The 12th Plan’s target was to cover 70 million households by the end of 2016-17. The target should be revised to cover all households. It will have a multiplier impact on healthcare and insurance industry.
- SHGs must be incentivised to form institutions that can tie up with industry to cater to their needs. This will make them financially viable, generate jobs in the hinterland and stop the rural urban migration.
- Make in India campaign must incorporate the need to involve SHGs and MSMEs in the overall industrial expansion.
- Industry and banks must help SHGs in adopting modern technology and processes at the least possible cost.
- In farm sector the focus should be on investment credits. Incentives are given for short-term loan. There is interest subvention scheme of the central government and subsidies from states. In some states the effective interest rate on short-term farm loan is zero percent. However, no such incentive is available for long-term investment in agriculture sector. There should be special focus for investment credit in agriculture sector.
National Mission for Sustainable Agriculture
- Given that this is a new initiative being driven by rather limited resources, it would be better if the funds are released by the central government directly to the implementation agencies instead of routing it through the state government.
- There has to be a programme management unit (PMU) approach and one of the key functions of the PMU would be to identify and enlist possible implementation partners and vendors.
- The scheme funds only a government prescribed process and method of organic farming. In our field experience, we found that there are wide variations in the processes and methods followed and therefore one-size-fits-all approach may not be optimum.
- It would be better to fund outcomes and cover producer risk rather than using the money towards inputs. This essentially means using the money for end-product certification, a minimum support price, an agriculture insurance to cover all exigencies, setting up of cold chains as well as local food processing, marketing & advertising to create organic food culture and consumption, setting up of web portal and physical store fronts, farmers markets etc.
- The MSP model may not be practical in the short-term and one out-of-the-box idea could be to procure locally grown organic food only for the mid-day meal scheme wherever available.
- On the input side, the only area that requires extensive support and capacity building is the job of creating producer organisations (companies/cooperatives/SHGs). The scheme provides zero support for this.
- There is no support towards management and other expenses for producer organisations. NABARD provides `9.8 lakh per producer organisation over a period of 3 years towards this. Something similar should be incorporated in this scheme as well.
- Once the producer organisation is formed, the experience is that the credit linkage is difficult and thus specific guidelines have to be given to the banks for making credit available expeditiously.
- Attention should also be focused on introducing concepts like Urban Farming, Urban Producer Organisations and Grow Your Own Food.
National Centre of Organic Farming (NCOF)
- It’s a large campus and building with a staff of only 20. The staff strength needs to be increased and need to set up more laboratories.
- They are doing a lot of things by observation and not through a scientific testing facility that they do not have. They have to have all laboratory facilities for all stages of organic farming, ability to prove data-based efficacy of organic insecticide, fertiliser, soil etc.
- A lot of work is being done with fungus and bacteria etc. to be used as inputs. No tests are being done on side effects or long-term effects. This could pose a danger of bio-hazards replacing chemical hazards introduced during the Green Revolution.
- The centre should have a knowledge repository of various organic practices being followed in India, besides creating their own practices.
- It also makes sense to create a traditional seed bank at the centre as more and more indigenous crops are becoming rare.
- Elements of usage of organic food, health benefits, increasing shelf-life and local processing options should be integrated in the NCOF. It should be conceptualised as a centre covering the entire chain from farm to the table.
Participatory Guarantee System for India
- While this is a good system, from a producer perspective, it is not likely to inspire consumer confidence without an independent third party certification including end-product testing.
- Such a participatory system can also lead to cartelisation and non-organic products being certified as organic through mutual consent.
- Organic producers can buy non-organic produce and show it as their own organic produce.
- There is a need to identify and appoint such third party certification agencies perhaps at a district level. This is proposed, in addition to the Participatory Guarantee System.
- For Digital India to be successful factors such as tech neutrality, net neutrality, General Financial Rules (GFR), procurement and payment processes, inverted duty structures and level playing field need urgent attention.
- Government should not make technology choices nor specify technology, rather specify services. Choice of technology should be left to the market forces.
- Solutions need to be interoperable based on open architecture and open standards to allow innovation to flourish.
- Digital India is about service delivery and not about technology. The government should set priorities, frameworks of what is to be achieved, rest should be left to the people. The neutrality tone has to be set right at the top.
- The government has to shift from the concept of L1 to the best value for money—the scope of which goes beyond technology. It has to be a Total Cost of Ownership (TCO) and the value that it brings to the citizen as well as to the government.
- Procurement process needs alignment in terms of the needs of IT. The process today is rigid and inflexible. This requires revision in GFRs. There are gaps in thinking: people responsible for different domains are not fully aware of what technology does, what technologies are available or can be deployed or what services to expect.
- The government or regulator should not distort level-playing field by directly or indirectly indicating technology or vendor preferences—open source or RuPay. This is particularly true in case of payments. Whether it is MasterCard or any other card, let the competition happen and customer decide the usage of services rather than government stating its preferences.