Despite all its so-called potential, India struggles to increase its economic growth rate. We could grow our GDP at 10-12% per annum when right now we feel lucky to scrape by at 5-6%. We elected a new government that promised us this growth, we gave it a massive mandate.
Even as that government is about to complete its first year global investors are fleeing Indian markets, world media is giving up on us and our youth doesn’t see jobs booming. Neither the corporate sector nor farmers are happy. The government’s hands are tied due to various assembly elections. Our politics revolve around hating almost any capitalist reform. There will be no big bang reforms, the government says now. It even queries what big bang reforms can people possibly talk about?
Here are five big bang reforms which can help, but are stuck because our left-leaning psyches generate fear in the political class. However, each of these reforms below can add growth to GDP, making us reach 12% instead of 6% which over a period of time will lead to dramatically different per capita incomes for Indians.
To begin with, the India Special Administrative Region (ISAR) modelled on the Hong Kong SAR, which is a part of China but with independent judiciary, monetary policy and other regulations. India would gain dramatically if we create our own Singapore, Hong Kong or Dubai. This could be a demarcated territory no bigger than the size of a city, a part of India but with its own laws, regulations and border controls. Such a game changing ISAR can become a base for foreign investors. If steps are taken to ensure investors feel safe, we won’t lose out on the billions we are losing to Singapore and Hong Kong at present. The ISAR could contribute up to 2% extra growth in GDP. A city like Vizag (it would be a great gift to Seemandhra), a port city in Gujarat, or another coastal city in southern India could be a good location.
Second, land sales. The government only thinks of PSUs when it comes to divestment. However, they are messy given their many employees and PSUs are not as valuable anyway. However, the government and its entities sit on vast tracts of prime land, unproductive if you were to look at current market prices and their current use. Lutyens Delhi is just one example. MPs would be much better off if a state of the art, world class campus is built for them in say 20% of the land. The rest of the land must be auctioned to reduce our debt. The same applies to prime land holdings or state governments, or to surplus land belonging to railways and the armed forces. Growth added: 1%.
Third, full rupee convertibility. The government today controls the conversion of currency even though it runs a reasonably liberal foreign exchange regime. Capital controls are amongst the most hated words in the world of global finance. The government in India is too used to controlling everything. Global finance doesn’t work that way. Nobody controls capital. If you want to attract capital, be attractive to it. You just can’t order it around. Growth added: 1%.
Four, protection of intellectual property and copyright. Innovation and creativity are one of the top wealth creators in an economy. However, they need protection from theft that is rampant. The film industry is just one visible example: One of the big, often overlooked reasons for the entertainment industry clocking lower revenues over the past two years is falling smartphone prices, which enable piracy and make new releases available at street corner mobile repair shops. If we are serious about making India a growth engine, we have to protect intellectual property. Growth added: 1%.
Five, minimally invasive tax policies. When tax laws are made companies try their best to minimise taxes while following the law. This is called tax planning and is legitimate. It is not tax evasion. Going after companies for planning their taxes well is a sign of a hostile state. Tax forms changed every few months, endless tax department notices, too many rules any of which can be used to harass the taxpayer are all going to curtail business.
Entrepreneurs have businesses to run, rather than spending most of their time answering tax department queries. A lower tax rate, a wider tax base, simple, fixed and liberal rules and a minimally invasive style of functioning can go a long way to calm nerves of taxpayers, people who actually create wealth in the country. Growth added: 1%.
All of the above five ideas need more discussion, but are doable. Most importantly we as citizens must also embrace change, and not see everything capitalist as suspicious and evil. Capitalism is not just for the suit-boot types. It is also for T-shirt types, or youth who want a job. It is also for dhoti and cotton sari types, or villagers who need healthcare but can only get it if the economy is rich enough to allocate sufficient funds for it.
It is time for the youth of the country to bang the table to demand big bang reforms.