A 10% GDP growth is the right benchmark for the current government, which is stable, not dependent on coalitions and in its second term. After all, if the more left-leaning UPA, with all its coalition compromises and scams could reach 8% GDP growth, it is reasonable to expect India to grow at 10% in the current regime, now in its sixth year.
However, we are currently only at around 5% growth. The reasons for this have been discussed threadbare in numerous articles. It is time now to focus on how to get that 10% growth. The recent big cuts in corporate taxes are a sure sign that the government now acknowledges this issue, and cares about growth.
There are longer term measures, such as investing heavily in infrastructure, which will ultimately deliver GDP growth. However, the focus of this article is relatively quicker, doable measures that can rapidly enhance our growth. Some of these measures do involve giving up control, which our politicians and bureaucrats don’t like. However, no major country has grown at 10% without ceding some control to the private sector. When you fly a kite, the thread helps you control it. However, if you want the kite to soar higher, sometimes you have to let the thread go loose.
India’s 2019 GDP is expected to be roughly $3 trillion (rounded for simplification). Since we are already at 5%, the additional 5% to reach 10% growth requires another $150 billion of economic activity per year. This amounts to around Rs 3,000 crore of extra economic activity per day over the entire country. Again, this is achievable. Here are six doable, practical and quick ways we can get that 10% growth.
Real estate – Real Estate drives a large amount of economic activity and consumer sentiment. For perhaps the first time in decades, real estate prices are stuck for the last 5 years. It can be fixed by massive stamp duty cuts (states will have to be reimbursed) and the government itself selling a fraction of its massive prime land holdings to generate revenue.
Agriculture – It is difficult to drive growth in India without growing agriculture. Most of the fixes here are long term, centring around infrastructure. However, one quick fix exists – legalising medical marijuana. Already a multi-billion dollar industry worldwide, cannabis is already part of India’s culture. As India is an agricultural country, we are missing out on a worldwide boom. Twenty years later, in line with the world we will probably legalise it anyway. Why not now? Of course, as with any drug like this, a careful regulatory policy has to be thought through.
Divestment – The government keeps talking divestment, but is often unable to meet targets as selling individual units takes a lot of time. A better way might be to consolidate, say, 20 PSUs into a fund or holding company called DivestCo. Then, sell the DivestCo shares at a significant discount to attract investors. Thereby, we sell all the companies at once and save a massive headache.
Customs – There is something wrong with the way Indian customs duty works. It is not so much the duty itself, as the delays imports and exports face at our airports and seaports that make the entire nation uncompetitive. If we want to grow at turbocharged pace, this bottleneck has to be fixed. A simple uniform customs duty maybe? Giving up the current inspection procedures? More work is required but this is definitely choking our growth.
Financial reforms – The lowering of corporate tax rates was a welcome move. Some more steps are still required. Long-term capital gains tax should be removed. The rupee must move towards full convertibility. Another huge move the government could consider is not taxing global income for residents, at least for the next ten years. The revenue loss from this will be limited (as one gets credit for foreign taxes paid anyway). However, it will attract much-needed global investors and firms, who are sitting on the sidelines right now, to incorporate themselves in India.
Investor Protection Bill – We have to realise investors invest based on projections. Imagine spreadsheets of financial models filled with assumptions on tax rates and other costs, going out ten years. When the government changes rates suddenly, the model goes awry. Investors hate that uncertainty. We need a law that essentially ensures no sudden, ad-hoc and frequent policy changes in taxation or regulations that might be adverse to Indian business.
The ideas above are relatively quick fixes to boost our GDP growth. Ultimately, we need longer term measures too to create a solid foundation for a growing economy. Infrastructure is the single biggest thing a government can do – better roads, ports, airports, cellphone networks, power and water availability. Indian infrastructure used to all be at Third World levels. Things have improved somewhat in the last two decades, but we still have a long way to go.
Ultimately, economic growth will be a big criterion when history will judge India’s current era. However disproportionate negative talk, excessive politicisation of the GDP number and a defeatist attitude will get us nowhere. Neither will too much control. Instead of headlines like ‘highest tax collections ever,’ we have to now aspire to headlines like ‘highest GDP growth ever!’ Stay positive, think strategically and do what it takes for 10% GDP growth, and it will happen. This is India’s time. Let’s do it!