Vasundhara Raje Scindia: Two years and a lot to cheer about

In December 2013, Ms Vasundhara Scindia took over as chief minister of Rajasthan with the BJP (NDA) wresting power from the Congress (UPA). The change in stewardship also meant a change in approach to building the state. The highlight of Ms Scindia being at the helm of affairs in the last 2 years is that no one brackets Rajasthan as a BIMARU state, which was an epithet used to describe this group of states for their relative low levels of development. [caption id=“attachment_2544666” align=“alignleft” width=“380”]  Vasundhara Raje Scindia, chief minister of Rajasthan[/caption] As she completes 2 years in power, the state does appear to be on a different plane and is now competing with other states like Gujarat, Maharashtra, Tamil Nadu etc. in terms of both performance and development. But, as usual there are challenges to be addressed. There are essentially two aspects to the transformation in the state. The first relates to the economic environment created by the state in terms of being investor friendly. The recent report brought out on ‘Doing Business’ in states by the World Bank does summarize all the work that has gone in by putting Rajasthan in the upper league of ‘aspiring leaders’ which met between 50-75% of the 98 point action plan that states were to review. With a score of 61%, it is ranked 6th in the list of 32 states with Gujarat leading at 71%. There has hence been specific effort put in to bring about this transformation. This is a clear victory for governance and what transparent systems and administration can do in transforming the quality of business life. It is a fact that several states do hold various conferences for investors where several potential investors come and pledge their allegiance. However, it is also true that a very small proportion does actually flow in and it does become difficult to guess the impact. Rajasthan in its 2015 ‘Resurgent Rajasthan Summit’ had witnessed the signing of 295 MoUs worth Rs 3.2 lkh crore which will generate 2.39 lkh of employment over a period of time. The World Bank study, however, clearly compares improvements across states and provides an unbiased view on the processes in place which in turn provides clues to investors. Rajasthan can take pride in being one of the few states to undertake bold labour reforms by defining large units as those with an employee strength of above 300 rather than 100 when the labour always kick in. The Scindia government has focused from the beginning on the creation of jobs and with employment being the target, the thrust was more on entrepreneurship in areas like handicrafts including footwear, apparel, electronic parts etc. where they could be encouraged. This has grown to become the Rajasthan model for creating employment and has been largely successful. The state continues to be an important part of the food basket of the country. Crops like mustard, guar seed, cumin, coriander, chana, wheat are some of the crops that have spearheaded farm output and made an important contribution to the country’s agricultural production. Given the arid conditions the government has been spending considerably large amounts in development of irrigation facilities with substantial subsidies being provided to the farmers on power to enable cropping. This said there are several challenges too on the economic side, which is the second part of the unfinished story. While growth has picked up in the state in FY15 to 5.7% compared with 4.7% in FY14, it is lower than the national average which is an issue to be addressed. Being service and agrarian based, the latter becomes vulnerable to the monsoons which can be a retarding factor even this year. The government should look at making Rajasthan a manufacturing hub and given the efficient administrative systems, should not be difficult. Ideally the government should select specific manufacturing industries and encourage enterprise. The government is focusing on the MSME sector to being with which is also linked inexorably to the employment objective. Besides, it has tried to leverage the latent renewable energy potential for encouraging fresh investment. Other sectors include IT, IT enabled, food processing, auto parts and engineering. Second, the power sector is in disarray which is a problem that has existed for long and has to be addressed. The cumulative losses of the DISCOMs (power distribution companies) are around Rs 90,000 crore and growing which has upset even the fiscal arithmetic. The government was one of the first to implement the FRP (financial restructuring package) that was floated by the central government where debt was restructured in exchange of reforms in the power sector. The new scheme mooted by the government (UDAY) would probably have to be taken up by the state as they would be able to exceed the fiscal marks which were not allowed in the earlier dispensation. The FRP did not provide an extra cushion in the form of higher fiscal deficit ratio when DISCOM debt was taken up by the state on its books. But more importantly the state would have to start charging market oriented rates for power to ensure that future losses do not mount. Third, the fiscal numbers of Rajasthan appear to be out of sync with the FRBM norms with the fiscal deficit ratios exceeding the 3% mark for FY15 as well as FY16 (budget). The power sector has been a drag and revenue collections have been affected by the slower growth of the economy. The government is cognizant of this deviation and is working to correct the arithmetic to ensure that it is back on the road of fiscal prudence. One can see substantial improvements taking place when the virtuous cycle of growth starts picking up. The driving factor will be the doing business environment. In fact, the rating has been pushed down by the World Bank on labour reforms and getting power connection, which has been contested by the state. Labour reforms have been bold here while the online system for procuring power is catching on. With power reforms in place, the government would also get more elbow room to operate, which will make it a forerunner in growth. The credit would definitely go to a large extent on the government, and Ms Scindia’s performance can best be described as – well begun is half done. The writer is chief economist, CARE Ratings, and his views are personal