Modi Govt's slow reform process is a better pill for India

When the public sees government is on top of a problem they will trust it to create an environment i.e., conducive for major reforms.

hidden November 03, 2015 16:58:04 IST
Modi Govt's slow reform process is a better pill for India

By Sanjeev Nayyar

It is nearly 17 months since the Narendra Modi government has been voted to power yet no major reforms were undertaken is a commonly heard statement. Is that really the case?

Whilst the need for major reforms is not in doubt, the question is the pace at which reforms are to be effected.

Modi Govts slow reform process is a better pill for India

Prime Minister Narendra Modi. AP

Fast versus spaced out reforms is akin to allopathic versus ayurvedic treatment. The former is good for handling infections and inherently provides instant relief. However, it "never really uproot the disease because essentially, it is about symptomatic treatment".

Subtly, it reduces your ability to bear pain, makes you expect instant results and become impatient by nature.

Conversely, "Ayurveda comes from a different dimension and understanding of life. It goes deep into your system and takes an integrated view of your entire body, including the mind." When followed with Yoga its effect is gradual and is geared towards making you a healthy person from within having long-term benefits.

From a management perspective, effecting change in a company or country are quite similar. Both require a clear vision, effective communication and buy in from stakeholders. Big change makes people insecure, faces opposition from vested interests and protests, as we are currently seeing. A leader can effect big change to risk failure or effect gradual change.

As a nation we accept change only when there is a crisis as there was in 1991. Keeping this in mind, NDA 2 has effected change that created least conflict. Since effects of many changes are not immediately visible, hence the disquiet.

This article, first gives key changes effected so far and then enumerates reforms that need to be implemented to put the economy on a sustainable high growth path.

Here are some examples of changes effected since May 2014.

One, changing mindsets through Mann ki Baat. A government can effect change by involving ordinary people. When the man on the street feels confident, has higher self-esteem he/she will be more productive and receptive to change.


Two, "efficient inflation management has driven households to move from physical to financial assets. This has led domestic investments to consistently outpace foreign inflows over the past 12 months." (CLSA Report on Indian Strategy dated 11 September 2015)

Three, continue to focus on development expenditure in roads and railways. According to this report in Mint 'government spending in the first six months of this fiscal by Ministry of Roads and Highways was Rs 31,529 crore as against Rs 12,876 crore in 2013-14'. The effects of the Golden Quadrilateral and Mumbai Pune Expressway are still being felt.

Note that factors like low inflation, weak commodity prices and a development-oriented government, was earlier seen in 2000s under NDA 1, laid the foundations for the FY04-07 boom. A similar approach is being followed now.

Four, completion of coal auctions created faith that the government could manage a complex auction process and "has reduced black money circulation".

Five, "The YoY increase in coal production during FY15 (48mt) was more than that seen over the past four years combined (37.2mt)," says CLSA. Earlier State Electricity Boards blamed coal shortage for power outages. Now focus has rightly shifted to financially mismanaged SEB's.

Indians must realise that the Centre has a limited role in providing 24 by 7 power. It is essentially the state government's responsibility to do so.

Six, raise the performance bar through schemes like Pradhan Mantri Jan Dhan Yojana (PMJDY). Deposits by the unbanked under PMJDY crossed Rs 25,000 crore. When poor receive payments into their bank accounts under government schemes leakages will fall means more money in their hands. The poor are motivated to save and bank since they earn interest now.

Seven, deregulation of petrol and diesel prices.

Eight, direct benefit transfers for LPG. Besides financial savings, receipt of subsidy electronically has shown that subsidy actually reaches your bank account.

Those who are impatient for a surge in growth rates must remember that NDA 1 took about four years to get the economy back on track.

Having said the above, the government needs to be pro-active when there is a sudden surge in prices of food items. Raids on hoarders, be it pulses or onions, could have happened earlier.

When the public sees government is on top of a problem they will trust it to create an environment i.e., conducive for major reforms.

Change in India must be a combination of low hanging fruits and major reforms. Results of all reforms will be visible over time just like ayurveda /yoga treatment does.

Some key reforms that must be implemented in the next 12-18 months are —

One, even though agriculture comes essentially within the domain of state governments, they should work with the Central government to increase area under irrigation, productivity and improve delivery of subsidy.

Two, state governments of Punjab and Maharashtra must be convinced, by all political parties, of the need to motivate their farmers to reduce production of rice and sugar-cane because of declining water tables.

Three, restructuring of Food Corporation of India (Shanta Kumar Committee Report).

Four, a plan to substantially increase domestic production of pulses.

Five, Mann Ki Baat programme needs to make Indians think big and motivate them to travel within India. The program must ask public to demand maximum value for every rupee spent by the Government.

Can the program have Prime Minister Modi in conversation with say Arundhati Bhattacharya, Chairman of State Bank of India, on the pitfalls of excessive borrowing (corporate and individual) and rural women about their success stories. Nothing like two way communication.

Six, get at least one big FDI project like the $5 billion Foxconn to actually start operations in the next 12-15 months.

Seven, single-minded focus on making the people of Uttar Pradesh and Bihar prosper. India cannot progress if these two populous states are left behind.

Speak to any Mumbai based taxi driver from power crippled eastern Uttar Pradesh and he will tell how availability of bijli will generate employment, enhance incomes and give him a reason to return home.

Eight, charge consumers an extra say 50 paisa per litre and transfer amount to a Oil Price Stabilization Fund. When crude prices surge beyond say $75, as against $48 currently, increase for consumer would be disproportionately lower. The move will also reduce inflationary impact of higher prices then.

Nine, national roll-out of direct benefits transfer for food and kerosene subsidy.

Ten, promote North-East India by showcasing its music and dance globally and improving its transportation links with South East Asia.

Eleven, weak public sector banks to be merged or not allowed to grow till they become profitable.

Twelve, rationalisation of Central labour laws and motivate states to reform their laws.

Lastly and importantly any Leader who spearheads change needs to regularly communicate with all stakeholders, update them with progress and problems. This would keep up the momentum, manage perceptions, make Team India feel involved and prevent opponents from spreading negativity.

If successful, the next generation would thank NDA 2 for putting the economy on a sustainable long-term growth path.

India is run by the states. However, there is excessive media focus on the performance and policies of the Central government. By regularly reviewing their performance it could bring non-performing states under public glare.

In 1998, NDA 1 inherited the after effects of P Chidambaram's 1997 'Dream Budget'. In 2014, UPA 2 left the economy in the ICU. Steering the economy through difficult times and rebuilding it is part of NDA's Karma.

The author is an independent columnist, chartered accountant and founder He tweets @sanjeev1927

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