In a resource constrained environment with rating agencies howling for fiscal discipline how can the finance minister bootstrap a recovery on the cheap? Here’s a take at what ails the Indian economy, what its symptoms are and what should ideally be done in the budget.
1. Inability to find a compromise amongst multiple stakeholders
All interest groups have different priorities and agenda, and no government body seems to be given responsibility to find solutions and drive a compromise in the larger good of the country. Organisation in government must be on the basis of solutions and outcomes sought. These outcomes must be disclosed and measured. One problem in implementing and enforcing this is the government’s track record of not meeting its commitments in a time bound, efficacious manner. Budget allocations must be set aside to keep commitments, the details of which should be disclosed along with timelines. There should be a stated compounding penalty for delay. The absence of an effective deterrent has allowed the administrators to make a mockery of the system.
2. Infinite cost escalations because of delays by various government agencies
Government administration should be organised in groupings charged with finding solutions. It must be their responsibility to get approvals to facilitate solutions from other government agencies. The government needs to be more professionally managed and would do well to adopt some corporate practices. All government agencies should disclose on their website the daily cost of delay, as measured by imputed capital cost on notional and actual capital at work. Investing in measurement, disclosure and derived accountability is the cheapest and most cost effective way of getting the Incremental Capital Output Ratio (ICOR) back to 4 from the 6.6 level it has slipped to recently—reminiscent of pre reform inefficiency.
3. Instead of being outcome-driven, government spending is outlays-driven
Outcome-based budgeting will not only increase efficiency and eliminate waste, but also allow exploration of innovative ways to accomplish the desired outcome. This outcome-driven governance will be driven by prioritisation, ensuring that future monetary allocations give precedence to improve governance. Clearly, eliminating poverty and starvation should come before cultural awareness programs and hosting international sporting events.
4. Ad hoc economic intervention cloaked in socialistic verbiage suppresses investments
The budget should allocate capital to train and certify every minister, bureaucrat as well as members of the judiciary involved in economic policy. Specific focus of training should be to make them aware that:
5. Investment in equity unattractive because of disproportionate influence of controlling shareholders
Investing in capacity to investigate and prosecute this abuse of fiduciary responsibility will open up opportunity to channel domestic savings into equity systematically reducing cost of capital in the economy.
6. Vast economic resources are stuck in non-viable economic entities
A bankruptcy law is required to focus on quick redeployment of economic assets and retraining of human resources.
7. Economic velocity is suppressed because of judicial delays hindering contract enforcement
Invest in increasing capacity in the judicial system, starting with abrogating court holidays, running shifts, attracting talent by economic incentives as well as upgrading evidence act to make it relevant to the electronic era and giving teeth to the perjury laws.
8. Systematic gaming of government finances by following cash instead of accrual accounting convention
Selling capital assets to fund revenue expenses, ad hoc delays in payments due to fertiliser and energy companies, harassment of tax payers by tax claims, a large percentage of which are ultimately overturned by courts, pre-emption of financial resources by government borrowings, and not creating savings for meeting long term liabilities accruing to government employees are all consequences of this distortion. Investing in a transition team to move the government to accrual system of accounting would have amazing long term benefits. The government’s needs to fast-track this and cannot be allowed to get away with the feeble noises of acquiescence and estimating a 10-12 year period for effective transition.
9. Stifled investments because of government failure in collective planning
Invest in teams to deliver planned urban capacity and viable targets annually in urban centres, through planned investments in urban public transport, waste recycling and disposal, security, crisis management capacity and plan for recharging ground water via precipitation.
10. Persisting disguised unemployment in farms
Partner with states to incentivise creation of manufacturing clusters in industries that need incremental capacity and in which India has competitive advantages, such as electronics, pharmaceuticals, automobiles, home products etc
It’s time to dedicate a budget to the ordinary Indian who wants to work hard and get an opportunity to grow and responsibly take care of his or her economic needs, while contributing to society without waiting for a handout or genuflecting to a government plenipotentiary.
Rahul Bhasin is Managing Partner, Baring Private Equity Partner India
There might be a situation, with economic situations, thus: There are twenty LCD T. V.'s and a hundred who want the T. V.'s. In this case, the people who don't have one in the twenty, must not curse and feel bad, that they don't have one.
This is the economic situation, today. I don't mean, with people who don't have money. The other eighty, who don't have LCD T. V., can obviously have other interests, and might exercise choices, appropriately. The people who don't have 'cash' to spend, and will have cash to spend, feel they have to have an LCD T. V. The reason why the LCD T. V. is, is different. How everyone feels in a certain manner, is because economic empowerment is seen in a certain light. I don't know if the P. M. has an LCD T. V. Nor Ms. Sonia Gandhi. It appears, if there are 20 LCD T. V.'s and a hundred people want them, eighty will feel economically disenfranchised, because they have money, but could not buy what 20 others did. It appears, the 20, are a group, who would have had the T. V.'s whether they wanted it, or not. These are the people who are visible as economic beacons in the world, The idea that springs to mind is, that these people might be insecure, because an LCD T. V. is not food. People are saying, that they have no food, because others have LCD T. V.'s. This is gross misunderstanding, and the govt. must perhaps get the message to the people. The economy might not function at all in a way which people want to perceive.
11. Stop the day light loot by the feminists.
12. Allocation for Health or Education must compulsorily be more than any other ( like Women, for eg. ), except Defence.
It is obvious, that resources are not in ready supply, for production purposes, because that is the nature of production. I mean, because there is no supply, there is demand. Because there is no availability, to the individual, he supplies his necessities. This is more acute to the producer, when he has to get raw materials for use. The idea seems to be, the producer must not want, then it will be easier for the consumer. The only problem is, we are all producers, and we cannot seem to allocate what is essential for ourselves, and each other. This isn't a problem. We must empathise, that some products are high value. It appears, because they are either not easy to purchase, and the producer has difficulty making them, or they are not supposed to be necessary, in the obvious manner. It is very evident, that this is the situation, but when goods are made, for high value products, we do know, that the economy demands it, why? Because the basic requirements are factored in. How food is becoming expensive, when there is a surplus, can be likened to the situation in Japan, where everything is more expensive than anywhere. It appears, Japanese also buy Sony and Mitsubishi, in fact they only buy their own great products, and their food prices, etc., are a mirror of their economy.
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