May 18, 2020
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'Easy Options Are Over'

Yashwant Sinha talks of the direction second generation reforms will take

'Easy Options Are Over'
Prashant Panjiar
'Easy Options Are Over'
The most important thing is that we're going ahead with the second generation reforms because of strong fundamental reasons since there was widespread criticism that the first phase of reforms lacked sequencing. We would aim at sequencing the liberalisation process, as the 1991 reforms were a little ad hoc in nature. We want to put reforms on a clearly-defined path.

The easy options have been exhausted in the first phase of reforms. We have to exercise difficult options in the second set of reforms. The country would have to pay a heavy price if the reforms are stalled.

The government would put before the nation a comprehensive paper on the second generation reforms, which will include a medium-term fiscal consolidation plan through expenditure control, restructuring of psus and deepening the financial sector reforms as per the recommendations of the Narasimhan Committee II.

The paper would be a comprehensive document spanning several issues ranging from the rural economy to global issues, to financial sector to infrastructure-related issues and would lay down the roadmap for the next round of reforms. It would also address issues like competition law, which are hitherto ignored areas of concern. The paper would take into consideration a 10-15 year perspective giving direction to the economy. This would be open to national debate and then be finalised for action. Some of the issues under consideration are:
  • Reforming the budget. Concerns range from revenue/fiscal deficits, subsidies and artificial distinction between Plan and non-Plan expenditure as it does not allow for maintenance of assets.
  • Size of the government. Expenditure and fiscal responsibility reforms.
  • Moving fdi to an automatic route. fipb to deal only with exceptions. Emphasis should be on implementation. Cost-based pricing of infrastructure.
  • Recognition of the need for a competition policy, national as well as international. Reforming the financial sector.

    As part of the second generation reforms, we are going ahead with the opening up of the insurance sector and introduction of several legislations including the Fiscal Responsibility Act which will contain rising deficits. We'll also bring in the Convergence Bill, a new competition law, new insolvency and bankruptcy laws and amendments to the Banking Companies Act, fema and the Companies Act. The strategic management group in the pmo will also review all large projects and a speedy clearance will be ensured for the highways project and private sector power projects.

    In case of banking sector reforms, we will go beyond the recommendations of the Verma Committee. The committee addresses the narrow issue of weak banks but we will go for the implementation of the Narasimhan Committee report where some recommendations have already been implemented and we'll try to ensure that the others are processed fast. Apart from national pressure, there is also international pressure to reform the banking sector, for disclosures, for transparency and for meeting capitalisation norms. And when we are in a globally-linked economy, we cannot ignore these demands. Reforms alone can bring this sector up to international standards. The government's giving up its majority stake in banks will also be part of the second generation reforms agenda.

    The reforms package will kick-start the economy. Among the measures under consideration are sops on the FDI front, new policies for the automobile, food processing, drug, steel and LNG sectors and legal provisions.For promoters, a new takeover code and for exporters, further liberalisation in the Special Economic Zones is also being considered. Minor measures for downsizing the government and the introduction of the fiscal prudence measures in the fiscal responsibility act are also on the anvil.
    There is no going back to the licence-quota permit raj. We do not want a situation where some people, because of personal or vested interests, stall economic reforms. We are sensitive to the need for India's long-term policy direction and hope that the paper on second generation reforms would provide the much-needed direction.

    (The finance minister's views on second generation reforms have been culled from speeches to CII.)
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