Economic, financial and governance reforms and investment stimulating measures which India needs to overcome current slowdown durably and to build $10 trillion dollar economy

THIS NOTE LISTS OUT HUNDRED MAJOR ECONOMIC, FINANCIAL AND GOVERNANCE POLICY REFORMS AND INVESTMENT STIMULATING MEASURES WHICH INDIA NEEDS TO TAKE TO BUILD THE $10 TRILLION ECONOMY BY EARLY 2030s. THIS NOTE IS BASED ON MY UNDERSTANDING OF THE ECONOMY AND FINANCE DEVELOPED LARGELY DURING MY STAY IN FINANCE MINISTRY AS SECRETARY ECONOMIC AFFAIRS.

I WOULD NOW DELVE DEEPER INTO THESE POLICY MEASURES FROM THE MACRO-ECONOMIC, SECTORAL AND BUSINESSES AND GOVERNANCE PERSPECTIVE TO BRING OUT BETTER ANALYSED, ARGUED AND PERSUASIVE POLICY PAPERS FOR CONSIDERATION OF POLICY MAKERS, BUSINESSMEN, ACADEMCIANS AND IN GENERAL FOR THE PEOPLE OF INDIA.

I HAD LEFT A COPY OF THIS NOTE WITH THE SENIOR FUNCTIONARIES OF THE GOVERNMENT OF INDIA BEFORE I DEMITTED MY OFFICE ON 31^ST OCTOBER 2019

SUBHASH CHANDRA GARG

07/11/2019

NEW DELHI

Economic, Financial and Governance Policy Reform Agenda

A NOTE ON POLICY MEASURES

FOR

Building a $10 trillion Indian economy by early 2030s,

Reaching $5 trillion by 2024-25,

With good quality of life for all her people

(A Strong, Competitive, Inclusive, Environment Friendly

And largely Private Sector Economy)

SUBHASH CHANDRA GARG

NOVEMBER 7, 2019

INTRODUCTION

GDP is three dimensional

Amount spent (expenditure dimension) on purchase of value of goods and services produced (value added dimension) in the economy by the factors of production from their income and transfers (income dimension) and from credit constitute GDP. The aggregate GDP calculated from any of the three dimensions should equal. Each dimension affect or is affected by the other two dimensions. The policy making for growth of GDP should be conscious of the impact any policy decision would have on all the three sides of the GDP.

Further disaggregated, expenditure on goods and services consumed is made in two principal forms. Either it is for current consumption of goods and services e.g. on food or for watching movies or it is for investment, which is consumed over a period longer than one year e.g. on construction of roads or building data centres. The residents also consume goods and services produced abroad (by importing) and not consume goods and services produced locally (by exporting). Expenditure dimension of GDP of goods and services produced in the economy is thus Consumption plus Investment plus (Export- Imports). GDP grows when aggregate consumption measured by the sum of these three parts of the Expenditure equation increase. Consumption is made by two broad categories of consumers- private persons (individuals, households) and Government.

Businesses, by employing factors of production, add value in the production of goods and services. Broadly, the net price received by the businesses for their goods and services sold minus the costs paid for inputs employed (other than factors of production) i.e. goods and services purchased makes up the value added. Aggregate of all the value added for all the goods and services produced makes up the GDP of the country. Businesses can be run by individuals, households, Corporates or even Government (public sector enterprises and some departmental undertakings). Businesses can be formal or informal, organised or un-organised. Businesses can be for manufacturing goods (manufacturing in certain conditions is recognised as factories) or for producing services. Agriculture is also a business as a farmer produces agriculture goods for selling for a price. GDP grows when businesses produce and sell more goods and services i.e. when the total value of goods and services produced increases.

The Net value added by the businesses is shared amongst the factors of production. It forms their income. Individuals working as labour or technician or clerk or supervisor or manager or IT professional or for that matter in any form of physical or mental labour receive their income using broadly their ‘labour’ and receive their income broadly as ‘wages’. Labour has been most important factor of production. In the economic world of agriculture or rural economy, it was mostly the labour which transformed natural resources in food and other agriculture produce. As the production processes get automated (using capital), labour gets substituted by ‘machines or technology’. Such machines or technology are deployed by the entrepreneurs using capital, their own or assembled from other risk takers and borrowed. The capital is the second most important factor of production. In a simple production world, more you employ labour or capital; there should be proportional increase in output. With improvement in skills or with use of tools and machines, labour productivity can go up. The capital receives its rewards in the form of profit. The GDP constructed from income side is the sum of wages and profits received or accrued to the two principal factors of production i.e. labour and capital. The profits also belong to owners of capital. As there is concentration of capital in fewer people, inequality spreads. Policy makers need to look for expansion of GDP with expansion of share of wages in the value added.

GDP is not the sole universe of economic goods and services

GDP is the measure of goods and services produced but consumed by consumers paying for the same. Economic goods and services which are produced by nature and not paid for by the consumers do not form part of GDP. Air, water and ambient weather are the most essential economic goods and services for humans to survive and grow. Such goods and services make up for the quality of life as well. Forests produce oxygen and are sinks for carbon di oxide. Mountains, rivers and lakes enrich lives. Most of these natural services are not priced or paid for. Their endowment is, however, not same across all nations. Some countries have better natural resources than others. There are many metals and minerals in the womb of the earth and seas. These are extracted by businessmen employing labour and capital. Such extracted goods, whether coal, oil, gas or any other material, get priced and paid for. Such natural resources become part of the GDP. Those which are not priced and paid for don’t form part of GDP. There should be some way of measuring the economic value of air, water, ambient weather, beauty of mountains, rivers and lakes and many of nature’s non-priced bounties and services. There should also be some way to measure the diminution of nature’s bounties and services. It would be in the fitness of things if such diminution is deducted from the GDP. The world has started measuring harmful effects of the production processes of goods which are produced by the businesses. We now measure the greenhouse gases which are released in the process of production of electricity or in the use of means of transportation. Soon, we should start putting a price on such greenhouse gases and pollutants. A GDP plus the monetary value of the improvements in natural services minus the diminution in the natural services would be a better measure of GDP.

There are also lot of goods and services which are produced for consumption by individuals, households and charitable institutions but are not paid for by the consumers. Food cooked in households and consumed is not paid for by the members of households while same food purchased from a restaurant and consumed by the same consumers gets counted in the GDP. A mathematical lesson taught by a father is not part of the GDP but taken in a coaching institute become part of the GDP. ‘Economic Value’ of such goods and services remain outside the formal GDP. Countries where marketization of such goods and services produced by individuals and households is less, their GDP are in a way artificially depressed. In such countries, the Purchase Power Parity value of the GDP is much higher than the GDP measured in terms of one constant currency.

Policy makers need to be conscious of the natural economy GDP and non-monetary GDP. More specifically, if the policy measures affect the generation of goods and services from the natural economy adversely, the policy makers should take measures to mitigate such impacts and try to charge the producers of such goods and services for neutralising the adverse economic value their actions cause.

GDP is produced in businesses

GDP, the sum total of all the value added in the form of production of goods and services, is produced by individuals, households, firms, companies, public sector enterprises, Government Departments or any other form of organisation. These are all businesses. The Government governs and does many other valuable jobs- regulation, collecting taxes, providing public goods, redistribution etc. These are not businesses unless some such service is paid for. The Government Departments and Enterprises also produce commercial goods and services. These entities are ‘businesses’. There is lot of mix up in the Government while providing governance and commercial goods and services. This needs to be clearly segregated. If the businesses are run the way other governance services are delivered these would be inefficient and non-competitive.

Farming is also a business. It has, however, been treated as some sort of patriotic service like the soldiers who guard our borders. Treating farmers ‘annadata’ evokes lot of emotions, but does not treat farmers fairly. In fact, it institutionalises the farmer as a person expected to do sacrifice and suffer. The farmer should earn a decent value addition or income from his labour and enterprise. Value addition is the difference of the value the farmer receives for his produce minus the value he pays for inputs. When a farmer gets subsidised fertiliser or free power, but his output price is fixed treating the cost of such subsidised fertiliser or free power, his income or value addition does not increase. Such subsidised fertiliser or free power would end up saving the amount spent by the consumer in the form of lower price the consumer pays for. Policy makers derive a lot of misplaced satisfaction by providing free or subsidised inputs to farmers, but actually do not serve the farmers. It is advisable to treat farmers as businessmen. The price for any agriculture produce, like any other product, is determined by the demand and supply situation. Over the years, production of most of agriculture produce in India exceeds the demand therefore. As a result, there is underlying tendency for the prices to drift lower for most of such agriculture produce. Artificial interventions like fixing Minimum Support Prices require entire excess production to be siphoned of the domestic market. In the absence thereof, the income of the farmer gets depressed. Much of the agriculture or rural distress is on account of this situation. Treating farming a business would require balance to be restored between demand and supply and raising the value addition to decent enough level for supporting farmers’ income. Another major policy issue in farming is too much of farmers. Smaller value addition/income shared between many farmers/workers makes every farmer/worker get very small share of income. Much of the poverty is rooted in this small share of income accruing to farmer and agriculture labourers.

Construction is the business where proportion of labour is much greater in value addition. Share of wages in construction value addition can further increase if the labour, almost invariably originating from agriculture or rural occupations, becomes more skilled and productive. Construction requires varied kind of skills- masonry, electrical, painting, wood work and so on. Skills programme, if used for imparting cutting edge skills in construction can be really game changer.

Much of the manufacturing, more specifically production of basic goods, consumer durable goods, capital goods etc., have become almost automated. Such industries are almost entirely capital intensive. There is very little labour involved in the main production business. Most of these businesses are global in nature. These compete with goods produced globally and in the global market places for exports. Their competitiveness and productivity cannot be compromised by the expectations of more labour in such industries. As these capital intensive businesses compete globally, these also die out faster if they are not able to compete successfully. While proportion of wages paid in the value addition of such businesses may be quite small, the number of labour might still exceed 100. If such businesses are not allowed to close down, these only become more loss making and sicker. None gains.

Form or scale of business should be appropriate for the kind of goods and service being produced by such a business. It is quite erroneous to think that any particular form of business should be promoted or supported for the sake of form. Tiny, micro, small, medium and large, all these forms of businesses have strengths of their own and are best fit for specific businesses. It would be the biggest help if these businesses are allowed to function in a very conducive and efficient environment with almost no compliance burden. It should be the competitiveness of the format and scale which should be the decisive factor for choosing any particular format. Most services, especially which require performance from human mind or body, are most suited for smaller formats.

The Governments would serve the cause of employment or MSME or raising growth most by understanding and treating all production of goods and services as businesses.

Governments should not be in the business

Production of economic goods and services is business. The Governments are not very good producers of goods and services. The Governments are best in making laws, regulations and maintaining law and order. Governance is their forte. The Governments should therefore, as a policy, not be doing businesses. The Public Sector is a mule, which is a cross between the Government and the Private Sector. It does deliver service, but is not as efficient business as the Private Sector. Swayed by the transient success of communism, India also embarked on the path of socialistic pattern of society resulting in nationalisation of almost entire financial businesses and also reserving most of the infrastructure and basic goods production in the public sector. Policy overreach and some misconceived objectives resulted into a number of consumer goods also being produced in the public sector.

‘Public sector is not for making profits’. This excuse is offered many times to explain away the losses which a number of public sector entities make. ‘Public sector should be an ideal employer’. This is invoked to justify giving away large share of value added, sometimes even exceeding the entire value added, as salaries and benefit to public sector employees. Such mind-sets reflect production of goods and service as equivalent to pushing some files. Rule of business- the value addition should be equal to or higher than the wages to be paid and the charge on the capital employed- if not satisfied in any public sector entity should result into closer or sale off of such a business. As this would be true for most of the cases, there is justification in closing down or selling off much of the public sector.

Investment is primary means of generating growth

Labour and capital being the primary factors of production; more deployment of labour and capital would lead to increase in production of goods and services. Increase in capital is increase in investment. Increase in labour supply also leads to increase in production of goods and services. Investment in producing those goods and services for which there is consumption demand leads to larger production of goods and services and consequentially growth in the GDP. Therefore, policy makers should pursue policies and programme to increase capital formation for those businesses which such capital investment can result in producing goods and services for which there is demand or for which demand can be created.

Investment leads to longer term increase in capacity of the economy to produce goods and services. Investment also results in consumption of those goods and services which are required for installing land, machines, technology and other goods and services. The investment therefore results in growth of GDP at the time of capital formation and subsequently in the form of additional capacity for producing goods and services. Investment is thus the best bet to increase the GDP and boosting its growth. Investment also leads to a kind of spiral effect setting off a process of investment in production capacities of the goods and services required for capital formation. When a cement plant is built, lot of cement, steel, other construction material, machines, boilers, engineering services, financial services, site management services, security etc. are required. Consumption of these goods and services in the capital formation of a cement plant adds to the GDP of that year. If the steel required for expansion of cement plants is not adequately available in the country, it might trigger investment in new steel plants as well. The spiral can be quite deep and long.

What manufacturing capacity does to goods in terms of production and consumption potential, infrastructure does to production of services. Infrastructure is essentially expansion of the capacity of individuals, households, companies and other firms to produce and deliver services. Construction of roads enables expansion of transportation services. Individuals can travel out of their place of residence if there is a road connecting their habitation to other parts of the World. People can watch a cricket match played at a distance from the comfort of their homes if infrastructure for delivering the images and sound from the place of play to the households get established. India has considerable infrastructure deficit. Lot of investment is needed.

Increase in supply of labour contributes to GDP WHEN there is demand for labour

Expansion in demand for security personnel or coders or delivery boys or for that matter any other service leads to expansion of deployment of additional labour. It adds to the GDP. Most services are still labour intensive, whether travel services, or driving services or health services or education services. Therefore, there is considerable potential for gainfully employing additional workers which get added to the workforce every year. There might be reverse situation as well. More persons might be ‘employed’ in producing a good or delivering a service that the number required. If a person is taken out of such labour force and the production of goods and services does not get reduced, such a person employed is actually not employed- such a person is not really a worker. Such a person might actually be contributing negatively to the efficient production of goods and services. Such a situation is starkly visible in agriculture in India and also in many Government offices. Deployment of additional worker in a factory, farm, office and establishment witch does not contribute to additional production is waste of resource. As such a person or persons do not add anything to the value added in the business, there is no additional increase in income to be shared amongst workers. It is very essential that countries do not pursue policies and programme which lead to employment of workers only for the namesake without adding any value to the goods and services produced or which leads to disproportionally lower value addition.

There are three broad situations which indicate that the labour as the factor of production in an economy is not contributing gainfully in raising the GDP of a nation. First, some workers may not participate in the production process. Second, workers willing to participate in the production process do not get employed. Third workers get opportunity to participate but employ their labour for much lower value addition than what their true potential can be. The first category of workers is excluded from the workforce of a country while computing workers participation rate. Those, willing to work but not getting work, become part of the unemployment rate. Those willing to participate and also getting ‘employed’ but not contributing to value addition effectively are not generally measured as such but result in wages being much lower and spreading poverty.

The Governments need to deal with all the three situations and adopt policy and other measures to increase workers participation rate, reduce unemployment and encourage gainful and productive use of labour force. As workers get employed only in businesses, it is very much essential that the Government works with the businessmen to improve upon availability and employability of labour.

Productivity is another major way of increasing GDP

Growth in value addition beyond what is simply on account of deployment of additional capital or additional labour is increase in productivity. If total days worked by labour in a garment factory go up in a year or more workers are employed on a farm upon change in the crop sown, value addition attributable to such increase in workers engaged is on account of labour. When an additional factory is constructed and comes into production or a new farm comes under agriculture operations, additional capital deployed contributes to increase in value addition and consequently in GDP. However, when better tools get employed or information technology is introduced in the operation or any other intervention made which is not deployment of additional labour or capital, the increase in value addition is taken as increase in productivity. Increased productivity results in higher wages per worker. It might be on account of lesser workers needed for producing the same amount of goods or service or it might be on account of larger amount of goods and services being produced with same amount of labour. Productivity increase also help in raising competitiveness which help in increasing export.

Introduction of automation helped in raising productivity in production of goods. Introduction of digital technologies are doing the same in production of services. In the short run, both automation and use of digital technologies might sound anti employment/ labour. If such an assessment leads to retardation of introduction of automation and digital technologies, very soon, the businesses which do not do so become uncompetitive and start losing value. This finally hurts the workers most. On the other side, introduction of automation and use of digital technologies, lead to expansion of production of existing goods and services and also new goods and services emerge which provide opportunity for the labour to get employed. This strategy helps in the country remaining competitive, increase GDP and also generates greater employment opportunities on net basis.

SETTING THE GOAL

India can grow to be a $10 trillion economy by early 2030s

Indian economy is expected to touch $3 billion GDP threshold this year in 2019-20. Budget has estimated GDP in nominal terms to cross Rs. 210 lakh crore, which at about Rs. 70 a dollar approximates $3 billion GDP. This is an important milestone. Our estimates suggest that if India can grow at about 11-12% nominal GDP growth rate (which is in line with its historical growth for last many years) and rupee depreciates at around  1 to 1.5% a year (which is not an unreasonable assumption given the fact that Indian economy, in terms of growth, is most likely to outpace all other major economies of the World in next 10-15 years; there might actually be some underlying tendencies for Rupee to appreciate), Indian economy will grow to be of $10 trillion in early 2030s. In other words, if Indian GDP grows at 10% per annum in nominal dollar terms, India would be close to 5 billion dollar in 2024-25 and 10 billion dollar economy in 2033. India, at this average growth rate, would start adding more than $500 billion to its GDP every year from 2025-26 and more than a trillion dollar a year from 2032-33. If India were to grow at 11% per annum in nominal dollar terms, the $10 trillion milestone would be achieved a year earlier in 2031-32 and at 12% per annum, this milestone would be achieved in 2030-31 itself.

Agriculture is unlikely to grow at more than 3% per annum on average

India has achieved notable success in its agriculture sector. India now produces much more cereals than its consumption demand (PL 480 days are a far distant memory now), making India a major exporter of cereals, especially in rice. India is adding every year to the stock of cereals which remained non-consumed and non-exported. Pulses production has also got scaled up substantially, meeting more than 80-85% of consumption demand steadily- sometimes exceeding these levels. Only in edible oils, India still has significant shortages, largely because of cropping pattern not favouring edible oilseeds as oilseeds are relatively low profitable crops to grow, thanks largely to oil prices being set by palm oils prices. India is also producing excessive sugar for last two years. On vegetables and fruits, current level of production is quite good compared to demand. Milk, eggs, fish and meat production is rising to meet the growing demand of these products.

Crops make up for less than 50% of Agriculture and allied sector GDP. Crops are unlikely to grow at more than 2% per annum on an average. Crops growth may not be required to be boosted beyond 2% growth as well. Other components of agriculture and allied sector GDP- milk, eggs, vegetable, meat etc. will have demand growth in excess of 4% per annum. On an average, agriculture and allied sector GDP is unlikely to grow at rates higher than 3% per annum. Agriculture GDP growth, at 3% per annum, is low compared to secondary and tertiary sectors of economy, but is almost double the growth rate of population now. These achievements in agriculture are despite the fact that productivity of most of the crops in India is still much lower than the many other large agriculture economies.

Too much working age population is still trapped in agriculture (over 45%), whereas the share of agriculture in GDP is only about 16%. 45% households earn only 16% of income at best. Additionally, average nominal increments received by the population working in agriculture, in the form of wages by agriculture workers and profit; prices realised over the cash costs paid, is much lower at less than 5-6% as inflation in agriculture GDP has also remained subdued in last few years.  Dependence of so many families in India on agriculture incomes, both as farmers as well as agriculture labour, is the real cause of widespread poverty in rural areas.

A major transition is taking place in agriculture in terms of households moving out of agriculture to other vocations. However, it is quite slow. Number of working age adults working in agriculture has come down from over 70% in 1970s to less than 50% now. A good part of the labour movement from agriculture is to construction industry and to services in the recent decade. Dependency of people on agriculture sector has to come down drastically to around 15-20% for India to grow rapidly and also for much faster poverty alleviation.

It might be safe to project that agriculture and allied sector can grow at about 3% real growth rate per annum in next decade. Gross value added in agriculture in 2018-19 (nominal provisional estimates) was 27.75 lakh crore or roughly 400 billion dollars. I If the agriculture sector were to grow at about 7% (3% real and 4% inflation), agriculture GVA will become double by 2030 at $850 billion, bringing the share of agriculture further to about 11% of India’s GDP. Agriculture and allied sector GVA should rise to cross 1 trillion dollar mark by 2033, by the time India’s GDP becomes $10 trillion dollar.

  

Indian mineral GDP is small but extremely important from infrastructure and energy economy 

Mining and quarrying is a significant segment of the primary sector in GDP- extraction of valuable minerals and metal ores from the womb of the earth. Gross Value Added (GVA) in mining and quarrying segment of Indian economy was only Rs. 4.10 lakh crore in 2018-19 at current prices or only about 58.5 billion dollars or approximately 2.4% of the total Gross Value Added in the economy. This sector is also facing major stagnation for last many years. Average growth rate in mines and minerals segment has been less than 2% in last five years.

Mining and quarrying segment has four major sub-segments- fuels, metallic minerals, non-metallic minerals and minor minerals. Solid fuels like coal and lignite and liquid fuels like petroleum products and gas, together make up for a large part of the mining and quarrying gross value added. In 2015-16, value of production contributed by fuels was about Rs. 1.9 lakh crore out of total minerals and metals value of production of Rs. 2.85 lakh crore making up for 2/3^rd of the total value of production. Split between the solid fuels and liquid and gaseous fuels was almost equal at 96000 crore and 94000 crore rupees in 2015-16. Liquid and gaseous fuels are declining whereas solid fuels are witnessing a steady growth rate albeit not at a very high rate.   

India has very large reserves of coal. India currently consumes about 1 billion tons of coal every year. Her proven reserves are over 143 billion tons. However, India digs up only about 750 million tons of coal leading to import of 200-250 million tons of coal every year. India can aim to be an exporter of thermal coal while meeting all the rising requirements and eliminating all imports. India’s reserves endowment of oil and gas may not be very promising but there is certainly lot of scope for increasing the level of production of oil and gas.

Lot of policy reforms and investment push would be needed but it should be possible to improve the growth in this segment quite significantly to levels of about 12% in dollar terms.

At 12% growth, India’s mining and quarrying Gross Value Added can rise from current levels of 63 billion dollars (2019-20) to about 200 billion dollars in 2030.

Taking both agriculture and mining sectors together, constituents of the primary sector, in general, is expected to contribute relatively lower contribution to the growth story of India, in its ambition to raise its GDP to $10 trillion by 2030. It is likely that the primary sector will grow by 4% (nominal 8%) on average until 2030 making a total contribution of a little over 1 trillion dollars in 2030 and about 1.3 trillion in 2033.

Secondary Sector offers Excellent Opportunities

Secondary sector processes the primary sector outputs into industrial goods- capital, intermediate and consumer good. It comprises three distinct sub-sectors from growth perspective- (i) construction of dwellings, buildings and infrastructure, (ii) large manufacturing and (iii) small manufacturing.

India has large deficit in construction of buildings, dwellings and infrastructure. This sector is also expected to see enormous demand as living standard, connectivity and production systems for goods and services improve in the country. This sub-sector has also absorbed much of the labour transition from agriculture to industry (almost 90% of reduction in agriculture workers has been absorbed by the construction segment). This sub-sector can be the biggest growth contributor for India.

Large manufacturing is highly automated both in terms of machines and now use of software. This segment has seen enormous capital infusion but massive replacement of labour by machines/software. The global supply of industrial goods by large manufacturing, organised in global value chains, is outstripping the global demand for industrial goods. In several areas, e.g. steel, global production capacity is higher by 25% over the global demand. Many countries, most particularly in East Asia- Japan, China, South Korea included, have prospered over last few decades building competitive strength in production of manufactured industrial goods, including consumption goods, for exports. This export your way to prosperity by building large manufacturing may not be available to that extent now, but India has tremendous need for boosting large manufacturing for her own industrial and consumption use. This segment should grow although it may not contribute much to employment growth in the economy.

There is however one major opportunity emerging in manufacturing. For geo-strategical reasons and also on account of cost of factors rising in China, there is likely to be a major shift of industry away from China. India can be a big beneficiary of this great re-location.

Small manufacturing, which includes mini, small and medium manufacturing enterprises, in our context, is more dynamic and employment oriented. This segment uses more labour than the investment in machinery and software to produce goods for local consumption. This segment, with modernisation and infusion of new technology, can be a major contributor to India’s growth story.

Secondary sector must grow at higher than the overall GDP growth rate for India to achieve its ambition of $10 trillion-dollar economy. India should plan for secondary sector growth in the range of 8-10% for next 15 years.

Services would be the primary driver to take India to $10 trillion dollar economy

Services are our principal strength and should be our growth engine. There is enormous scope for production of services, both for serving the expanding domestic demand but also for global demand. Services exports have now crossed $200 billion, whereas goods exports are stagnating around $300-325 billion level. With first class human resources and use of new technology, we can really see services powering our growth story for next 20-25 years. Our ambition in services/tertiary sector should be achieve a growth rate of 10-12% over next 25 years.

Growth is essentially generated by growth in consumption, investment and exports. Consumption is the function of rising income and credit expansion. Rising income and credit expansion driven consumption, not accompanied by investments can drive up inflation. Likewise, exports growth, without met by production of goods and services generated by new investments, can also be inflationary. Therefore, investment is the key to growth. Productivity contributes as well in producing more goods and services from same level of investment.

THE GOAL

Considering the backdrop set out above, it is feasible to build a $10 trillion economy by early 2030s. It would also be advisable to set an intermediate goal of $5 economy as well. Considering that India is going to be a $3 trillion economy this year, with the same growth assumptions (11-12% nominal with 1-1.5% depreciation of rupee), the goal of building a $5 trillion economy has been set for the year 2024-25.

Growth achieves several distributional objectives. More income in the hands of people allow them to consume more goods and services. This raises the level of nutrition, health and living standard of people. They can spend more money to live in better houses, have transport means to take care of mobility and spend more on education and health of their children. Larger economy size yields higher tax revenues for the national and sub-national Governments, which help them to build better infrastructure and provide better quality governance services. While several such beneficial impacts and effects take place by sheer fact of richer economy, it is also true that India has severe challenges of multi-dimensional poverty which a large number of people in India still suffer from (estimated to be still one third of population). Likewise, basic minimum services like electricity, safe fuel to cook, availability of safe drinking water in the homes, access to an all-weather road, even basic health need like a toilet are not available to every household. The Government has done enormous work to deliver some of these services to almost every family (electricity, fuel and toilet). However, the work is not finished yet. India would need to take conscious policy and pro-active public measures to ensure that every household has a 24*7 electricity connection, a safe and efficient fuel and medium for cooking food, health services, including access to hospitalisation in the vicinity, sanitation services, including toilets and open defecation free village, cities and nation, safe and quality water supply in the home and such other services. A more equitable distribution of incomes supports growth in consumption and also in societal welfare. Therefore, it is very essential to set national goal in terms of quality of life for every citizen of the country. Every Indian must be able to live a life of good quality assisted by the Government in availing minimum needs of life.

India should, THEREFORE, set for itself a Vision:

“Building a $10 trillion Indian economy by early 2030s,

reaching $5 trillion by 2024-25, with good quality of life

for all her people”

DEVELOPING THE POLICY PROPOSALS

Quick fix solutions do not work for long term sustainable GDP growth

GDP is flow. Production of thousands of goods and services by hundreds of millions of workers in millions of enterprises- individual, small, big, public or private- which are consumed by over a billion people in India is a complex flux or maelstrom. This flux is also affected by several controllable and uncontrollable factors- monsoon, foreign countries’ monetary and trade policies, evolution of new technologies, changes in preferences of consumers, change in the basic policy stance of parties in power and so on. These changes can affect demand (consumption of goods and services) or supply (production of goods and services) or both.  It is not easy to pin point what exactly is changing and what impact it has on the factors of production, demand and supply of goods and services and which specific goods and services.

Underlying change factors can work in one direction or these can be in opposing direction. When these factors work in unison, the impact on GDP growth rate can be quite material. GDP growth rate has become a public concern thanks to widespread media attention. Slow down from 7-8% rate of growth in last five years to 6% or so this year has become a national concern and has made the national mood quite downbeat.

When growth slows down, there is a widespread concern and angst aimed mostly at the Government with the expectation that the Government would bail out the economy from the situation. The pressure becomes intense when slowdown is sharper. There is also pressure on the Government to relieve the economy of the slowdown quickly. This leads many times for the Government to look for quick fixes- paracetamols for taking care of feverish condition and steroids for ‘jump starting’ growth. These quick fixes, more often than not, do not work. Might provide temporary relief but the medicine administered in the form of these quick fixes generally do more harm in the long run or at least prove to be disproportionately costly.

It is advisable to avoid the temptation to go for the temporary solutions.

Raising investments and improving productivity require long range policies

Generating high growth requires large investments. As investments are lumpy requiring lot of capital, both equity and debt, these need to be supported with long term policy framework which nudge these to be competitive but at the same time profitable. Any investments which do not have long term profit visibility will not be taken by the private industry. If such investments are taken in the public sector, it is loss of the collective savings of the people. Policies which provide excessive returns or too quick returns do not take care of the interest of consumers. Excessive guaranteed or expected returns in some infrastructure sector have led to collapse of the business sooner than later. The policies to promote investment in infrastructure and manufacturing of basic goods need to be developed with this perspective in mind.

Long term policy decisions may also turn out to produce sub-optimal results.

The policy decision to have commanding heights of the economy and reserve basic industry for the public sector taken as part of the Industrial Policy Resolution of 1956 is having its ripple effect even now. This decision was motivated by fundamental beliefs that the socialistic pattern of society is better for the country and means of production should mostly be in the hands of public sector instead of with the private sector. This basic policy decision led to development of basic industries- steel, metals, power plants, heavy engineering and so on- in the public sector only. Private sector industries simply did not come up in these areas. The logic of public sector got extended to financial sector which led to nationalisation and exclusive reservation of insurance and banking business for the public sector for many decades. In retrospect, it is easier to conclude that these policy decisions held back India’s growth and resulted into India’s industry growth getting not only non-competitive but also stunted.

It is therefore very necessary that policy decisions taken for the long term perspective are also very well thought through.

Likewise, policy decisions need to be productivity enhancing. Policies, which protect the weak, prolong the inefficient, discourage the competitive and efficient, lead to productivity reducing and consequently depressing the GDP growth. Automation of industry is productivity enhancing. Use of digital technologies in services is productivity enhancing. Holding excessive labour in agriculture is growth depressing and poverty enhancing. Policy of reservation of several hundred products for small scale industry under the mistaken belief that this would provide larger employment proved highly counter-productive.

SPECIFIC POLICY PROPOSALS

Informed by my understanding of various sectors of our economy, I present a number of policy proposals for further examination and consideration. These are broadly divided in three categories- proposals for raising investments and productivity, proposals for improving financial markets for enabling the businesses to have required equity and credit and proposals for improving economic governance.

Summary of Policy Measures

Section 1: Boosting Investments

•      India’s investment rates have fallen to less than 30%. Such low investment rates are persisting for more than 7 years now. Our investment rates exceeded 35% for some quarters during 2005-2014. China averaged investment growth rate in excess of 40% for 25 years (1993-2018) with a peak of 48% and still is clocking over 44% of investment growth rate.

•      While slow-down in housing and construction investment started about 7-8 years ago and is still persisting, there is slowdown in road highways, power generation and telecommunications now.

•      Most infrastructure enterprises are still with the Government- e.g. railways, roads, coal and power.

•      Government’s investment capacity, including that of the public secotr, is severely limited.

•      Quite a few sectors where private sector investment was flowing in earlier have become unattractive for private sector for different reasons- Highways (unviability), Telecom (regulatory excess), Residential Housing (capital appreciation disappearing), Power (unavailability of coal).

•      Serious policy and programme measures required to make these sectors attractive to kick-start the investment cycle in private sector.

•      For investment rate to rise, we need both the domestic savings rates to go up and transfer of savings from the rest of the World.

•      As India would need to keep up growth of consumption, India’s savings will find it difficult to grow beyond 32-35%. This requires 5-8% of India’s GDP to come as external savings transfer.

•      For investment rates to improve, we will need serious reforms for private sector to make investments. Reforms and ambitious investment programme required across infrastructure, digital economy, important service sectors like health, education and travel, significant Make in India sectors like electronics, defence production and automobiles and in waste management would be needed.

•      Infrastructure has massive investment requirement in India- Energy - Oil & Gas, Coal & Power, Transportation- Railways, Airports & Roads, Real Estate- most in residential and Rural, Agriculture and Hills.

•      Almost entire Infrastructure was reserved for Government and Public Sector during Nehruvian socialistic era. Has since been opened up but it is still pre-dominantly Government and Public Sector.

•      Infrastructure investments are long term requiring massive amounts with severe risks associated with their operations and profitability.

•      There is tremendous lack of information which makes infrastructure sectors appear excessively attractive (auction of mobile spectrum or road concessions on BOT basis sometimes; most of the times it is too intimidating for the private sector.

•      Banks also do not understand infrastructure; nor do they have funds to match such long-term requirement. Resulted into large non-performing losses when Indian Banks attempted to do so.

•      Policy reforms are required to make major global and domestic players interested in investing in infrastructure. The Government also needs to undertake crystallising investment in a financially sustainable manner for India to get its infrastructure of 10 trillion dollar economy.

Specific Sectors

1.    Energy

·         India’s energy requirements are set to grow at a healthy clip for several decades on account of

o   Low per capita consumption still

o   Growing GDP to 10 trillion would require lot of additional energy despite energy intensity of GDP reducing

o   Consumption of energy with rising affluence- cooling for instance- would rise materially

·         Lack of Oil and Gas and dominance of Coal as our fossil fuel presents a complex challenge to meet energy needs, including management of green house gases and pollution load. Increasing commercialisation of renewable resources- solar and wind- present real opportunity for energy transition.

·         Oil and Gas and Power sectors are dominated by public sector entities, especially in distribution. This presents enormous challenges in policy making meeting expectations for free or subsidised supply of energy/ electricity for agriculture and residential consumers. The policy choices made has distorted pricing for productive sectors of economy which has implications for India’s manufacturing competitiveness.

·         Private sector has entered into several spheres of Energy Sector but the unprofitability of distribution businesses, most starkly in electricity sector, has not only kept off private sector in distribution businesses but has also made the upstream industry- most spectacularly in the power generation as severely uneconomic.

·         There is too many of small public sector entities- especially in the power sector- which make it quite complex.

A. Oil and Gas

•      Low domestic resources and production-domestic production has fallen in last five years.

•      As consumption has growth steadily, import dependence has reached critical levels- over 85% for oil.

•      For several reasons, oil prices are sustaining at higher levels (last year these crossed $80 per barrel).

•      Developments in the Oil economy affect foreign exchange flows and rupee value severely and in volatile manner.

•      Fiscal vulnerability arising from Oil and Gas economy is quite debilitating.

1. Reform and liberalise oil and gas products market completely by eliminating LPG and Kerosene subsidies over a period of three years closing the gap by gradually raising prices. The phase out programme to begin with by withdrawing subsidies from the income tax payers immediately, followed up by withdrawing from households other than the poor as per SECC Census after a year. Subsidy for poor/deprived as per SCC Census may be continued for a period of 3-5 years.

2. A national gas pipeline grid/ backbone network needs to be built by connecting importing Ports and domestic producing areas with major industrial consumers and major cities under the control of a Central Natural Gas Grid Authority. Delivery/ distribution network from the CNGGA to actual industrial consumers and cities can be built by gas pipeline infrastructure companies. This CNGGA should be a designer, builder by granting concessions and system operator with actual pipelines being constructed on BOOT basis by private enterprises and GAIL. Existing pipeline asses of GAIL which fits in the National Gas Grid should be demerged from GAIL into a separate entity. These existing pipelines and also of private enterprises which can be integrated with this Network. Remaining pipelines in appropriate size can be built on Tariff Based Bidding system.

3. Petroleum products may be moved to GST system over next two years. Presently prevailing effective tax rate (including the impact on input credits not allowed) for each petroleum product may be divided into two parts- GST rate and Non-VATable Excise Duty to ensure that there is no revenue loss to the Government- Centre and the States taken together- in the process.

4. Petroleum products distribution should be privatized keeping only one public sector competitor along with deregulation of gas and kerosene prices and complete decontrol of petrol and diesel prices. Major oil sector public sector entities- Indian Oil Corporation need to be restructured by separating the refining, product distribution and petro-chemicals businesses. BPCL may be put on the block first by selling the Government stake completely in one go. ONGC can off-load HPCL in two-three years. Product distribution business of Indian Oil may be privatized after some time when the real competition has got mainstreamed in the country.

B. Coal

•      India has one of largest thermal coal resources, more than adequate to take care of our requirements for long time.

•      Yet, we don’t produce adequate coal for our own requirements with one third of requirements being met by imported coal.

•      Coal is likely to be competed out by other modes of generating power soon. It also has vast environmental opposition. Window for coal use expansion is likely to be short.

•      Producing coal surplus to our requirements in an environmentally sustainable way requires complete transformation of this industry.

5. Considering the coal resource endowment of the country, coal being the principal fuel for generation of electricity and the fact that coal era may not last for more than 30-40 years, India’s Coal sector policy and enterprises structure needs to be transformed with the aim to make India a net coal exporter in 10 years. For this, coal mining allocation processes needs to be fundamentally reformed to make a coal mine operational in 2-3 years in place of 6-10 years it takes now. Further, monopoly of Coal India needs to be dismantled and coal market needs to be converted from a totally sellers’ market to a buyers’ market. For operationalizing commercial coal mining and 100% FDI, five mines packages of 100 million tons per annum production capacity each may be bid out on a competitive basis inviting best of the global coal mining companies to participate in the auction. No restrictions (linkage, allocation, non-export etc.) should be placed on such bidders and free use/disposal/sale of coal so produced be allowed. It should be followed up with privatisation of all the loss-making subsidiaries of Coal India. Additional test of simplification of mining allocation would be faster and time bound conversion of coal mining licences to power producers who are sitting over potentially 290 million tons of coal production every year. Over a period of 5 years, a very competitive coal mining Industry will develop in India producing more than adequate non-coking/ thermal coal for meeting all our needs, eliminating need to import any thermal coal.

6. Management of coal transportation from collieries to power plants is quite outdated and inefficient. Coal India needs to make transportation of coal from collieries to dump yards to loading points efficient and IT driven. There is excessive charge of freight on coal transportation. Coal transportation by rail, along with most other commodities, should also be opened up by the Railways for the private sector, with no restrictions on movement of coal by containers and the freight to be charged. Railways may recover their haulage charges on commercial basis.

C. Power

•      India is grappling with power sector’s financial unsustainability- largely on account of policy choices made- for last three decades. 

•      Several efforts, including UDAY, have not succeeded on account of their failure to address fundamental issue of financial unviability of distribution segment.

•      Unless addressed in time, Power Sector will sink with causing so much damage, affecting the State Governments most. This time, the fire will not stop at the state governments gate.

•      Fundamental issue can be addressed by a combination of two basic measures- creating market structure with competitive and non-government ownership and delivering whatever assistance the Governments wants to their constituency by means of direct benefit transfer.

•      Large scale restructuring of central utilities is also required.

7. Industry structure of the electricity distribution business and also of transmission and generation business needs to be reformed. Sub-transmission (electric transmission from what is presently categorized as transmission to 11 kv Substantions) and supply of electricity to consumers categorized as ‘distribution/supply’ should be reorganized into separate sub-transmission or the ‘line’ business and provision of electric current to the consumers or the ‘supply’ business. Entire transmission and sub-transmission business, which is profitable today, should be organised as concessions and privatised or monetized both by the Central and State Utilities after removing the artificial distinction of Inter-State Transmission and Intra State Transmission. Monopoly of state ‘distribution’ utilities in electricity supply business needs to be eliminated by introducing 3 to 4 additional distribution/supply licensees in each of ‘distribution/ supply’ area delineated on a basis that, as a contiguous entity, it generates a business of minimum 50 crores in a year.  

8. NTPC is the biggest generation CPSE in the power sector with about 60000 MW of generating capacity. All other entities (NHPC, THDC, SJVN, NEEPCo, DVCs etc. do not aggregate more than 30000 MW. Central Governments’ generation companies should be merged/ organised in maximum two entities- NtPC and one more by merging the rest of all generating companies. In fact, it might be best to merge all the generating Companies in NTPC. Power Finance Corporation PFC) and Rural Electrification Corporation (REC) should be merged (REC has in any case been acquired by PFC) as these are carrying out almost identical financing function. Powergrid can be made a pure transmission enterprise by separating Central Transmission Utility (CTU), which needs to be organized into a separate regulatory entity. After the entire restructuring and reorganisation, there should only be three power sector entities under the Central Government- NTPC, PowerGrid and PFC.

9. Indian industry and businesses need to get power at competitive rates and not artificially enhanced rate with loading of cross-subsidies and inefficient generation. They should be given complete freedom to source their power- buying from the supplying utility(ies), generate it captive or buy it from the market (other generators) or from the power exchanges. This would also require implementation of a completely unrestricted and unburdened ‘open access’ system.

10. One unit of electricity does the same work whether consumed by industry, households or by farmers. Ideally power should be suppllied at one rate, modified only to reflect legitimate differentiation like the type of power (LT connection or HT connection). Consumer based differentiation in tariff must be eliminated to introduce real competition and to do away with market distortions. The Governments can run their end-consumer based (e.g. farmers/ small consumers) welfare/ support programme by using Direct Benefit Transfer (DBT) approach, like in case of LPG, leaving such targeted consumers free to buy their electricity needs from whichever source they consider most efficient and convenient for them.

11. The Central Government should stop all investment support programme in the power sector. The Central Government should, however, undertake one Final Power Sector Reforms programme. All the losses in the States power distribution system as on 1^st April 2020 should be aggregated carefully. These losses can be shared in the ratio of 50:50 between the State Governments and the Central Government on condition and completion of power sector industry restructuring programme, allowing access to industry and business complete freedom to source their power and routing of all the end-consumer based subsidies by delivering on DBT basis. Taking over of the 50% losses should be back-loaded i.e. on completion of all the three components of reform programme. Central Government may not fund this loss take over from the budget. It can create an SPV to raise debt and finance support to the States. This SPV debt can be paid back by allocating repayment to central utilities.

12. Sun is the primary source of energy. Technological developments have made it possible to generate electricity at more competitive costs capturing light from the Sun. Ongoing technological innovations and development would make the Sun as the most competitive source of generating electricity, storing and providing it for consumption all 24 hours. In India also, 5-6% of total electricity produced in a year is now from Solar Photo Voltaic Technology. As India is short of hydro-carbons, including gas, and coal is a sun-set fuel, India’s electricity future lies in renewables, especially solar. To scale up generation and use of solar electricity, India needs to start investing majorly in two streams of most promising technologies- battery storage and hydrogen as the intermediating fuel (solar electricity during day time into hydrogen into electricity at the place and time needed). Investment in the infrastructure required for this should be supported by the State to the extent of cost disability. India should plan to have effective solar generated electricity in the mix of 12.5% by 2030, 25% by 2040 and 50% by 2050.

13. India’s hydro-power potential is less than 20% exploited. India’s neighbour Nepal’s development also can be financed a lot from potential revenues from hydro-power generation. Together, in India’s, Bhutan’s and Nepal’s Himalayan region, unexploited potential of about 2 lakh MW is awaiting right policies and investment. There are excellent co-benefits of hydro-power so generated in controlling floods in Bihar and other States and also developing tourism potential of the Himalayan States. Investment in hydro-power generation projects in the cascade of each of the tributaries of Great Ganga and the Brahmputra and development of tourism projects would be financially viable providing 20% free power generated to the host State. All access infrastructure costs should be borne by the Host State. This hydro-power and tourism development should be planned by a joint Authority. All projects need to be awarded to private project developers on global competitive basis, who should be able to sell power so generated to companies in India, Nepal, Bhutan and Bangladesh.

14. Burning coal, hydro-carbons and bio-mass, while generating electricity or otherwise, produce green house gases like CO2 and nauseating pollutants like SOx and Fly Ash. Electricity generating companies, people using cars and farmers have unfairly succeeded in ‘socialising’ these green-house gases and pollutants. These producers must be forced to bear as much cost of controlling and neutralizing these greenhouse gases and pollutants as these businesses can bear without throwing these out of businesses. The rest needs to be publicly funded. A comprehensive plan to assess generation of these green house gases and pollutants, rules and regulations for controlling these and allocating cost of mitigating/ eliminating these need to be drawn up expeditiously and put into implementation.

2. Transportation

A. Railways

•      Railways carry only around 7% of passenger traffic. Railways passengers are now declining in absolute numbers.

•      Railways are also losing freight traffic steadily.

•      Railways should and can see investments in excess of over 5 lakh crore a year for many years but ends up making only about a third of this requirement- a large part of that is also paper investment.

•      Railways project and financial management is of extremely poor quality- putting considerable pressure on fiscal resources as well.

•      It is absolutely necessary to drastically restructure, monetise and privatise this sector for boosting investment rates.

15. Railways fairs need to be rationalised to make these commercially competitive and raise resources for investments. Railway passenger fares for non-air-conditioned classes should be raised in periodic small doses to compete with non-AC bus fares in a period of two years. Fares of sub-urban and locals in cities should also be raised in small doses/ gradually to achieve 2/3^rd of full cost recovery over a three-year period. Fares of air-conditioned services should be brought competitively to air-conditioned bus fares over a period of two/three years raised in quarterly instalments. Freights should be competitively priced to road sector- even 5-10% lower on routes where there is spare capacity. Dependence of railways on freight income from coal transportation needs to be reduced by diversifying its freight business.

16. Station Development Programme in Railways need to put on an accelerator. Railways should identify 100 Stations, out of a total of about 8000 odd stations which railways has, where the real estate value of the station building and the land appurtenant thereto offers very good possibility of monetisation by improving customers’ experience. These stations should thereafter be developed on the pattern of AAI’s model used for giving the six airports on concession which has brought the best potential value of city side development.

17. Railways passenger services should be reorganised by giving these on 20-25 years’ concession basis for the private sector to invest in refurbishing existing train sets and invest in new train sets. The privatisation process can begin with specialised train services like Vande Bharat, Rajdhani, Shatabdi, Duranto being offered first. Railways/Regulator should specify the minimum service standards and set formula for fare fixation. Non-premium services can be privatised on regional/state/ sub-state basis, with improved standards of services being specified. This can be done in second phase. Running the trains by handing over to IRCTC is no privatisation. After 10 years, railways should not be operating any passenger trains on its own.

18. India should aim to develop 10000 km of high speed and semi-high speed passenger rail network/corridors by 2030. These corridors should be constructed on PPP basis with Railways bidding these out for 40-50 year concession on viability gap basis. The viability gap costs to be borne by Railways, supported by the Government, can be partly recovered by concessioning the passenger services on these tracks. Railways would be earning income by charging for use of tracks and stations.

19. India should develop 10000 km dedicated freight corridor rail network by 2030. These corridors, concessioning the freight movement, should be constructed by bidding it out in PPP concession and viability gap basis. Alternatively, these can be constructed on hybrid annuity model of the road sector or a mix of hybrid annuity and EPC mode.

20. Railways should identify from all residential land parcels and housing complexes it has, select land partials and existing housing complexes for redevelopment, on the basis of an agreed criterion relating to size and the necessity of having a railways residential/ office space. These identified pieces should be offered on 50-60 years concessions to the private sector on a modified NBCC model for getting redeveloped space and cash monetisation. Over the ten year period till 2030, the Railways should modernize and redevelop all such identified land parcels/residential complexes. Railways can create one or more land monetisation and management corporations for this purpose.

21. Railways finances, which are in complete mess, should be placed on stronger and stable footing. Railways are now increasingly raising larger short term and costlier finances. Likewise, expenditure sanctioning processes are very outdated and not conducive to sound financial management. This needs to be reformed by vesting the powers to sanction revised cost estimates in a Committee headed by the Expenditure Secretary, bringing the borrowings of the Railways as part of the Government borrowing programme and controlling the misuse of pricing methodologies for rolling stock and other assets acquired by financing from Corporation like IRFC. Resources raising also requires market orientation.  

22. Railways should hive-off/ privatise most of non-core (other than passenger and freight transportation) business/ activities. After making the terms and conditions of license/concession between Container Corporation of India and the private players similar, sale of majority or complete stake in Container Corporation of India. The Departmental Undertakings manufacturing rolling stock should be corporatized and hived off from the Railways. These can be either privatised or best technology partners inducted with majority equity stake and technology transfer for manufacturing rolling stock on competitive terms and also export. Research Design and Standards Organisation (RDSO) can be hived off into a separate independent Organisation with no mandatory testing work from Railways. RDSO can also work for other Railways of the World. Food Supply in Railways should be completely privatised with all popular brands being allowed to set up their kitchen in appropriate places (including outside railways premises wherever appropriate) and supply to the consumers of railways on demand. Prices should be also deregulated with competition ensuring that there is no artificial hike in prices. Ticketing, like airlines ticketing, to begin with for air-conditioned service, should be allowed to be done by the agents.   IRCTC should be disinvested. Hospitals need to be hived off in a separate entity.

B. Roads

•      Roads sector is a growth multiplier but currently gasping for breath.

•      Expansion of road network at all levels- national, state, districts and villages- is vital for national growth as well as for all round well-being of all people.

•      We have, however, lost the sense of distinction between national and other highways/ roads. Total roads declared as national highways and ‘in principle national highways’ almost doubled in last five years to over 1.9 lakh kilometers. Idea size of national highways grid probably does not exceed a lakh kilometer.

•      Excessive compensation payments for land acquired for roads, rise in construction and compensation claims and building of roads where traffic is not available, has led to national highways roads becoming a severely financial unviable proposition.

•      National Highways finances have become unsustainable and there is no likelihood of completion of the roads announced as national highways and ‘national highways in principle’ even in next 20 years.

23. Road infrastructure investment has the biggest spin-offs in terms of boosting economic activity and social advancement. NHAI has got totally logjammed on account of unplanned and highly excessive expansion of roads declared as “National Highways” and “National Highways in principle”. Aggregate strength of these two types of national highways exceeds over 1.9 lakh kilometers. With NHAI being mandated to pay several times the cost of land and its’ construction cost also shooting up, roads infrastructure have become financially non-viable leading to private investors and construction companies completely withdrawing from the green-field road projects. Model has fully moved to Hybrid Annuity and EPC mode, where all the investment is made by the Government. This is unsustainable and has to be reformed. NHAI should transform itself into a road assets management company. About 50000-60000 kilometers of NHAI approved and in principle national highways would need to be junked and a National Highways Grid blueprint prepared and sanctioned for all the roads that actually need to be taken up as National Highways until 2030.

24. NHAI must recognize road stretch or connected stretches of a reasonable size as a project and create a special purpose vehicle for constructing and managing it. This would allow NHAI to upfront know the financial sustainability/ unsustainability of each project. NHAI should thereafter take a conscious decision for every financially unsustainable project about how to meet the gap, if the project is to be taken up. If the Government were to fund the viability gap, it should be done upfront. Once the project is structured as a financially viable project, it should be bid out on BOT basis.

25. NHAI must structure all its existing completed and on-going projects on the above principle and structure these also as financially viable SPVs. All these projects should be monetized by giving out of Toll Operate Transfer (ToT) model or as InvITs.

C. Airports and Airlines

•      Air passenger business has seen almost total shift to the private sector. It is now resilient enough to take in its stride bankruptcy of major airline like Jet Airways.

•      Airport Infrastructure has also witnessed successful monetization and privatization recently- building on earlier efforts of both greenfield and brownfield privatization.

•      There are some pain points- Air India, constraints on foreign ownership by foreign airlines, commercialization of Airport Authority of India.

•      This sector has enormous investment and growth potential.

26. Airport Authority of India should be restructured as an exclusive Airport Infrastructure Assets management company by separating ATC infrastructure from AAI and placing the same in a regulatory service provider/authority system. AAI’s operating assets should be privatized in such a manner that AAI operates no airport directly. All ‘profitable’ airports should be given on 50 year concessions on terms and conditions successfully used in recent ‘privatisation’ of 6 airports. ‘Non-profitable’ airports should be handed over to private operators on viability gap funding basis. At the end of this, ‘Indian Airports Assets Company’ (IAAC) would be left with managing its airports assets though concessions to private operators. All new airports should be taken up only through private companies.

27. Airlines industry is in deep distress. Thanks to substantial privatisation in the airlines industry, company like Jet Airways could disappear without causing unmanageable upheaval in the airlines industry. There is a need to get fresh capital and airlines to invest in India. Remaining restrictions on FDI, especially on foreign airlines, need to be removed completely.  Air India and its subsidiaries must be sold out with 100% ownership to any bidder, including foreign airlines.

3. Telecom/ Digital Transmission

•      There is a very delicate situation in the telecom sector. Profitability of the sector is finished.

•      Telecommunications sector- voice and data- has almost unlimited scope to expand at very low consumer prices meeting vital consumption and business needs of almost entire population and businesses. Demand is expanding at geometrical rate so is the potential of supply. Yet, the sector is in crisis and near collapse.

•      This sector is investment intensive and can see enormous investment and contribute to India’s growth ambitions only if the incumbents are not driven to death and real competition in services is enhanced.

•      Sector also needs to see complete transition from Government presence as a player.

28. There is no likelihood of BSNL and MTNL surviving for long. Nor do they need to survive. These should be privatized, with or without merger. Extra personnel can be transferred to a surplus cell and paid their regular salaries till retirement (those who can be re-deployed should be re-deployed in Government or other PSUs). Extra debt and all extra Land & Buildings should be demerged into a company which should be transferred to and managed by the National Land Management Corporation.

29. 5G spectrum should be auctioned by fixing up a low reserve price, after making sure that its’ side-effects on health of people, if any, are fully mitigated. It is more important and in the larger interest of people and the country that the 5G services get rolled out than what the Government might get as revenue. Considering the fact that data will be central to the digital economy of the future, public policy should enable fiber optics to be laid all over the country. Government can support its roll out from the Universal Service Obligation Fund. Availability of telecom and data services at low and competitive prices would serve the cause of building national economy much more than the revenue it might yield. There is lot of merit in not looking at telecom sector as a revenue generator any more.

4. Real Estate/ Commercial and Residential

•      Real Estate and Construction are real Investment Drivers.

•      Decline in investment rate from around 35% before 2010-11 to sub-30% thereafter is largely explained by reduction in the construction of buildings and dwellings.

•      This is also reflected in the reduction of physical household savings as well.

•      Decline in real estate construction activity also largely explain rural distress, besides the falling prices of agriculture produce, as not only the wages of construction workers have declined but this also has led to rise in unemployment.

•      India real estate industry, especially the residential industry, has developed in both large corporates as well as in informal and small enterprises.

•      With the collapse of capital gains in the residential segment, the entire residential industry has come under severe pressure. There are various estimates but it is likely that there are non-performing assets of over 10 lakh crores in this segment.

•      This has resulted in many corporate real estate builders and financiers get into bankruptcy situation on account of over-leverage.

•      Inclusion of individuals who have booked flats/houses and have deposited funds with builders in the IBC as financial creditors and enactment of RERA has not helped in resolution of the residential housing crisis.

•      Land is an important factor of production, most critically for the infrastructure, industrial and housing businesses.

•      Most of policies and practices we have followed have led to excessive overpricing of land. Land prices in India are amongst the costliest in the World.

•      Outright land purchase as the mode for acquiring land for industrial and infrastructure products has led to excessive debt leverage. Land as equity is hardly notable in Indian landscape.

•      China has made fabulous use of land as equity creator.

•      Government of India has a large land pool which can be imaginatively put to use for unleashing millions of businesses.

•      An organisation which can create best value for the Government land holding is needed. Such a model than can be followed by State Governments and other local bodies.

30. Capital appreciation, in place of rent saved or earned compared to the prevalent interest rates, has been the driver of investment in residential housing. This has collapsed leading to this industry suffering massive financial losses. These losses have made many real estate companies ‘non-performing loans’ for the non-bank finance companies. Residential Housing Industry need to be transformed by converting into it into a ‘business’ on the lines of Commercial Real Estate Industry. This would also meet growing transformation of demand which is now coming from students, migrant workers, visiting professionals and other classes of people who need residential accommodation on temporary or rental basis. Preference for constructing one owned house at one place is likely to diminish in times to come. Policy changes are required in taxation system e.g. - i. phasing out/reducing ownership related tax concessions like concessional capital gains tax and interest payment deductions while improving tax concessions for rent paid and ii. treating construction and maintenance of residential and shared complexes as ‘business’.

31. Archaic rental laws need to be completely overhauled to shift the rights back in the hands of land-lords with lessees enjoining all necessary rights required as a lessee. Rental housing industry should be able to provide needed accommodation for a day to a year on totally commercial terms. Wrong kind of protection to the tenant need to be replaced with good standard of service which tenants should be able to enjoy during their stay.

32. Real estate industry is extremely important for raising capital investment in the Indian economy. Almost 80% of reduction in investment rate in last six years (from the levels of 35-36% to 29-30%) is explained by reduction in investment in construction/ real estate. The real estate sector is still poorly regulated despite Real Estate Regulation Act (RERA) being enacted and implemented. It is more of a grievance redressal authority. For a good real estate regulatory system, the Regulator need to be competent to approve projects, regulate all intermediaries, and enforce service standards. Confusion of jurisdiction relating to house owners in case of non-performing real estate project also needs to be sorted out. Making house owners financial creditors has served no purpose other than protracting resolution.

33. Government should form a Land Management Corporation, to maximise use of land as equity. This may also be a kind of sovereign wealth fund. All the lands and buildings of loss-making PSUs to be closed should be transferred to this Corporation after demerging the same from the parent PSU. The surplus land of the PSUs, which are to be privatised should also be transferred to this Corporation. Excess lands of the Government Departments/ Ministries should also be transferred to this Corporation. The Land Management Corporation to be managed by professional real estate managers should optimize the land use and the use of land. It can use the most appropriate model for providing equity- in-situ development like what NBCC does, forming joint ventures with the private enterprises for development of industrial estates, modern IT estates, we-work type of facilities and other most appropriate use. This Corporation should also fund the cost of the VRS etc. by way of providing loans to the loss-making enterprises to be closed, at least up to the value of land and building.

5. Agriculture and Rural Infrastructure

•      Irrigation development, both for surface and sub-surface irrigation is, vital for agriculture. Likewise, development of hydro-power is essential for lighting up and meeting other energy needs. Installation of Sardar Patel statue near Narbada Dam has provided excellent tourism side to the irrigation and power development.

•      Hills and River Basin Development Projects need to be completely re-structured as holistic irrigation, power, tourism projects in eco- friendly manner. This approach is necessary from financing and profitability viewpoint.

•      Holistic development and management of water in its entire cycle is key for agriculture and rural development.

•      India should aim to develop its entire water harnessing potential by 2030 to realise the vision of most optimum use of water in agriculture and also provide 24*7 water to all its rural households.

•      So much of people are still trapped in agriculture. With relatively low share of GDP, agriculture is the loci of poverty and mal-nutrition.

•      In the name of farmers’ welfare, we have created laws (APMCs Act, Essential Commodities Act, restrictions on transfer/leasing of land) which actually have hurt interest of farmers.

•      Government has spent its programme resources on production and productivity programme for all segments of agriculture. These programme have persisted for all crops in one name or another for long even if there is no great justification to continue.

•      A drastic re-organization of agriculture sector is needed to really reform and facilitate transition of agriculturists and agriculture workers to non-agriculture occupations.

•      A basic principle which can inform this entire re-organization of agriculture support programme is conversion of benefits in DBT.

34. There is a massive backlog of investment in rural and agriculture infrastructure. Likewise, we have not invested in infrastructure for climate consistent high-income generating infrastructure. India should complete infrastructure of dams, hydro-power generation, tourism promotion and housing and commercial real estate development by 2030 adopting a river basin approach. This infrastructure investment should be guided by the principles of no extra water flowing to Pakistan or the Seas, development of the entire river basin in such a way that it is net zero carbon neutral, it develops the infrastructure holistically making best package for irrigation, power generation, tourism promotion and nature experience enhancing and leads to significant increase in incomes and quality of life of all affected persons. For this purpose, using the precedent of industrial areas development authorities, river basin development authorities should be created under law to be entrusted with this task of holistic development to an authority for each river basin. Common infrastructure can be publicly funded and every activity which can be commercialised should be developed with private sector.

35. Agriculture infrastructure needs to be replanned and re-constructed to ensure that irrigation infrastructure that there is net zero drawl of water from the belly of mother earth, agriculture and all other primary activities are carried out in a manner than there is best value per unit of water used in the zone.  The trend for rural population to move out from villages and satellite habitations will accentuate besides reduction in the new babies born thanks to falling birth rates. Using a mix of decentralised technologies and proximity to grid/cable, all services- electricity, voice and data must become available for delivering a whole host of services- education, medicine and entertainment to rural population. All necessary and appropriate infrastructure should be completed by 2030 to ensure an excellent quality of life for all rural population. A district infrastructure authority should be tasked to specially make it happen.

36. Two important legislative reforms are necessary in the agriculture sector to introduce modern agriculture and free up marketing and distribution system for raising the realisations of the farmers. Permission should be given to the States which have proposed to adopt or amend their land laws on the lines of Model Land Lease Law, as drafted and circulated by NITI Ayog in 2016. Additionally, encourage all the States to adopt this Law within three months. The Essential Commodities Act needs to be simply abolished.

37. Gradually close all the traditional production and productivity enhancement programme of the Ministry of Agriculture over next three years and replace the present level of public expenditure in agriculture by investment in land improvement, farm mechanisation (most with farm equipment hiring) and promoting hiring of agriculture services (on Uber/ Urban Clap model).  Launch a 1 lakh crore equity (cash and land equity) support programme to get an investment of Rs. 5 lakh crores in food packaging, storage, processing and distribution systems over next five years. Aggressive agriculture export strategy with calibrated opening of agriculture imports with lower tariffs, corporatisation of agriculture processing and services and reform of agriculture financing system needs to accompany this programme to make Indian agriculture strong and competitive.

38. Progressively eliminate all agriculture input subsidies (seeds, fertiliser, power and loans) in next three years by providing compensating direct cash support to the farmers. During the phase-out period, switch over to genuine Direct Benefit Transfer (DBT) system to provide fertilizer purchase support to farmers based on their acreage. Adopt direct cash transfer system for ensuring ‘income’ to farmers by paying a specific amount every season determined by taking into account notional MSP prices and market prices, gradually doing away with the system of MSP prices.

39. FCI and other Government agencies to undertake procurement of the food grains required for social security and nutrition programme and also for necessary buffers from the market at prevailing prices. It would be preferable if the Government were to tie it up in future markets before the onset of cropping seasons as this would provide right signals to the farmers.

6. Industry

•      Manufacturing, India’s Achilles’ heel, can be made to sprint.

•      Manufacturing contributes only about 16% of India’s GDP, of which a very large proportion relates to Automobiles. Share of manufacturing in GDP in India is not just growing up.

•      Something different needs to be done.

•      Let us focus on three big winners- Automobiles, Defence Manufacturing and Electronics- which can change the future of manufacturing in India.

•      India’s import of electronics at 60 billion dollars a year is unsustainable. India’s defence imports are also sizeable. Getting it right for electronics and defence manufacturing is India’s solution for foreign exchange vulnerability as well.

•      Bolder and business friendly decisions would be needed.

•      Lot of other industries would also grow around these three industries- very strong multiplier effect will come into play.

A. Electronics Industry

•      Electronics can be what automobiles have been for manufacturing.

•      Global electronics industry is estimated at around 3 trillion dollar. Indian industry is only around $50 billion.

•      Machines are using massive electronics to transform into electronics products. Manual watches have been largely replaced with electronic watches, analogue cameras have been replaced by digital camera, and so on. Some products like mobile phone are replacing so many mechanical products. Cars are becoming so much electronics driven.

•      Electronics is the industry of present and future.

•      We have to get electronics manufacturing for India and the World taking place in India going as far in the value chain as we can. It will be a huge mistake to treat electronics manufacturing as any mechanical manufacturing.

•      Very special measures and packages are needed to get electronic industry rooted in India

40. Indian imports of electronics products and mobile handsets have exceeded $50 billion and are projected to rise very fast unless India develops electronics Industry. There are very few companies globally which control most of the electronics manufacturing globally. Trick is to get some of these companies in India to produce for and export from India. India should offer exempting their profits for 15 years in proportion of the ratio of exports to total turnover. India should also renege on the Electronics Agreement, which is an unfair agreement to fleece developing countries. This would provide more targeted incentive to the Electronics industry than the reduction of corporate tax rate to 15% for all manufacturing companies.

B. Defence Manufacturing

41. The other industry to focus, for the Make in India dream to come true is to set the defence procurement right to make Defence Manufacturing take root in India. India should decide to buy all her defence needs from Indian manufactures- public, private and foreign owned producers. Imports should be totally phased out over a 3-5 years period, except for only products, which Indian industry cannot produce. Armed forces, like many other sectors, should work to develop defence industry in India. This would also encourage exports of defence products from India as one of principal constraint on export i.e. non availability certificates for use in Indian armed forces would get taken care of.

C. Electric Vehicles/Automobiles

42. Electric vehicles are future of mobility as not only these use less polluting fuel, but are going to provide much better travelling experience. The car as machine (minus battery or fuel cell) has a fraction of moving parts and therefore the Car should be soon costing much less than the conventional cars. There is need to separate battery management business from the vehicle. Government should support investment in infrastructure and creation of business of battery management. However, in the interest of competition and also there might be new technologies maturing for vehicles, there should not be any sun-set clause for Internal Combustion Engine (ICE) technology based automobiles. We should also take pre-emptive measures to take care of environmental load which EV industry would be setting forth (batteries disposal etc.).

D. A National Register of Business and a Unique ID for each Business

•      Any business entity- big, small or tiny organized in any form- which produces goods and/or services for sale to the consumers is a separate business.

•      A business has interface with Government, regulators, finance providers, consumers and many others. Today, all these entities generate a separate identity for the business. All these identities are unlinked. This creates a situation of multiple interactions/ compliances with different identities in un-integrated manner.

•      Business man faces high costs of compliances/ interactions but does not derive any advantage of this non-integrated working environment.

•      This needs to change. All these identities need to be linked to a single identity in a digital interface. All interfaces of a business needs to be integrated under one platform which operates through his unique business identify.

43. India should have a National Register of Business with a Unique ID for each business, large, medium, small or tiny managed through a single national Portal. All permissions and compliances, under Central, State or Municipal laws, rules and regulations should be managed through this single Portal, which can be operated under the control of respective authorities.  A very simplified registration systems for all tiny and small enterprises organized as non-corporates (unique registration based on the Aadhaar for their proprietor) for such enterprises will enable these enterprises to electronically participate very conveniently and at least cost of time and money, besides making all these compliances, in the labour exchange, crowd funding platform and for generating their credit scores. For Corporates also a Unique ID number should be provided which can than be linked with every regulatory compliance or for making financial payments or for availing credit etc. This database should also have minimum information relating to the business performance of all unique ID businesses filed every quarter or year depending upon a well thought out system. This would help in designing right of policies and programme.

7. Services

•       Services is our biggest Strength and Opportunity.

•       Services exports are about to touch $200 billion (goods exports are about $350 billion).

•       Our creative and productive human resources are our best bet to expand our footprint in services globally. We can work to raise our share of services from 3.5% to 7% or higher by 2030.

•       While India is doing well in IT services (will also adapt to grow newer IT services), supportive environment in services like financial services, transportation services would be quite necessary.

•       Real opportunity is in three big domain- Health, Education and Travel.

•       All these three services sectors are also big employment generators as well.

•       Government should focus on these three sectors majorly and get the policy, legislative and creation of supportive infrastructure right for these sectors to flourish.

A. Health

•      India can become Global Health Provider.

•      Indian doctors are globally well recognized. Indian hospitals also provide most economical and good quality services to international patients.

•      India is contributing to health well-being by exporting/ internationalizing Yoga. India can also become the Hospital of the World.

•      Most of the advanced rich economies are ageing and need health care service providers. Indian immigrants can also provide global health care services.

•      Unfortunately, our policies so far have been to constraint expansion of health care services. This need to change completely.

•      Let Indian enterprise, Indian human resource talent and supportive regulatory environment create a health care industry in India which can not only meet all the health care needs of Indians but also capture a sizeable chunk of global health market.

44. Severe deficit of trained doctors in India is at the root of poor health services, frequent face-offs between patients and doctors and lack of expansion of medical services in interiors. The medical education needs to be freed up with international and national medical institutions set up to ensure that India achieves a ratio of doctors to every one lakh population which is equal to the average of ratio of top 25% of the countries by 2030. Along with supply of doctors, the supply of other Health Workers also needs to be planned and increased.

45. The advanced countries are ageing and number of workers available in these countries are falling short of the requirement. This applies to the health workers as well. There is increased receptivity to accept health workers from abroad. This is likely to become excellent opportunity to export health workers from India to a number of advanced economies. Let India be provider of the Health Service to the World. A major programme to train 1 lakh health workers per year to meet the demand of foreign countries should be launched by the Government of India under the Skills India Programme.

46. Health services need to be available as close to the people as possible. A network of Hospitals all over India both in public and private sector needs to be created. Demand unleashed by the Ayushman Bharat also needs to be met. Hospital projects in private sector in tier 2 and tier 3 cities should be offered up to 20% equity by the Infrastructure equity corporation or viability gap funding as capital grant. State Governments should be encouraged to provide liberal land grants for setting up hospitals in interior areas.

B. Education

•      Indians spent 2.8 billion dollars on education abroad in 2017-18 whereas foreign students spent 1/5^th of this amount in India. More troubling is the fact that Indian’s spending is constantly rising whereas foreigners’ spending is declining.

•      Indians studying abroad is not a bad thing as most of these students take jobs abroad and their remittances do contribute to the foreign exchange kitty of India.

•      However, India has opportunity of not only reversing these trends but also making education as a major contributor to its services export.

•      If India were to create equivalent of SEZ for establishing campuses by the best of global education institutions, it would not only make Indian students receive global education at much smaller costs, these Education SEZs would be able to draw students from all over World for education (Takshashilas/ Nalandas of the modern World).

•      Domestic education sector needs also to be liberated to flourish.

•      Governments should provide appropriate policy environment to create a class of education entrepreneurs.

47. India spends heavily on foreign education of Indian students. India should actually be educating the World. For that we need world class institutions to be in India. Education Sector should be opened for the Foreign Universities and Institutions. The Government should facilitate making the top 25 global universities to establish themselves in India.

48. There is a totally mistaken belief that ‘education’ has to be a charitable activity. Profits cannot be earned out of education services. The laws and rules are framed to ensure that this objective is achieved, at least in paper compliance. Time has come to invite private investment in education to provide cutting edge technological and other education to our students. Most of the education and skills sector should be declared as ‘non-charitable’.

C. Travel

•      India has been squandering its enormous advantage on travel.

•      Travel related services are the largest employment generator- about 8% of global workforce is in travel related services.

•      Indians undertook 2.6 crore international travel trips in 2017-18 spending $22 billion in process- third largest spent on imports after Oil and Gold. Foreign tourist arrival was only about 40% of this at 1.05 crore.

•      India should target arrival of 50 million foreign tourist arrivals by 2030 and take all necessary steps to make it happen.

•      India’s potential- its history, natural spaces, community, modern advancements and so much more- is immense. Target of 50 million is not big considering there are several individual sites in the World visit receive 10 million visitors a year.

•      Hospitality and tourism is best delivered by the people with businesses organized in private sector. The Government needs to get out of running enterprises in the sector but do a lot to improve infrastructure and create supportive environment for the industry to flourish.

49. Indians spent more than twice the amount in aggregate abroad on travel than foreigners spend in India. Consequently, our travel current account balance is hugely negative. We should aim at making India no net current account travel deficit country in five years and as a net foreign exchange earner country thereafter. The Government should get out of the hotel and tourism financing business and focus on this big priority.

50. For providing right travel experience to every tourist who wants to see and visit India, we should develop end to end solutions and facilities for 25 Iconic sites in India. Excellent connectivity- air, rail and road to these places, clean and wholesome environment, water and hotels and rich experience will make foreign and domestic travel multiply several times from present levels. Most of these facilities and solutions should be in the private sector and public infrastructure can be funded by the Government wherever it is not viable for the private sector with or without viability gap. This should be the only major programme which the Government should support in this sector.

8. Digital Economy

•      Global economy is fast transforming into digital economy.

•      Most services (finance, entertainment, retail) are now being delivered digitally:

§  Alibaba’s platform MYBank lends to SMEs funds in 3 minutes (after doing 3000 variables checks online) at a total cost of 3 renminbi (Rs. 30) as against normal Banks cost of 2000 renminbi. Rejection rates are also much smaller. Platform has lent $290 billion to SMEs.

§  China has share of 42% in digital economy globally; India has less than .5%

•      Enormous investments are being made in creating big data warehouses and millions are getting employed data tagging, analysis and management services. This new wave is by-passing India.

•      We delayed transformation to industrial economy. We cannot afford to delay adoption of digital economy.

A. Start-ups

•      Start-ups represent new digital economy entrepreneurs who will create new businesses, value addition and wealth for growth of India.

•      In the digital economy context, simplest definition of a Start-up is the digital enterprise which delivers a service using digital platform or means which otherwise was delivered manually or delivers a service digitally which was not available earlier (Ola v/s static taxies, loans sanctioned by MYBank v/s loans by brick and mortar branches).

•      Any enterprise delivering such services needs to be recognized as a Start-up and provided hassle free business environment (no gift tax on capital contribution, or numerous physical filings with multiple regulators), financing and income tax concessions for a specified time.

•      Start-ups thrive in an environment of innovations and supportive eco-system. These don’t need subsidy support from Government.

51. Capital contributions to Start Ups cannot be treated as gifts and subjected to tax on tax avoidance argument. Start-ups need to be defined appropriately. The Government has finally done away with application of Section 56 (2)(viib) to Startups by excluding startups from its scope. The Government should also allow capital instruments with differential rights for start-ups for innovator to retain management control even when his economic interests might fall below the normal control levels. Government should also introduce hybrid instruments under FDI for attracting investments in start-ups.

52. Start-ups will bring considerable efficiency, cost reduction and employment by disrupting the existing distribution system and generation and delivery of services. Start-ups and the eco-system which supports it- innovation, venture capital, including angel and accredited investors, liberal use of data and permissive regulation needs to be created and nurtured. Given the potential for the economic value add of the start-up system, it might be advisable to recognize its future significance and create a Department of Start-ups as part of the Ministry of Industries.

B. Digital Economy Governance

•      A digital economy start-up in freight transportation business informed during budget discussions that he has to file bagful of physical returns whereas he is prepared to provide all this information in digital form.

•      No Start up gets exempted from any of old economy regulations/ requirements- registration under shops and establishment act, all kind of permissions from municipal authorities and so on.

•      We don’t have an ease of doing template for Start-ups.

•      We need to evolve a new Governance system for digital economy ‘establishments’, most specifically for Start-ups, recognizing their special requirements at different stages of growth.

•      A digital economy start-up in freight transportation business informed during budget discussions that he has to file bagful of physical returns whereas he is prepared to provide all this information in digital form.

•      No Start up gets exempted from any of old economy regulations/ requirements- registration under shops and establishment act, all kind of permissions from municipal authorities and so on.

•      We don’t have an ease of doing template for Start-ups.

•      We need to evolve a new Governance system for digital economy ‘establishments’, most specifically for Start-ups, recognizing their special requirements at different stages of growth.

53. Digital Economy is real and will become increasingly mainstream. India should set an ambitious digital economy GDP target (our current share is abysmal) and the Department of Economic Affairs should start viewing economy, GDP and other macro-economic parameters from the lens of digital economy as the real economy. MEITY should be transformed into a Ministry of Digital Services for giving a big push to use of digital technologies in use of production and consumption of services and for creating regulatory framework which is highly facilitative of digital economy. Other wings of the Government, Ministry of Statistics and Central Statistical Organisation needs to measure digital economy.

54. Present approach towards FDI in e-commerce needs to be thoroughly revisited. We need to get out of this platform only and no inventory model mindset. FDI should be permitted 100% in e-commerce without any restrictions of model. Likewise, all add on restrictions like local sourcing needs to be simply removed from single brand retail.

C. Data

•      Digital economy rides on Data.

•      Data is raw material, foundation (oil), circulatory system (blood) or examination/assessment/regulating system (nerves) of the digital economy.

•      Without free and easy availability of data (3000 checks carried out by MYBank are all based on data somewhere), digital businesses cannot be built and conducted with efficiency and assurance required by digital economy.

•      Present proposals to deal with data are not digital economy friendly.

55. Personal data/ critical personal data need to be defined quite narrowly keeping in consideration the likely harm which can be caused to the person concerned. There should be no restriction on use of personal data in the anonymised form and for processing for financial services. Only critical personal data should be allowed to be used with prior effective consent of the person concerned or at the instance of person concerned or for law enforcement purpose. The proposed Personal Data Protection law needs to be recast substantially and should be enacted as part of a law to Promote Use of Data for Advancement of Digital Economy. We should not prescribe or use any data localization requirement. RBI’s restrictions on data localization made under payment regulations should be withdrawn completely. Only restrictions which are required relating to critical personal data or security related imperatives, if any, should be retained under the new law piloted by MEITY.

56. India had created a lot of IT Parks to nurture and sustain IT BPO and KPO industry. Time has come for India to constructs 100s of Data Centre Park on the lines of but much greater in scope, a Data Centre Park created in Maharashtra. India should aim at becoming data storage and processing hub of the World. We should develop quickly all the skills required for this purpose, whether data labeling to mastering technologies which use big data to deliver services. Aggressive pursuit of data related businesses and digital economy should be our goal of new ‘industrial policy’ or new ‘digital economy policy’.

 

D. Liberal Royalty regime for Technology Imports

•      Proactive import of new technology is in India’s interest.

•      It is a fact that lot of technology innovation and development still happens abroad.

•      Our policy choice of inventing/ reinventing the wheel made us lose the opportunity seized by East Asian countries to export to the world of goods made by using technology imported from these very countries.

•      Liberal technology regime enabled by liberal royalty regime allowed FDI, GDP and Exports to increase.

•      Attempts to cap royalties again will be counter-productive.

•      India should actively acquire/buy technology firms abroad and put in place a much more supportive policy regime for innovation and technology development.

57. As most of the technological innovation, including in the digital economy space, is still taking place abroad and there is no advantage in re-inventing the wheel wherever it has already been invented, we should follow the policy of open encouragement to technology imports (no royalty caps but tax arbitrage may be eliminated)

9. Clean Water, Green India and Blue Skies

•      India was for many years sceptical and dismissive of Ease of Doing Business Surveys and Ranking by the World Bank, unsuccessfully hiding real constraints which the business was facing in the country.

•      Government changed the approach in 2014 and decided to get India judged on the criterion which was being used to assess ease of doing business globally.

•      Once the basic approach changed, India took hundreds of decisions to facilitate establishment and operation of business in India improving its ranking from a lowly 146 to 77 in four years. More improvements are expected.

•      We need to adopt same approach to provide ease and quality of life to all our citizens.

•      Likewise, India needs to adopt a very proactive approach to deal with pollution and deterioration in quality of air, water and temperature to realise the vision of Blue Skies, Green Earth and Pure Water.

•      This would require widespread action.

58. It is important to convert every ‘waste- solid, liquid or air pollutant’ into a useful product to ensure clean water, green India and blue skies. The circular economy business and industry should be supported with viability gap funding, if necessary, by levying compensating tax/ charge on the waste-generator. The regulatory route adopted so far, which results into only no-objections being issued, needs to be replaced by a constructive policy route which help facilitate this transition. India must become a zero-waste economy by 2030. Ministry of Environment and Forest’s mandate should be defined as the Ministry which will ensure that every waste or discharge, which has potential of polluting or causing adverse environmental consequence, would be controlled with financially viable investment or processed in a useful and environmentally sustainable product. This would require every kind of waste/pollutant- fly ash, plastics, sodium di-oxide etc. to be managed as raw materials for conversion into useful products. Instead of following a no-objection or commercially killing regulations approach, MoEF should be entrusted with the responsibility of accounting for every ‘waste’ from our consumption or production process and work with industry to transform these commercially into value added products.

59. Swachh Bharat Abhiyan needs to be expanded to cover wider cleanliness agenda. It should now encompass cleaning of all rivers and water bodies including canals for ‘clean water (nirmal pani)’. India should also manage its water cycle- from the point it receives to the point it gets consumed to the point it gets back as waste water to make sure there is all treated and used without any un-avoidable loss. A Mission like Swachh Bharat Abhiyan should be launched for air - Swachh Vayu Abhiyan.

II: Building Financial System for $10 trillion economy

•      It is the savings from current incomes, built up wealth from past incomes and credit which finance investments.

•      Indian savings are grossly insufficient to finance our investment requirements. On the other hand, the World, specially the advanced countries, are awash with savings (17 trillion dollar bonds are yielding negative returns on account of lack of investment opportunities).

•      Our financial system is excessively debt focused and does not provide equity to entrepreneurs.

•      Indian credit system is still quite under-developed and in the hands of risk averse public sector. For these and various other reasons, Indian financial system is not in a position of providing needed kind of credit and also credit volume.

•      India needs enormous equity and debt financing from abroad to meet its investment financing needs.

•      Several proposals are offered to build and strengthen Indian Financial System to provide requisite equity and debt and to ensure flow of foreign savings to India in a sound manner.

•      Key policies/ strategies for building up financial system for $10 trillion economy

•      Fiscal dominance of the financial system would need to be eliminated- lower fiscal deficits, reduced/moderate level of public debt and market-orientation of savings pre-emptions.

•      Healthy flow of abundant global savings into Indian financial system.

•      Strong market institutions for raising capital and debt in India- development of bond markets to ease up Banking dominance, development of equity markets for all enterprises.

•      Private ownership of financial institutions.

•      Strong transformation in favour of fintech and non-cash mode of transactions.

10. Sound fiscal management

A. Moderate Fiscal Deficit Regime

•      India’s fiscal management ship needs to be steadied.

•      Despite serious efforts to control fiscal deficits in last five years, India’s fiscal management system is still not predictable, uses practices which are not sound and stable and runs levels of deficits and debt which are high and unsustainable.

•      Our commitment to bring down fiscal deficit to 3%, which is absolutely necessary for sound macro-economic management and also for bringing down high interest rates, is not considered credible. Off-budget borrowings, payment of food subsidies by extending loans from NSSF, deferring of fertilizer subsidies by enabling availing of loans from Banks all needs to be discontinued and merged in the goal of 3%.

•      Our high debt levels are a deterrent on our credit ratings and makes a big part of our revenues go in serving these debts. Almost entire debt raised goes in paying interest.

•      A stable and predictable fiscal management (3% FD, Debt to GDP below 40% for Central Government, FD used largely for capital expenditure and discontinuance of all off-budget borrowings and accounting adjustments) will help tremendously in developing financial markets in India.

60. Financial system in the country has remained stunted on account of excessive pre-emption of financial savings by the Government (including States) and public sector. 10 trillion dollar economy will be built largely in the private sector. To ensure that a fair share of domestic financial resources become available to the private sector, the Central Government must make a credible commitment publicly to contain real fiscal deficit to 3% of GDP (off-budget borrowings etc. to be eliminated over a period of 3 years gradually). The Government should also ensure 2% of GDP in capital expenditure/ investment every year.

B. Controlling Public Debt and Improving Transparency of Fiscal Information

•      A developing economy needs financial resources to make investment and grow.

•      Printing currency was tried in many countries until 1980s. Consequences were disastrous with inflation sky-rocketing all over.

•      Expanding debt has been the resort. Expansion of debt is helpful if it within a healthy limit. If credit to private sector or raising of public debt expands unlinked to the real growth in the economy and availability of savings, debt can be as worst a resource as printing money.

•      Public Debt in India is beyond these healthy limits and therefore needs to be controlled within healthier limits.

•      Transparency of debt and liabilities information is also extremely important for investors, both domestic and foreign, to make informed decision. Transparency actually results in greater interest of lenders and lower interest for the Government.

•      State bonds are not subscribed by foreign investors due to lack of information about states’ finances.

61. Public debt in India is one of the largest amongst the emerging market economies and is one of the principal reasons for static sovereign credit rating of the country. Therefore, the Central Government must implement her decision to bring the ratio of Loans and Liabilities to GDP to 40% by 2024-25 and thereafter continue on the path of further moderation keeping fiscal deficit to GDP ratio at 3%. The State Governments should also continue on the path of fiscal consolidation and debt management. In addition, they should provide the Statement of Fiscal Accounts at a Glance every month on the pattern of information provided by the Central Government, besides improving availability of financial information in general.

C. Development of Government Securities Market

•      India has a strange and unsound system of Government’s debt being managed by the Central Bank- RBI. Hardly any other Government in the World does it so.

•      There is a big conflict of interest for the Central Bank as well. Monetary policy would require measures to be taken several times which might actually restrict demand for the Government Securities. RBI is disallowed to subscribe to GoI securities in primary auctions, but has to buy and sell GoI securities in large quantities for its open market operations.

•      Government’s fiscal management would also improve if it were to manage its own debt.

•      There has been agreements quite a few times in the past, including inclusion of this proposal in the Finance Bill of 2015-16.

•      A 10 trillion dollar economy cannot be built with Central Bank hand-holding Government in managing its debt.

62. Government of India should take over its debt issuance from RBI in next two years and should issue bonds across all maturities to build a domestic yield curve. Government debt securities should be maintained in a regular Depository by terminating the system of subsidiary ledgers which RBI manages presently. Additionally, Over the Counter (OTC) market in the government securities should be regulated and supervised by the SEBI in place of RBI. This will lead to an integrated modern government securities market in the country.

D. Issuance of Sovereign Bonds in Foreign Currency

•      A confidant India needs to raise Sovereign Bonds in Foreign Currency.

•      Advanced economies are awash with savings, whereas developing countries like India are still hugely short of savings to fund investment.

•      All macro-economic indicators suggest that investment demand has been declining in the advanced economies, whereas there is enormous unsatisfied investment demand in the emerging market countries.

•      There is substantial difference in the nominal and effective rates of interest in the advanced economies and the developing economies. There is no good reason for this large differential to exist. Going forward this is likely to get narrower and narrower.

•      Raising sovereign debt in foreign currency is the real opportunity to raise resources at cheaper cost to meet the investment gap.

•      Several path breaking decisions have been opened in the fast for integrating with the global economy. Time for sovereign bonds is right now.

•      There is no medicine for irrational fear. It has to be simply set aside.

63. Central Government should raise approximately 10% of her annual borrowing in the form of sovereign bonds (foreign currency denominated listed in foreign exchanges) to build upon portfolio of approximately 100 billion dollars. Thereafter, sovereign bonds offering for retirement of maturing bonds and new borrowings should be managed in such a manner that aggregated sovereign bonds outstanding does not exceed 5% of GDP.

11. Creating Massive Equity and Sovereign Wealth Funds

•      Government’s investments in financial sector behemoths like LIC and SBI are neither yielding any proportionate returns to the Government, nor are being used productively for deepening and expanding financial sector in India.

•      Likewise, foreign exchange reserves maintained by the RBI yield very low returns and now at much higher levels than required for any liquidity purpose. Additionally, by keeping these invested in treasury and other financial sector institutions abroad, their use for acquisition of strategic, technological and financial sector assets abroad is being foregone.

•      Two sovereign wealth funds are recommended to be created for contributing to the goal of $10 trillion economy.

A. Creating NIIF II and III

64. NIIF I have successfully created institutional framework for investment in infrastructure. Government’s initiative in committing Rs. 20000 crores for infrastructure investment through NIIF system is on ways to crystalise over Rs. 5 lakh crores of equity investment in infrastructure. The Government should plan to scale up the NIIF vehicles by creating at least 2 more NIIFs with Government investment of Rs. 50000 crores to facilitate equity investment of a total 1500000 crore in infrastructure by 2030.

B. Promoting an Equity Financing Corporation

65. Government should promote a mainstream Equity Financing Corporation for infrastructure with a commitment to provide equity support of Rs. 50000 crores for a minority 40% share. Like NIIF Investment Manager, a professional managed Corporation needs to be set up with general people offered opportunity to provide 25% equity of this Corporation. The rest can be offered to Indian and foreign investors.

C. A $150 Billion Financial Sector Sovereign Wealth Fund

•      Returns on Government’s investment in its financial sector entities- Public Sector Banks (PSBs) most prominently- has been pathetic. An investment of over 5 lakh crore in the equity capital of PSBs did not yield even half a percent dividend return in 2018-19.

•      On the other hand, value has been destroyed continuously in the form of capitalization value erosion.

•      Government’s financial investments in the Banks and other financial sector entities need to be managed for generating good financial returns.

•      Public interest would be much better served if the Government were to nurture development of private sector entities in financial space- both Banks and Non-Banks.

•      There is unquestioned need for entrusting Government’s investment in financial sector entities to a professional body.

•      An Indian Tamasek needs to be created.

66. Value of Government stake in financial sector entities (Banks and Insurance Companies including LIC, SBI) exceeds 10 lakh crores. Transferring this stake to a Financial Sector Holding Company (which will be a sovereign wealth fund management entity) would create a $150 billion plus investment corporation.  This entity can manage its investment to provide steady disinvestment revenues to the Government and provide professional leadership to the Banks and Insurance Companies. The entity can also use its resources, including enormous borrowing powers to make investments in private sector financial entities as well.

D. $100 Billion Foreign Exchange Reserves Sovereign Wealth Fund

•      Time to think of better use of India’s Foreign Exchange Reserves.

•      1991 shook India out of its comfort zone built on unsound policies pursued in socialist and planned economy era of 1950s-1980s.

•      We have been excessively conservative in managing our foreign exchange reserves since then investing all of our $400 billion in low yielding liquid instruments of other central banks.

•      We have not really studied how much of foreign exchange reserves are needed to serve the liquidity objective.

•      Time has come to think of managing foreign exchange reserves for better returns.

67. Reserve Bank of India is holding over $ 425 billion in foreign exchange reserves, which is in excess of any liquidity management requirement. The RBI earns very low returns on its foreign exchange reserves. Additionally, deployment of reserves in low yielding securities of other central banks deprives India the opportunity to invest abroad in commercial larger returns yielding higher returns and owning good assets abroad. It is time to transfer/invest $100 billion of Foreign Exchange Reserves with RBI in an external faced Investment Corporation (Sovereign Wealth Fund) for investing in strong financial entities which yield higher returns and in companies/ ventures abroad which are useful for serving Indian interests including in bringing cutting edge technologies and businesses to India.

12. Making Rupee an International Currency by 2030 and Expanding Opportunities for Raising Equity from Abroad for Indian companies

•       

•      India is going to be third largest economy by 2030. India would also be trading with the world both for goods and services in equivalent of trillion of dollars.

•      In the absence of Indian rupee having any semblance of an international currency, all trade and financial account transactions take place in dollars or dollar proxied other currencies.

•      The World is suffering from the dominance of dollar as international currency and looking for ways to go away from the ‘dollar standard’.

•      While India may join international effort to develop a universal international currency, it might be quite strategic and advantageous if we evolve rupee as an international currency.

A. Making Indian Rupee Convertible

68. India will be close to being a 10 trillion dollar economy by 2030. That would Indian economy the third last economy in the World, way ahead of Japan and United Kingdom which have their currencies as part of the IMF’s basket of currencies. India should aim at making Rupee part of the IMF’s basket of international currencies by 2030. Along with, we should take all the steps required to be taken to transaction a good part of our international trade designated in rupee.

69. A large Non-Deliverable Forward (NDF) market operates outside India (in at least six major financial centres) where rupee- dollar forwards of over $200 billion get transacted every day.  India is losing lot of trade and revenue without getting any of the advantages of protecting Indian currency. Calibrated steps would need to be taken to move towards full capital account convertibility by 2030.

B. Listing Equities and GDRs/ADRs abroad

•      India is undergoing a massive equity crisis. Unfortunately, it is not recognized as we are so much debt focused.

•      India’s equity needs cannot be met from domestic resources. So much foreign equity available needs to be gainfully tapped for investment in India.

•      We don’t allow our companies to raise equity abroad. We have placed severe limits on foreigner investors participation in equity of Indian companies.

•      Budget made some important announcements in this respect. Needs to be followed through for implementation.

70. Indian companies cannot list their equities abroad today directly. Many companies are creating by-passing arrangements but then such equity remains abroad. Indian companies should be permitted to list equity and/or GDR/ADR in specified market abroad by adopting global rules of beneficial ownership.

C. Raising FDI limits to Sectoral Limits

•      India should start harbouring ambition of making Rupee a global currency one day.

•      India’s capital account requires liberalisation keeping this purpose in mind besides meeting needs of foreign equity capital.

•      Most of restrictions on foreign ownership still remaining are in the financial sector- 49% ownership limits in insurance and pensions, no foreign entity allowed to take more than 10% equity in Banks etc.

•      All financial sector entities are regulated and appropriate restrictions can be placed on repatriation of profits. This should enable further liberalisation of foreign investment limits.

•      Process intensity of the FDI regulations also need to be carefully examined.

•      At the same time, we may need to place appropriate restrictions to ensure that financial entities are not owned by entities coming from undesirable jurisdictions.

71. Budget 2019-20 has announced several measures with highly beneficial implications for encouraging flow of equity from abroad. This includes raising of foreign investment limits to the sectoral limits as a default mode (specific companies can pass specific resolutions to limit it to lower level). Likewise, raising the foreign investment limits in public sector companies needs to be followed through.

D. Other FDI Reforms

72. India should complete reform and liberalisation of FDI regime soon. For this (i) we should change the default system to make all FDIs to be under automatic route except for a specified negative list which may require permission from the Government, (ii) allow liberal use of hybrid and differential voting rights instruments need to be permitted to meet the needs of the digital economy and newer models of doing business and (iii) all local sourcing conditions for single and multiple brand retail need to be done away with. Only condition for multiple brand retail may be that the share of foreign produced goods will not exceed 25% of total turn-over.

E. Completion of FDI Liberalisation in Financial Sector

73. The Budget 2019-20 announced Government’s intention to review FDI limits in remaining financial sector entities (insurance/ pensions). There is nothing strategic about these sectors. The investment pattern for the funds raised by way of premium/contributions is governed by the financial sector regulators. FDI can be considered to be raised to 100% in both these sectors.

13. Financial Sector Reforms

•      Taking over of commanding heights of real economy, including nationalization of industry has received considerable attention. But, nationalization of entire financial system in India has not been in the public debate.

•      Starting with nationalization of insurance businesses, entire banking sector was nationalized in India.

•      Other financial market instruments- bonds, mutual funds, private equity etc. had no chance of developing in India until 1990s in private sector.

•      In 1990, India’s financial system was almost completely public sector dominated.

•      Private sector entry started again with some bank licences being given in 1990s, Non-Bank sector being opened and later insurance sector being opened for foreign investment.

•      Even now, much of India’s financial sector is publicly owned and dominated.

•      This need to change drastically.

•      India should go for creating a Private Sector dominated Financial System.

•      We have good regulators in the financial system but our system is quite fragmented and disjointed.

•      For some segments like commodities, gold and non-banks, we do not adequate regulatory arrangements. Whereas, for some, we possibly have more regulators than what is possibly needed (we have separate regulators for pensions and insurance).

•      Financial entities today get into a wider spectrum of financial businesses. They do not want to confine to only one segment of financial system, which is regulated by one regulator. This has created lot of complications for the regulated entities.

•      We are still to evolve a good regulatory system for financial conglomerates.

•       

A: Banking Reforms

•      Nationalization of Banks was possibly a huge mistake.

•      Finance is more sophisticated and higher risk-taking economic activity than managing a real economy enterprise. The premise that Banks can better finance investment and businesses in India under public sector format is totally flawed.

•      After the Banks were nationalized in 1969, they did not really fund investments for many decades. Actually, the Banks essentially succeeded in moblising deposits from people in what is described as CASA deposits which provided low cost resources to the Banks. Such low-cost deposits actually are a tax on ordinary people.

•      On the lending side, despite several policy and regulatory interventions like priority sector lending etc., the expansion of credit has been relatively much smaller (in terms of credit to GDP ratio).

•      These Public Sector Banks did not simply provide risk capital. In fact, these Banks converted people’s savings (which could have gone into risk capital as well) into debt to make India a high debt economy with low equity.

•      Nationalisation of Banks peaked in 1980. Almost 90% of assets in the financial system in 1980s were owned by nationalized Banks with very little of private banking and almost non-existent bonds and other components of financial market.

•      Reversal of banking nationalisation started in 1992 with some public institutions and private entities being given the licences to open Banks. This has got expanded over the years with many private banks coming into existence. Private Banks now own about 1/3^rd of the assets in the Banking System.

•      The Government has been doing ‘consolidation’ of Banks. Consolidation may bring some efficiency gains and cut costs to some extent. But, this will have no impact on expansion of credit or Banks becoming harbinger of investment promotion in the economy as no driver which results in credit and investment expansion is getting changed.

•      We will have to move from cosmetic to real.

74. Public Sector Banks, except SBI, were created out of the nationalisation of private sector Banks. Objectives intended to be achieved have not been fulfilled. Most PSBs are of small size and their lending record has also not been quite credible. New Private Sector Banks, licensed after 1994 have done much better. Public Sector Banks need to be re-organised and professionally run.

The sixteen odd PSBs (after consolidation of three Banks in Bank of Baroda and divestment of the IDBI Bank) need to be consolidated in at the most four entities to realise real efficiency gains. If any of the PSB does not fit in this Consolidation Scheme for whatever reason, the same should be simply privatised by selling majority state or entire stake. Government shareholding in these 5-6 large consolidated entities (SBI, BoB and three/four more) should be transferred to a holding company (Indian Banking and Insurance Assets Corporation), to be managed as a sovereign wealth fund with professionals managing the holding company. There is need to reform Cooperative Banks, which provide either crop credit or some agriculture equipment/investment credit and Urban Cooperative Banks also. Urban Cooperative Banks should either be reorganised as Small Finance Bank with complete regulatory control of RBI and no control of State Governments or be merged in Banks or Non-Banks or simply closed. The RRBs should also be merged with their sponsor Banks or one National Rural Bank can be created by merging all the RRBs (by transferring the stakes of the sponsoring Banks to the Central Government or to the Holding Company.

B: Insurance Reforms

•      No public interest is served by keeping Insurance in Public Sector

•      There was no great justification in nationalizing insurance companies in India in fifties and sixties. Possibly, this was hubris and ill effect of socialistic influence on policy making.

•      Insurance industry essentially pools the private sector risks and provide a great solution by spreading the loss which some only would suffer to all those who need protection from risk.

•      It is hard to imagine this business being the business of the Government.

•      Process of undoing nationalisation has truly begun in India.  India would be a much better place in terms of management of insurable risks if the entire insurance sector is totally in private sector by 2030 (except possibly an LIC which is indirectly owned to some extent by GoI through an investment vehicle).

75. It is high time owning and handling of insurance enterprises of the Government- both life and non-life is relooked seriously. With the private sector provided open entry in the insurance business, the private sector insurance companies are fast acquiring increasingly larger stake of the market and are possibly best suited to expand these businesses in the country. Life Insurance business is growing in the private sector and a few entities have been listed with very strong valuations. Investors see lot of value in life insurance business. It is high time the Life Insurance Corporation (LIC) is listed, initially with 10% equity, gradually going up to 26%.2019-20 would mark the year when the private general insurance companies share in premium would cross 50%. Of the four non-life insurance companies, National Insurance has already been listed. Remaining three needs to be merged into one entity or one can be merged with the National Insurance and the remaining two into another. There should not be more than two Government owned non-life insurance companies. The second non-life insurance company should also be listed this year itself. Government stake in all the three consolidated insurance companies- LIC and two non-life- should also be transferred to the Holding Company (Indian Banking and Insurance Assets Corporation) to be managed in a professional manner.

C. NBFC Reforms

•      Non-Banks deserve a large place Under the Sun in India.

•      Banks, by the very nature of their existential model, cannot finance every investment and business, in particular long term.

•      Bond markets are evolving but would take time to flourish and meet the investment needs.

•      Non-Banks or better call these Financial Companies are needed to meet all the financing needs from providing credit and equity to those who cannot be served by the Banks to provide all non-funded services.

•      Financial Companies do not have right regulatory and developmental eco-system in the country.

•      It will contribute immensely if we can the non-banks to play a big role in building Indian economy of 10 trillion dollars.

76. Non-Banks are the financial intermediators of future in place of Banks. They can provide credit and a lot of other financial services to the industry and the people much more efficiently and at a fraction of cost of conventional banks. The disadvantage of not having access to cheaper savings deposits is more than compensated by the NBFCs as these are much more versatile system of delivering financial services than Banks. Adoption of digital technologies and ability to process big data for making these decisions make them further competitive with reach to every geography, every person and every business. NBFCs can also provide financial services, including credit, for which Banks are not suited to do so. Therefore, non-Banks should be provided conducive policy and regulatory environment. RBI is not a suitable institution to undertake resolution of Systemically Important NBFCs. This task should be assigned to a professional resolution corporation as was proposed in the FRDI Bill. NBFCs should be able to get good access to funding. Debentures should be developed as the tool of raising largest share of finance for NBFCs- a kind of substitute for deposits for longer term.

D. Development of Corporate Bond Markets

•      Almost all the treasuries issue and manage their bonds. India is an exception with the RBI issuing and managing government securities. RBI also maintain an in-house depository system operated through only Banks. RBI also literally run the OTC market in government securities. SEBI regulates trading of government securities in stock exchanges. There is a convoluted arrangement for transfer of government securities held in RBI SGLs to depositories for securities traded in exchanges. There is almost no participation of retail in government securities.

•      Almost all the corporate debt is issued under private placement basis. The way public issuance system for corporate is structured, it is relatively far costlier. Consequently, retail participation in corporate bond markets is also completely missing.

•      Non-Bank Finance Companies have no direct access to savings of people as the deposits are not permitted and bonds are not issued under public issuance process.

77. India is still heavily Bank dominated financial market. Banks, both public and private sector, are unsuitable for financing infrastructure, start-ups and small businesses on account of their classical assets-liability mismatch. Bonds have funded infrastructure sector worldwide. Bonds provides ideal match between the long-term savers, including pension and insurance funds, and the infrastructure projects’ need for long term finance. India needs to take several measures to develop bond markets. Public issuance system of bond market should be developed to become the principal mode of debt issuance by Corporates. For this, a very easy process (as close to private placement process, if not easier), substantial reduction in cost of public issuances (a major departure from the current process mimicking share issuance to a totally electronic format) and removal of Debenture Redemption Reserve for public issuances need to be put in place. Measures need to be taken, besides providing a hassle free and simple process of electronic participation in primary and secondary debt market, for incentivizing retail participation in the corporate bond market.

E. Development of Gold as Financial Asset

•      Some estimates suggest India has about 25000 tons of gold, lying mostly in unproductive jewelry and other forms. At Rs. 400 crore a ton, means India has 10000000 crore or 100 trillion rupees or 1.5 trillion dollar of equity in the country.

•      Can we find a way to convert even 10% of this into financial asset and use that for investment financing in the country?

•      Lot of work has been done on building gold as a financial asset. We need to fast-track the same.

•      However, much more of creative thinking will need to be done make the gold finance investment in India.

78. Gold based financial products, across all asset classes bank deposits, bonds, insurance products, pension products etc. which provide the financial gains expected by people from holding of gold, take away risk of holding gold and reduces/eliminates cost inefficiencies of holding gain besides providing some additional financial return, can nudge people to substitute gold holding as a financial asset with financial sector products. This will also have positive implications for gold import as people would be able to reap gains of holding gold as a financial asset without physically holding gold. Policy prepared in this regard needs to be implemented.

F. Development of Sustainable Finance Market

•      Sustainability considerations are becoming very important in financial projects.

•      Financing enables investments to take place. There is a movement worldwide now which is nudging the finance to fund sustainable projects, the projects which serve either the climatic goals or the SDGs, preferably and in times to come only.

•      EU Parliament has passed a law which will most likely come in force by 2022. Others are also taking similar steps.

•      We will, therefore, need to re-orient our financial system to move towards first recognizing and then preferably funding sustainable projects.

•      We should also be careful to see how we will continue to fund what others might consider non-sustainable project e.g. in coal sector.

79. To tap global savings pools (pension/ insurance/ sovereign wealth funds), projects need to be developed as ‘sustainable’ (which are demonstrably servicing either SDGs or Climate Finance objectives. To tap global savings pools (pension/ insurance/ sovereign wealth funds), projects need to be developed as ‘sustainable’ (which are demonstrably servicing either SDGs or Climate Finance objectives.

G. Monetisation of Brownfield Assets

•      Infrastructure assets in particular, once completed and free of lot of risks, become quite attractive for whole lot of investors looking for long term steady returns, including very small investors.

•      Equity locked in such assets, the brownfield assets, is not only less remunerative deployment for the entrepreneur, including Government, but in many cases operate as binding constraints for further investment in newer assets building.

•      We, in India, have not made use of the assets recycling modes for freeing up such equity except lately when some efforts have been made in some organisations.

•      Like Privatisation or Disinvestment as a strategy, Brownfield Assets Monetisation needs to become primary mode of equity recycling in operating infrastructure assets.

80. Mature assets e.g. power and transmission assets of Power Grid can be turned into Infrastructure Investment Trusts (InvITs) for direct investment by savers and freeing up capital resources for new investment priorities. Railway assets need to be leveraged for meeting investment needs for both renewal and building new assets. Railway tracks can be converted into one national track and few regional track companies. Likewise, rolling stock and wagons may also be corporatized and then either privatised or their assets monetised using these instruments.

H. Resolution of Financial Entities

•      India has never had a good liquidation and resolution mechanism for financial entities. As most of financial entities were in public sector, possibly such a need was not really felt. However, with private sector expanding in financial sector- NBFCs, Private Banks, Insurance Companies and so on, there is an unavoidable need for such a regime.

•      RBI or SEBI or IRDA cannot be a resolution mechanism as the very nature of financial entities would require such an institution to get in control of a specialized agency at relatively an early stage of incipient insolvency for it to use most appropriate tools to make it return to a healthy state.

•      ILFS, and now DHFL, and may be many more in times to come will require specialized mechanism to resolve.

•      FRDI Act had lot of good features. An appropriate legislation needs to be passed as early as possible to bring in this mechanism.

81. Financial entities- Banks, Non-Bank Finance Companies (NBFCs), Insurance companies, Capital Market Infrastructure companies like stock exchanges etc. have special features and cannot be resolved under the Insolvency and Bankruptcy Act. Primarily usual lenders like Banks in these institutions are debtors and the depositors/bond holders, which are principal lenders, are so diffused and disbursed that they cannot lead any lenders driven resolution process. Likewise, regulators driven process lead to conflict of interest and freezing of the operations of the entities. A specialised resolution process, as proposed in the Financial Resolution and Development Institution Bill, with appropriate amendments for Public Sector Banks and depositors will be needed for resolving financial sector entities.

14. Controlling Cash Economy & Promoting Fintech

•      Cash has been serving the transaction purpose for quite a long period of time.

•      Cash has severe limitations although for small value transactions, it is still quite competitive and convenient.

•      Trick is to make the non-cash mode of transaction as, if not more, convenient and as, if not less, costly as cash mode.

•      China has done it. More than 87% transactions now take place in non-cash mode as compared to 12% in India.

•      Several measures need to be taken to make cash little costlier and more inconvenient and fin-tech based transactions efficient, cost less and convenient.

•      Implicit subsidies for cash transaction (no charge while depositing cash in banks, not providing notes of less than 10 rupees for transactions etc.) need to be gradually eliminated and fin-tech infrastructure, using the LED model, made universal and cost free.

A. Cash Economy

•      Cash is still quite high in the system. There is also stocking of Rs. 2000 note in evidence. Expansion of digital payments is taking place all over the world. It is happening in India as well. The pace is much slower.

•      Digital payment products continue to face two major disabilities- only Banks are permitted effectively to offer; non-Banks and other financial sector players are not. Amendment in the Payment and Settlement Act made through Finance Bill 2017 are still to be notified. Proposals made by the Committee in 2019 are literally dumped.

•      Fintech firms offering payment solutions are likely to be disadvantaged by the recent budget proposal to do away with MDR without providing for an alternative to such firms to recover their costs and charges.

82. Rs. 2000 bank-note accounts for app. 1/3^rd of currency notes in circulation in value terms. A good chunk of Rs. 2000 notes are actually not in circulation, having been hoarded. Rs. 2000 note, therefore, is not presently working as a currency of transaction. It can be demonetized, without causing any disruption. A simple method, depositing these notes in the bank accounts (no counter replacement), can be used in manage the process.

83. Cash is past its hey-days, although for a very different reason it is making a comeback in countries with negative interest yielding deposit rates/bond yields. Very convenient digital modes of making payments are replacing cash at a fast pace. India has still a long way to go with more than 85% payment transactions in the country still taking place in cash. The pace has to be accelerated. Making large cash based transactions costlier and subject to some tax/charge, making digital modes of payments available at all times and more and more convenient and stopping cash handling in the Government completely will help transition our country to less cash and to no cash economy. Payment and Settlement Act need to be reformed and modernized. RBI needs to move beyond the Banks and involve all other payment infrastructure participants in this business of making payments digital. A more participative regulatory system for payments need to be put in place.

B. Fintech based lending and other financial services

•      Technology, including Block Chain, Artificial Intelligence and Internet of Things, is expanding exponentially in financial sector.

•      Most of these developments are quite positive, cutting the cost of delivery and making delivery of service convenient. Some developments, especially on the private crypto-currencies front are worrisome also.

•      Two reports have been delivered by the Group of Secretaries- one on Fintech and another on Crypto-currencies and use of block-chain technologies. Implementation of both the reports would help India mainstream desirable Fintech.

•      Several valuable innovations can be made using Fintech.

84. After payments, borrowing and lending is becoming digital fast. It is also proving to be more versatile (much better credit appraisal), reducing cost of credit delivery and making delivery of loans and recoveries much faster and convenient. India needs to catch up fast for using models like MYBank of Alibaba. Likewise, innovative modes of credit delivery like market-place mode of credit provision and also peer to peer lending (crowd funding) platform need to be promoted (with strong regulation) to fund small enterprises. Fintech, including distributed ledger technologies, need to be mainstreamed to deliver all types of financial services.

III. Governance

•      India’s governance system is not business and value added focused.

•      Measures taken for liberalisation of industry initiated in 1991 have run its course.

•      Financial markets- both equity and debt- are stagnating (very little of fresh equity issuance) or faltering (public sector banking system stumbling back to low level of performance while coming out of multi-year severe crisis).

•      Government needs to undertake fundamental governance reforms and restructuring:

•      Get out of most businesses;

•      Shift whatever businesses are still required in the public sector (no business must be run as a Departmental Undertaking) in couple of investment vehicles;

•      Severely reduce the number of Economic Ministries and Departments and focus the Ones to be retained on value creation and profitability of the private enterprises in their Sphere;

•      Create conditions for private sector investors (including from the savings surplus countries) to invest.

•      There is still too much of Government despite our avowed objective of Minimum Government Maximum Governance.

•      Presenting several drastic governance reforms measures which need to be taken up.

•      Onslaught of socialism and nationalization during fifties to seventies made Government supreme arbiter in entire industry and financial sector. Lot of the industry and financial institutions got owned by the Government and the rest were severely controlled and regulated.

•      This made India suffer low growth and financial sector under-development for four decades. Liberalisation in 1990s made important beginning but the agenda is still largely unfinished.

•      Proposals relating to real and infrastructure sector have been presented in the Investment Section. Proposals relating to financial sector and relating to factors of production and also for agriculture sector are presented in this section.

15. Labour Reforms for Employment Creation

•      Real welfare of working classes lies in getting a larger share of net national income, which should be increasing at a fast clip, as wage income.

•      ‘Protecting jobs’ when there is no value addition by the enterprise- when the enterprise is sick- amounts to providing dole from the tax payers money not wage.

•      Working conditions in ‘factories’ have improved substantially and, in many services related jobs, the working conditions are not an issue.

•      Old labour laws designed to protect workers from exploitation are much less relevant today.

•      Protecting such organized jobs do not result into employment creation at all.

•      A very different approach taking into account the modern reality of digital and automated working environment and most ‘wage jobs’ increasingly becoming unlinked to ‘fixed hour, fixed place of job’ is needed.

•      A modern and topical system of promoting employment, reforming labour laws and providing social security to workers is needed.

•      Government is undertaking massive consolidation of labour laws in four codes. These reforms are unlikely to have any positive impact on ‘creating jobs’, which essentially is linked to expansion of production of goods and services. A ‘wage’ paying job in any form- contractual, fixed, gig economy or otherwise, comes from the expansion of economic activity only.

•      Putting all the categories of workers- regular time wage workers, job wage workers, part time workers etc. in one single category actually hurts the ‘workers’ and will make the whole Code unworkable.

•      How the new economy workers- digital workers, gig economy workers etc. would be treated is not very clear. A differentiated approach for the different kind of ‘workers’ is necessary.

•      Approach to employment in Government also requires a fundamental rethink.

•      Government is undertaking massive consolidation of labour laws in four codes.

•      Reforms are however missing from the consolidation exercise.

•      Consolidation of wages related four laws in one code would still keep minimum wage rate administratively determined in place of freeing up the minimum wage rate and will require over 300 different minimum wage rates to be still determined. As minimum wages of quite a large segment of working jobs will go up, there would either be increase in violations or there would be reduction in employment.

•      Reform of industrial relations laws does not bring any reform relating to employing workers. Therefore, labour would still continue to be viewed as a constraint on enterprise, rather than a necessary and valuable factor of production.

•      Implementation of Code would create economic distortions.

85. Relationship of employer and employment and form of Employment is changing massively in the new economy. Automation and digitisation is gradually eliminating need for low skill manual labour. The manual labour needs to be skilled to performance more value-added functions. Instead of protecting this class of labour by continuing with minimum wages for hundreds of classes of manual and semi-manual work, the State Governments should be constrained by law to fix only one minimum wage rate for only manual workers for the entire state. There should be no minimum wages for rest of the labour classes. Conditions of work in industry and enterprises have improved tremendously. With services providing majority of value addition in the economy, there is need to gradually roll back a number of labour laws which provide undue protection or impose undue compliance burden on enterprises and make them uncompetitive Bankruptcy law now overrides restrictions on closure of enterprise. Individual bankruptcy is also around the corner. Therefore, freedom to shut business/industry should be provided to entrepreneurs in the interest of competitiveness and consumer interest.

86. A Common Labour Code for uncommon classes of ‘labour’ is a bad idea and approach today. It would be advisable to have different set of laws and regulations for (i) industrial economy employees, (ii) workers of enterprises in services, and (iii) which are not ‘workers’ in the formal sense- para and informal workers, contractors/ ‘workers’ of the gig economy where labour works on more self-owned/employed basis. In fact, there is no need to have any labour protection laws for the services enterprises and the non-workers. For the industrial/ manufacturing enterprises also, instead of continuing with classification linked to use of power and number of workers, it might be useful to recognize the differential based on a ‘Corporate’ or ‘Individual’ enterprise. All industrial/ manufacturing organized as Corporates, which should include all partnerships or association of persons with more than 10 employees may be subjected to a select list of obligations relating to labour welfare. The ‘Individual’ enterprises may be simply left to be informal.

C. Social Security

•      Need to re-think social security package for Workers.

•      Workers’ participation rate, especially for women, are falling alarmingly.

•      Unemployment rates, especially amongst educated workers, are also rising to the discomfort of every-one.

•      Conditions of work have improved significantly over last many years and are not major cause of discomfort for workers.

•      Nature of work is also changing. Fixed life long employment is vanishing fast. Many are turning into gig workers. Many have intermittent periods of non-work.

•      Workers are also working from diverse places of work, including from homes.

•      It calls for rethinking industrial era social security package.

•      There are always a large number of people, who for any reasons- physical disability, absence of any skills, social reasons etc.- cannot offer themselves for work in labour markets.

•      State needs to support such sections of people.

•      There are numerous but fragmented programme for delivering benefits to such deserving people by both Central and State Governments.

•      There is need to design and integrate all these programme approaching it from the view-point of recipient.

•      Basic principles- all available benefits delivered as single or limited number of beneficiaries programme, digital identity and direct benefit transfer mode of delivery.

•      An integrated record of benefits delivered should be kept and be available at one place to not only ensure that the right person gets benefitted but also there are no leakages.

87. There should be strong public support for post active life of the para and informal workers. The Government should also build strong retirement and mid-career inactivity period for contractual, para workers and informal workers. This would require a more targeted and financially sustainable Shram Yogi Mandhan (SYM) Scheme and a modified Public Provident Fund Scheme. Labour force (aged 16-64 with permitted exclusions) in employment needs social security after ‘retirement’. A simplified digital interface for the SYM Scheme and proper marketing will be necessary to reach to every such worker without a formal pension/ provident fund arrangement. A SYM Authority/ Corporation can be built to receive and invest the accumulation and later to disburse pensions. Workers subjected to mandatory provident fund contribution needs to be provided choice of staying with EPFO or join NPS. Both EPFO and NPS should be corporatised for receiving contributions, making investments and disbursing pensions/benefits. 

88. One National Employment Program by merging MNREGA and all other wage employment-oriented programs for all able-bodied persons looking for employment. Persons offering themselves for labour/ unskilled employment should be compulsorily screened for identifying their potential for skills and be then put through employment-oriented skills acquisition program at public cost (earning wages for skills training period).

89. All price subsidy programs- food, kerosene etc. may also be converted into direct cash subsidy deposited into beneficiaries’ accounts. A single National Social Safety Net Program for all old, infirm, disabled, beggars etc. (i) with residence, food and care by building appropriate homes and facilities or (ii) cash assistance for taking care of other legitimate needs would better serve the cause of providing social security to such people who cannot work to earn their living..

16. Reorganization, including closure of Ministries, Departments and Government enterprises

•      When the structure of Government’s ownership in a sector changes or when the task assigned to a Ministry/Department gets completed, it is time to consider closing/ down-siding the Ministry/ Department.

•      Changing nature of work and re-organization in line with real business of a Ministry/ Department also justifies changing the mandate and nomenclature of the Ministry/ Department.

•      India needs to re-organize land related business completely.

•      Specific proposals are presented for DFS, DIPAM, Ministry of Commerce and Industry and for creation of a special agency for managing the land assets of the Government and its PSUs.

A. Financial Services

•      Except the State Bank of India (as its precursor Imperial Bank of India) and some of the State controlled Banks, which later on became associate banks of SBI, almost all the Banks were in private sector in India at the time of independence or were established as such after independence.

•      Likewise, insurance business was almost entirely in private sector, with some States running insurance schemes as successor states of princely states.

•      Department of Financial Services (DFS) originated as a Division of the Department of Economic Affairs to manage the nationalized banks and insurance companies.

•      By the 1980s, almost entire banking and insurance industry in India was Government of India owned and DFS/Division of Banking & Insurance under DEA managed these as Owner.

•      Clock started turning back in 1990s. Now, there is substantial presence of privately owned and controlled banking and insurance companies. Other segments of financial sector have also growth most prominently in private sector. Capital markets have also grown as major players. Time to exit.

90. The Departments of Financial Services under the Ministry of Finance are tasked with responsibilities which need to be completed in a time frame of not more than five years and then merged in the Department of Economic Affairs. Department of Financial Services is entrusted primarily to manage the Government owned banking, insurance and housing financial enterprises. The enterprises managed should be re-organised/consolidated, some of these enterprises sold and the remaining entrusted to a holding company. The Bank Nationalisation Act needs to be dumped on its 50^th anniversary. The consolidated Banks should be governed under the Companies structure and under Banking Regulations Act like all other private Banks. At the end of this exercise, the Government should not be left with anything except the policy making, which is better done by the Department of Economic Affairs and the Government ownership stake in the Holding Company. The DFS also handles insurance enterprises of the Government- both life and non-life. This role should also cease to require a separate Department to handle.

B. Department of Investment and Public Asset Management (DIPAM)

•      India needs a policy of De-nationalisation and Privatisation.

•      There were reportedly only 5 Central Public Sector Undertakings in 1951. We have 237 active and over 75 CPSUs in ‘construction’ phase.

•      A large number of CPSUs are results of nationalisation policy followed by the Government until 1980s.

•      Another big set of CPSUs got begetted when the Government nixed private enterprise in the country by following model of ‘only under public sector’.

•      Almost all the CPSUs now operate in the economic sphere/ industry verticals, where there is presence of private sector.

•      There is no reason for the Government to remain in any industry vertical where its share is small. Such PSUs need to be sold off immediately taking out excess land.

•      There needs to be now an active policy of de-nationalisation and promoting privatisation.

91. The Department of Investment and Public Asset Management (DIPAM) is the other Department, also under the Ministry of Finance, which is entrusted with a specific task, which should also be completed over a definite period of time. Most of the Public Enterprises, which the Government owns and runs presently, were born out of two policy decisions taken- to reserve the commanding heights of the economy for the public sector and to nationalize private enterprises- mostly loss making. These policies have since been completely up-turned. Almost every sphere of production has been opened to the private sector and instead of nationalisation, divestment of government stake is being done. Most of the PSUs don’t have any economic or social rationale to continue under the Government ownership. Over 200 odd enterprises owned by the Government should be classified in broadly three classes on three broad matrices- market share, profitability and type of business. The enterprises in production of private goods (other than infrastructure space) should be privatised by selling entire Government stake, irrespective of the fact whether such enterprises are profitable or not and whether such enterprises have significant or insignificant market share. Enterprises which are consistently loss making and do not produce public goods should be closed by paying off their employees, transferring their land and building assets to a Land Management Company to be set up by the Government as a sovereign wealth fund. The remaining enterprises, should be privatised/ minority stake sold as disinvestment depending upon its profitability, market share and competitiveness.

92. Government should commence the real privatisation/ sale of the PSUs identified for sale this year and complete this programme by 2022-23. In this programme, undertake some big-ticket PSUs for sale this year- BPCL, BHEL, NALCO, to name a few. Air India sale off in 2021-22 by letting go 100% of equity when market conditions are conducive for sale.

Ministry of Industry

•      Reforming Industry related Policy Making Apparatus.

•      Industrial policy resolutions of the Government of India led to policy making in command and control mode to be vested in the Government of India. Creation of a large number of PSUs led to the need to manage them through Ministries/Departments. This has resulted in Government of India having Ministries/Departments for so many industries that it is unprecedented.

•      We have Ministry of Steel, Ministry of Fertilisers, Ministry of Chemicals and Petro-chemicals and so on.

•      Planning Commission, which was the Supreme Organisation, of this Command and Control economic management is no longer in existence rightly.

•      There is critical need to take a zero-base budget kind of review for several industry specific Ministries and Departments in the Government of India.

•      This will also further the cause of Minimum Government and Maximum Governance.

•      Elimination or consolidation will solve many problems.

93. The Government of India runs quite a few Ministries/ Departments to manage public sector enterprises essentially (policy making role of these Departments is relatively quite small and can be assigned to the Department of Industrial Development). Such Ministries and Departments, to name a few, are Ministry of Steel, Ministry of Heavy Industries, Ministry of Fertilisers, Department of Chemicals and Petro-Chemicals. Such Ministries/ Departments should be closed/ merged with the Department of Industrial Development. Thereafter, the Department of Promotion of Industry and Internal Trade, excluding the Internal Trade, can be reorganized as the Ministry of Industry. Reformed Ministry of Industry should be tasked with three specific goals- a. craft industrial policy and programme (with no direct fiscal support) to raise India’s manufacturing GDP 2.5 trillion by 2030, b. raise India’s manufacturing exports 20% of India’s manufacturing GDP i.e. $500 billion by 2030 and c. annual investments in Start-Ups reach $100 billion by 2030.

Ministry of Commerce and Services

94. Industry is different than services. There needs to be one separate Ministry for Commerce and Services. The Department of Commerce is primarily charged with external trade. The linkage of internal trade and services needs to be with the Department of Commerce. The Department of Commerce can be reorganized as the Ministry of Commerce, Trade and Services.  Reformed Ministry of Commerce should be tasked to secure for India in next three years- a. export of 5 million trained and qualified service providers to advanced economies of today and b. all necessary market access, including for legal, accounting and other services to raise India’s services exports to $1 trillion per annum by 2030.  

17. Budgeting and Tax Policy Reforms

Budget Speech Reforms

•      It is constitutional requirement to present annual financial statement of estimates (commonly referred to as budget) every year. The Government also presents A statement of demand for grants and Finance Bill for getting certain legislative changes approved. These documents are very detailed and are presented in the form of a number of books.

•      Very little of this information and accounts is included in the Budget Speech which the Finance Minister makes. It is not possible to do so. Nor, is it desirable.

•      Budget Speech needs to be used for drawing attention of the people to the most significant policies and programme which have informed the budget, financial allocations and tax policy.

•      There is no other better occasion to present Government’s economic, financial and fiscal policies and thinking than the budget speech.

•      All aspects of the economic functioning, major structural reforms, expenditure policy, including redistribution and public benefit policies and borrowing policy of the Government needs to be prominently conveyed through the Budget Speech. Allocations may be indicated in an Annex.

95. Finance Minister makes a budget speech while laying down the ‘Annual Financial Statement’ commonly known as Budget in the Parliament. Annual Financial Statement is the statement of revenues, expenditures and deficits of the Government. The occasion has developed into a major policy making event. This year’s budget speech had very little of numbers. The Budget Speech should evolve into a policy making speech event only. The Budget Speech should clearly outline Government’s Expenditure Policy, Tax Policy, Macro-economic Management policy and also major structural reforms which the Government intends to initiate in the short, medium and long term. One year is quite a long period for making economic policy announcements. It would be advisable to come up with a Statement on Performance of Budget and Economy at the end of Monsoon session. This occasion can also be used for taking additional policy measures.

Tax Policy and Measures and Budget Speech

•      There has been a tradition to present the Tax related measures as Part B of the Budget Speech.

•      It is a throwback on the times, when rate of postcard was announced in the budget speech.

•      Most of the Indirect taxes have also moved to a different governance system with GST council deciding most of the issues and rates.

•      While respect predictability of taxation system would demand that there is very little tempering with the rate and incidence structure from year to year, the reality of functioning in 21^st century would dictate that the Government does not have to wait for making changes which are needed to be taken during the year. This also reduces these matters to be brought up as part of the Budget Speech.

•      If at all some rates are to be modified or some tax incidence related measures taken at the time of budget, these can be included in an Annex.

•      Tax policy is an important part of economic, fiscal, investment and distributional policies, but can no longer be dealt in isolation.

96. It is a tradition to announce tax related measures and policy in the Part B of the Budget Speech of the Finance Minister. There is no need to announce specific tax measures in the Budget Speech. To a great extent, after GST related tax matters having been assigned to the GST Council, there is very little in terms of indirect tax measures to be announced at the budget presentation time. The tax policies affect growth, investment, structural shifts in the economy and also consumption in the economy. In this manner, tax policy measures need to be woven into the entire budget speech integrating it with other policy measures considered for affecting these economic variables and behaviour. Part B of the Budget Speech should be discontinued completely.

19. Regulatory and Other Governance Reforms

Integration and Reform of Financial Sector Regulators

•      We have good regulators in the financial system but our system is quite fragmented and disjointed.

•      For some segments like commodities, gold and non-banks, we do not adequate regulatory arrangements. Whereas, for some, we possibly have more regulators than what is possibly needed (we have separate regulators for pensions and insurance).

•      Financial entities today get into a wider spectrum of financial businesses. They do not want to confine to only one segment of financial system, which is regulated by one regulator. This has created lot of complications for the regulated entities.

•      We are still to evolve a good regulatory system for financial conglomerates.

97. Financial sector has many regulators largely organised on the basis of segment of financial sector. Some regulators like the Insurance (IRDA) and the Pension (PFRDA) have large overlap as well. Some like Housing (NHB) have very small segment whereas closely linked sector like Non-Bank (NBFCs) do not have any specialist regulator. Some other segments like commodities have a regulator for some commodity (CERC for electricity and SEBI for commodity derivatives) but there is no regulator for most commodities, including gold. Regulatory reforms in the financial sector would suggest that there should be one Regulator for Insurance and Pension sectors (Insurance and Pension Development and Regulatory Authority), and another for Housing and Non-Banks (Non-Banks and Housing Development and Regulatory Authority). There should be one Regulator for Commodities, both spot and futures, for electricity, gold and other commodities.

Integration and Reform of Financial Sector Regulators

•      Under the socialistic pattern of society model of economic development, most of the Ministries and Departments developed not only as policy making bodies but also as the monopoly players with large public sector undertakings coming into existence directly under their administrative control.

•      Opening of economy, de-licencing and  entry of domestic and foreign players in these areas resulted into the Government Departments/ Ministries becoming regulators as well as players, which certainly was not an optimal system of governance.

•      Consequently, a number of regulators have come in existence in the non-financial space as well. Regulatory system also unfortunately has grown following Ministry/ Department pattern. This has resulted into Regulators also working with Departmental perspective and under all constraints which flow from this.

•      Regulatory system needs a major overhaul.

98. There is large scale mess in regulatory architecture of the country. In the transport sector, we do not have any regulator for railway tariff- passenger or freight. There is a regulator in the air travel space. Likewise, for bus transport again, there is no regulatory mechanism, but for the ‘ports’ we have. As all the modes of travel compete with each other or complement each other, should there be no single regulator for transport. In the energy field, the situation is still more complex. There is a separate regulator for petroleum and natural gas, but with very limited authority. Power Sector has not only a central regulator but also a regulator in each of the States. Nuclear energy has a very different regulatory arrangement. Other sources of energy do not have any appropriate regulatory arrangement. India needs one Energy Regulator. A large- scale shake-up and streamlining of regulatory arrangements is needed.

Leashing Investigative Agencies and professionally equipping them to go after the big fish effectively

•      Several factors are responsible for India to develop highly stigmatized capitalist model- reservation of natural resources, major industry and infrastructure for the public sector throwing out private enterprise, virtual nationalisation of all financial businesses, protection of inefficient business by high tariff wall, raising income tax rates to over 97%, provision of equity in the form of loans by public sector banks and several other policies.

•      Political funding on the sly from businesses who derived the financial resources from the public sector institutions was also responsible.

•      Businessmen were making profits using monopoly status conferred by total control over production expansion. Licence-permit raj contributed majorly.

•      All this led to development of a bias in so many investigative and accountability institutions we have created that ‘businessmen is Chor’.

•      Indian industry  is now facing competition from global and local firms and will have to function to make legitimate profits. There is a big need for change of mandate and ways of functioning of these agencies.

99. Anti-business mindset of the Government agencies, a legacy of the socialist regime, is still quite intact. Cozy relationship between business and politics developed during this phase led to high degree of crony capitalism in the country. Generation and use of black-money to escape taxes, especially inhuman income taxes prevalent until early 1990s, creation of equity by taking loans from the financial system, pocketing personal profits by ripping off funds from procurement, gold-plating and other means and money-laundering had become the order of the day. Things started changing after income tax rates were made reasonable, competitiveness was brought in by bringing down tariffs and several other means. Digitisation of business process, including the interface with the Government and real punishing measures like Insolvency and Bankruptcy Code have brought about drastic change in business climate. It is time plethora of investigating agencies we have, ranging from Income Tax to Enforcement Directorate to CBI to DRI, are professionalized and their business processes streamlined and jurisdiction so clearly defined to avoid every agency getting into every case and muddying the waters. Business and Industry is the real wealth creater and service providers.

20. India a Developed Nation in 2030

•      India was a poor nation in 1950s. International Development Agency (IDA) was created largely to help finance India’s development needs. At one stage, over 40% of annual financing of IDA was committed to India.

•      India has transformed from low income country to a lower middle-income country some years back and now moving stridently towards becoming an upper middle-income country.

•      In line with the changing profile of the country, India has gradually eliminated taking aid from bilateral donors. India has also graduated from IDA.

•      As we move further, we should plan our roadmap for declaring ourselves as a Developed Nation and re-orient our international engagement accordingly.

•      2030 should be the year when India becomes a truly developed nation with her citizens enjoying the quality life with high income, freedom and happiness.

100. India should announce itself as a Developed Nation in 2030 shedding the tag of Developing Country. Upon declaring such a status, (i) India should voluntarily stop borrowing from the World Bank and all other multi-lateral Banks; (ii) India should stop availing any concessions and special privileges available to a developing country in WTO; (iii) India should stop asking for any special and differentiated treatment in climate or any other international treaty and agreement. Additionally, India should consider converting its EXIM Bank into an India International Development Assistance Agency (IIDAA) sometime by 2022, India should be a significant provider of aid and assistance to developing countries in Africa and South Asia in 2030. India should also consider joining OECD as a member or create an alternate OECD type organisation for emerging market countries which have become upper middle-income countries or are on course of doing so.India should be a hugely influential nation economically leading the pack in G-20 and other forum.