Business Today

Get cracking on reforms

Manmohan Singh must recover the spirit of 1991 and become a reformer again to restore the credibility of his government, argues Gurcharan Das.

Print Edition: March 20, 2011

What is at stake here is nothing less than the credibility of the Manmohan Singh government. Corruption, a steady drift in policy-making, and a paralysis of governance have raised serious questions about this government's ability to run the country. The Prime Minister gives the impression that he is in office but not in power. So, what is to be done? The answer, I think, lies in some hints that Manmohan Singh gave at what was otherwise a disappointing press conference last week. The government should play from its strength and reassert its authority.

It should begin by taking credit for some of the reforms that it has almost achieved. The best example is the far-reaching Goods and Services Tax, or GST. It is by far the most important tax legislation in India's history as a free nation, which will for the first time make India into one common market, cut huge inefficiencies and corruption, improve revenues of the states and Centre, lower the overall burden of indirect taxation, and eventually lower prices.

Although GST was proposed by the previous NDA regime, this government has worked patiently with the states to make it almost into a reality. The government is now ready with a constitutional amendment which is the next step. However, the states ruled by the Bharatiya Janata Party oppose it. The Prime Minister has to sit down with Opposition members and cut a deal. We know that he is capable of it. He cut a deal when it came to the nuclear pact and helped to transform our relationship with the United States. Once the deal is made the government must go on the offensive and take credit for it.

What I am suggesting is that Manmohan Singh should try and recover the spirit of 1991 and become a reformer again. No longer does he have to contend with the Left parties. Take the case of food inflation. So far, this government has been applying short-term bandages - it tries to catch hoarders, stops forward trading, forbids export of grains when the country has had a bumper rice harvest, and expects a record wheat crop (while ignoring the grain worth Rs 17,000 crore rotting under the tarpaulins of FCI). The key thing is to increase long-term supply. This requires that we recapitalise and reform agriculture both at the production and distribution stage. We have to allow competition against FCI in the warehousing of food, permit foreign investment in modern retail to establish cold chains and reduce crop wastage, and allow farmers to lease their lands to entrepreneurs in order to raise productivity.

Although reforms happen at the level of the states, a strong, reformminded government at the Centre can make a huge difference. Take a third example. The future of our country will be written in the cities, not in the villages. Our cities are crumbling and this government has realised it. It has created a major reform in the management of our cities with the Jawaharlal Nehru National Urban Renewal Mission, or JNNURM. A few cities have responded and utilised the huge amount of funds allocated under the scheme.

Das' take

  • Reform agriculture both at the production and distribution stage to fight inflation
  • Allow competition against FCI in the warehousing of food
  • Permit foreign investment in modern retail to establish cold chains and reduce crop wastage
  • Get rid of the license raj in education
  • Negotiate with the states to fully implement the Jawaharlal Nehru National Urban Renewal Mission

States are reluctant to carry out the JNNURM reforms because it will lead to a shift in power from the MLAs to city municipalities. Manmohan Singh's government has to publicly shame those states which have not reformed. A fourth example is the the Right to Education, or RTE, Act, passed recently. It has many good features but it does not address outcomes and the horrendous "license raj" which persists in education. You need a plethora of licences to start a school or a college and each comes with a bribe.

RTE recognises that government schools have failed in India and hence it has mandated private schools to reserve 25 per cent of their seats for the poor. Soon there will be a clamour for these prized seats, and I fear that they will be captured by politicians and bureaucrats and sold to the highest bidder. While states are presently implementing the rules for RTE, the Centre needs to jump in and ensure the autonomy of schools from state interference.

This government must also get rid of the "license raj" in education as it did in industry in 1991. The other reforms this government has initiated are in the bills relating to land acquisition, mining, and other areas. It is not enough to pass legislation, you have to follow through. Our major central ports are in a disgraceful state. The government has tried to bring private participation via a public private partnership model but the department of shipping has sabotaged it. It has created rules that discourage private investment. It should learn from Gujarat, which created investment-friendly rules for its minor ports that today account for onethird of India's total shipping traffic.

The same goes for railways. Private participation in freight traffic has failed because railways have sabotaged it by placing unfair conditions on private investors.

The Prime Minister needs to make us believe that he is not only in office but also in power.

The author is a columnist and former CEO of Procter & Gamble India As told to Manu Kaushik

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