London: As dark clouds of uncertainty gather in the economy and turn the mood gloomy, leftists and escapists embark on their usual tactic of blaming their bête-noire without assuming responsibility for their own lack of ideas. It is time to do some out of box thinking to arrest the cyclical dip at India’s doorstep. While there are many well documented causes for the dip, a developing economy like India cannot afford the luxury of pontificating about them ad nauseum, for there are mouths to feed and aspirations of a young workforce to nurture.
However before presenting a few ideas for the economy, it will not be out of place to propose a bold hypothesis that the leftists are clueless to advance any ideas on how to improve the country’s economy as the only idea they nurse is about balkanization of the country.
BIS VI, Demonetization and vicious campaigns against Gov’t of India
A whisper campaign is underway that economy is faltering because of lack investment due to the unavailability of easy credit, strict tax regime enforcement, cumbersome record keeping necessitated by GST and various other reform policies, notably the new bankruptcy policy. The governments’ pushing through the early implementation of Euro VI (known in India as BIS VI) emission rules in 2020 has been blamed for the unprecedented drop in automotive sales. The leftists have jumped at this opportunity to lay the blame at the door of demonetization as the trigger for the economic decline. It is necessary to expose each of myths before trying to identify the opportunities. To label demonetization as a failure of the government in curbing black money is a lie. The objective of demonetization was not to
have a one-off success by having large deficit in return of demonetized currency. While most commentators are basing their verdict about success and failure on this yardstick only, as most of the cash returned back to the RBI.
The success was in creation of tools for tracking where the cash was returning to. While media has been dismissive of the increase in tax subscriber base after demonetization, this is a necessary component of a modern functional economy. The argument that this forced many small businesses to go bankrupt and added a few millions to the unemployed ranks is hardly backed by data and evidence. While not wishing would dismiss such instances outright, one also needs to accept that such informal employment was in any case low value, and exploitative in nature, thus not quantifiable in terms of data. Increase of tax terrorism and compliance related scrutiny by Tax officials due to new cumbersome processes such as GST is cited as the other reason. While harassment by corrupt or inept officials is indeed a scourge, scrutiny is never a bad thing.
Loopholes needs to be sealed
The fact that India has a lax regime of scrutiny and compliance is the very reason Mr. Vijay Mallya could withhold salaries and provident fund contributions for months together for Kingfisher’s Indian employees. He also had employees in both Europe and Singapore, all of whom got fully paid! The fact that this is not an aberration was in evidence again from the cases of Jet Airways, and most recently at BSNL. The fact that a public sector undertaking can get away by having arrears in disbursement of statutory salaries without legal action against its management, is proof that scrutiny of compliance is a good and necessary thing. In any case GST is a tax on consumption and for a country with a poor collection of income tax can lead to the ultimate scrappage of tax on income.
Limitation in corporate debt levels known as unsustainable gearing leading to bankruptcy if required is a desirable thing as it allows weeding out of ineffective or incapable management, protecting the business and its revitalization by a more interested promoter and management team with an interest to revitalize the business. Developed economies erect mechanisms and environments to nurture healthy competition and prevent profiteering by businesses.
The need of Gov’t support
At the same time businesses need legitimate support such as tax relief for investments in R&D, a level and equalized playing field or markets to safeguard them against predatory pricing and dumping. Businesses fail to start, take off and fail essentially due to lack of innovative products, business ideas or business ethics. Sadly, even after three decades of (albeit drip feed) liberalization, some businesses are stuck in the mindset of the infamous license Raj where it was the responsibility of the government to identify products and areas of businesses which were to be the focus.
What prompted Gov’t Of India to go ahead with BIS VI
Lastly some auto industry veterans are laying the blame of the reduction in automotive sales on the governments commitment for adoption of Euro VI (BIS VI) emission standards at the Paris Climate change convention. The argument proposed is that the government has skipped a category (Euro V) calling for huge technology investment on a compressed timescale without allowing the industry sufficient time to recoup investments and that they have to face headwinds of electrification of transport sector as it offers the prospect of a cheaper alternative to consumers. The proponents of such arguments need to remember the climate disaster facing India where the current generation has grown up under a haze of pollution caused by particulate matter emitted by diesel guzzling vehicles and suffering from an epidemic of asthma caused by Nitrous Oxide emissions. As India aligns itself to global standards, adoption of off the shelf standardized technology almost always is paid for entirely by the customer. So, it is misleading to term it as a development cost. Indian auto companies have focused little effort on battery technology research. Despite having the largest manufacturing capacity of motorcycles in the world, electric motorcycles and electric bicycles have been too slow in making an appearance in the market and the industry is busy complaining about the tariff advantages being considered for electric vehicles. Introduction of electric personal transport devices, numbering in millions, offers an innovative new opportunity waiting to be exploited. A network to maintain and charge such equipment is also expected to be equally large.
What Gov’t Of India should do to help grow Energy Sector
The electrification of the energy markets offers enormous opportunities to overcome the economic slowdown. In the energy sector, power distribution companies have not proposed any mechanism to give credit for self-generation through solar or other alternative energy sources. Private sector distribution companies like the CESC in Kolkata, BSES in Delhi and Tata-Power in Mumbai can serve as technology incubators and demonstrators to make this happen. They should be offered tax relief for capital investments
required to make this happen and the effect this could have on solar panel and inverter sales to building societies can be substantive. It would also give fillip to development of a new business sector of erection and commissioning of these distributed solar systems, in the private sector.
Bio Gas production
Bio Gas generation offers both a solution for urban waste disposal and energy generation in a country where ambient temperatures are naturally favourable for anaerobic digestion besides being a sector which still requires a significant manpower due its distributed generation. Bio-gas which is rich in methane can be used as a cooking fuel or for power generation as deemed fit based on local economics. Both the above sectors would also draw significant interest from China for solar and Germany for bio gas (if required) for capital equipment supply and credit thus reducing government initiative strictly in formulating policy.
Rain water harvesting
Climate change alleviation initiatives such as rain water harvesting offer another interesting opportunity for local employment business initiatives. Well designed systems require significant intensity of scientific civil construction work such as aquifer mapping building of intermediate holding tanks and down pipe drilling. For an economy facing the prospect of slowdown all these intensive activities can help tide over a bleak period by providing employment and upskilling people, much of it in the private sector and paid for directly by consumers. In today’s world of widespread information availability, standardized and approved designs for construction can be made available by the engineering faculty of local universities.
Non Residential Indians , other opportunities for Gov’t Of India
In the past, in times of slowdown, India had always looked at the diaspora for raising foreign exchange through bond offerings at high rates of interest. The diaspora on the other hand can be treated as a market to cater to through exports of comfort food and fruits. After all just as there is a demand for mangoes and tea there is an equally pent up demand from the diaspora, for Indian guavas, custard apples, other seasonal fruits, vegetables and foodstuffs such as Indian carp and goat meat. The government needs to turn its consulates to be a facilitator for such initiatives. Times of crises also offer opportunities to nurture innovation and one needs to explore every nook and cranny in search of markets and opportunities.
A new electronically connected world is emerging in which the government will be able to access substantive revenues from the auction of spectrum for 5G network. In times such as this it is the need of the hour to have a clean and incorruptible government and administration. While the people have done their job by electing a government of their choice, the government needs to demonstrate its intent by pulling up the socks of India’s moribund administration and make them deliver the aspirations of the people. The people on the other hand especially the leftists need to stop weaving conspiracy theories, crying for balkanization and join the tireless millions who strive to build a 5 trillion economy for India.
Image Courtesy : PixaBay