FROM BUSINESS WORLD OF 12 JUNE 2006
Looking for sense in chaff
The Confederation of Indian Industry (CII) has got its
arithmetic wrong: its ten-point programme actually has 35 points. Hence it is
eminently forgettable. Even I would find it difficult to keep the 35 points in
mind; the government, that slow-moving snail, would find anything beyond 3.5
unmanageable. It is quite understandable how it got its long shopping list. It
wrote to its members and asked for suggestions. They listed the places where
the shoe pinched; and since the government fits the country so badly, it is no
wonder that they ended up with the long list. If CII is interested in achieving
something, it should boil down the 35 to five at most, and pursue the
government doggedly until it achieves those five. I would choose the following
five.
The first is power. It is clear to me that Prabhu’s
Electricity Amendment Act has failed. The state governments have not opened up
power markets to competition, and they have made a farce out of regulatory
commission. New, clearer, stronger central legislation is needed. It should
nationalize power transmission networks – transfer them from states to the
center – and make them a common carrier for everyone at prices related to
costs. It should state the fundamental right of everyone to produce
electricity, and to sell it to anyone else provided it meets technical criteria
for transmission. And it should prohibit all subsidies that are not financed
out of state revenue; in other words, it should ban cross-subsidies.
The second is transport. Lalu Yadav has done much to
improve the railways; and the Golden Quadrilateral has improved the roads that
matter. But goods still move no faster because of obstacles placed by state and
local governments. All taxation of goods in movement should be banned, and
states and municipalities must be made to remove checkpoints on roads. There
should be no difference between interstate and intrastate movement.
The third is airports. Only eight of our states are
maritime; the rest are landlocked. No one travels by ship any more, and even 40
per cent of our exports move by air. The government’s concentration on
improving the airports of the metros is shortsighted. Costs of flying goods and
people have come down dramatically; an increase in airport capacity would open
up the country to foreign trade, travel and tourism much more rapidly. It is
not as if we lack airports; there are some 300 dotting the country. All that
the government needs to do is to lease them out for development.
The fourth is taxation. State-level taxation was designed
amongst other things to obstruct interstate movement. Now, value added tax
(VAT) has the promise of removing this obstruction. For this, three things are
needed. First, VAT rates must be standardized across the country. Second, VAT
wherever and to whomever paid, must be fully rebatable. And finally, VAT should
apply throughout the country. If P Chidambaram wants to take on a worthy
challenge, this is the one thing he should concentrate on.
The last is protection. Indian import duties are amongst
the highest in the world; those on consumer goods and agricultural goods are
prohibitive. The great reformers who rule us today had understood at one time
that absence of duties is good for the country – it ensures the lowest prices
and hence raises standards of living, and it forges an efficient manufacturing
industry and makes it capable of competing in the world outside. They have
forgotten that truth, and they need to learn it again. If there are no duties,
no duty drawbacks will be necessary, and the entire corrupt machinery of the
finance and commerce ministries that thrives on manipulation of duties will
become unnecessary. The whole country will become a special economic zone, and
everyone will have the same incentive to export, without any help from the
government.
That is what I think should be done if India is to be made
a roaring manufacturer. CII will probably not like my stress on free trade, and
will want to substitute something else for it. But for goodness’ sake, it
should make up its mind on priorities and push them.
One more thing. CII has one list, I have another. Which is
the right list? What are the most important policy initiatives necessary? How
do we decide? Till the 1980s, they were debated; and much research was carried
on to help policy. Today, there is no debate on the major policy options, and
hardly any research. And that is because the government does not look for it or
finance it. Such a government will make stupid policies, however intelligent
those who head it. Democracy is not enough to prevent major national errors.
Reflection and discussion on the problems facing the country is also necessary.
India is doing very well as an economy; but it needs to invest more in
knowledge – and that includes economic knowledge.
