A section of the commentators is always on the prowl looking for the slightest opportunity to lambast Modi – dispensation irrespective of the state of the economy. During the first four years of its first term i.e. 2014-15 to 2017-18 when GDP [gross domestic product] figures were promising, they blamed the government for fabricating data. But, when the numbers were not so promising as during 2018-19 and first half of current year, they target it for allegedly doing great damage to the economy, loss of jobs and income earning opportunities.
Unfortunately, in this blame game that gets hyper-publicity in the media, some of the transformative reforms undertaken by this government – reforms that will have lasting effect for generations in terms of improving the ease of doing business and putting India on sustainable high growth trajectory – go unnoticed. It is worth recalling some of the most crucial reforms.
A path-breaking reform relates to steep reduction in the rate of corporate tax for new entities [incorporated from October 1, 2019 in manufacturing sector and start production by March 31, 2023] from existing 25% to 15%. This is the lowest among all major countries viz. US [21%], OECD average [21.4%], China [25%], makes India the most attractive destination. This will give a huge impetus to both domestic as well as foreign companies to invest in India.
Second, the government enacted a law on Insolvency and Bankruptcy Code [IBC] which gives an opportunity to the lenders/banks to drag the defaulting borrower to the court and recover the money in a time bound manner. During the last 4.5 years or so, the banks have been able to recover over Rs 400,000 crore thereby helping them reduce their non-performing assets [NPAs]. The IBC also helps transfer of the company to a good promoter improving chances of its revival.
Third, implementation of the Goods and Services Tax [GST] has laid the foundation for ‘one nation, one tax’ regime which is simple to administer, enhances the ease of doing business and significantly reduces transaction cost. It has helped in bringing ‘informal’ sector [cozy jargon for businesses that run on cash] under the formal economy. Several glitches remain [these are inevitable in a federal system with states being very cagey about protecting their revenue] and will go only with passage of time as tax buoyancy picks up.
Fourth, one can’t fail to take cognizance of both the short-term as well as long-term gains from the ‘demonetization’ [this was announced by Modi on November 8, 2016]. But, for this the loads of cash that was concealed/dumped in lockers, bedrooms, cupboards etc would never have come to the surface. The hoarders of cash would never have got an address [to cite a euphemism used by the then finance minister, Arun Jaitely]. The tax revenue would not have got the intended boost. The digitalization would not have picked up the desired pace.
Fifth, the government has decided to privatize three public sector undertakings [PSUs] viz. Bharat Petroleum Corporation Ltd [BPCL], Shipping Corporation of India [SCI], Container Corporation of India [CCI] by selling all of its shareholding to strategic investor along with transfer of management control. Apart from enhancing their efficiency and competitiveness, it gives a clear signal of Modi’s intent to give full autonomy to the management in their functioning free from political and bureaucratic interference. We will get to see more of such strategic disinvestment in the times to come.
Sixth, on November 20, 2019, the Union Cabinet passed the industrial relations code [IRC]. With the Code on wages already passed by Parliament in the last session and another on occupational safety, health and working conditions already with a parliamentary committee, the approval of IRC is a major step forward to reform the warped and antiquated labor laws.
The Code allows companies to hire workers on contract, while at the same time ensuring that contractual workers are treated on par with permanent ones. It also gives flexibility to companies or units that employ up to 100 workers to fire them or even close shop without seeking permission of the government [for nine states including heavily industrialized ones such as Haryana, Gujarat, and Maharashtra, the threshold is higher at 300]. It also puts in place a mechanism for speedier settlement and redressal of labor disputes.
Until hitherto, companies were reluctant to hire workers fearing that once taken, they will have to be retained ‘permanently’ and won’t be able to fire even when there is downturn in business [that would make retrenchment inevitable]. The above two crucial provisions in the Code will help in dispelling this fear thereby removing a major bottleneck in the way of giving jobs and promoting growth.
This is an area that successive political dispensations have dared not touch in view of labor class being an important constituency and consequential fear of losing in elections. In this backdrop, Modi – government making a bold move in this regard is praiseworthy [though, two different thresholds – 300 for nine specified states and 100 for others could have been avoided].
Finally, it may be recalled that during the initial years of its first term, Modi – government had brought in legislation to amend subsisting land laws. If, enacted this would have substantially eased the process of acquiring land even while adequately taking care of the interest of persons whose land is acquired. But, it was forced to withdraw the amendment due to opposition particularly from the grand old party in Rajya Sabha [upper house]. Hopefully, when the numbers for BJP in RS improve, it will take up again.
To conclude, Team Modi has made all the right moves needed for bringing about what one may term as ‘second generation reforms’ needed to lay the foundation for putting Indian economy on a high growth trajectory and creating millions of jobs.