REFORMS 2015-18

Reforms 2015-18

  I give herewith a short menu of economic policy and institutional reform measures that the Government can implement in the next four years (2015-18) to transform the economy and the polity. I would urge all to join the effort to persuade those active in Public life, politicians and voters.

Economic Policy Reform Menu

(1)    Tax Simplification & Integration and elimination of “Tax Terrorism"

a.       GST (uniform rate, -Octroi)

b.      Customs (e.g. Textiles ,Agriculture)

c.        Income Tax (original version of DTB)

(2)    Subsidies:  Replace all (price distorting) Subsidies by Transfers to intended beneficiaries. Modality: UID, Bank Act-SUPAY Debit card, Mobile Payments. This will reduce corruption and inefficiency. The level of transfers(/subsidies) that are needed and can be sustained by the fiscal system is a separable issue that can be dealt with separately

(3)     Sell all Loss making (non-defense) Public sector ;  Exit Public sector (PSUs, PSBs) from competitive industries, sub-sectors as there is absolutely no gain to society, but a loss arising from inherent impulse to corruption & inefficiency in organizations run & overseen by political-bureaucratic  masters

(4)    Infrastructure:  Support private entry and full-free competition in energy (Coal) & infrastructure (railway, ports, airports, electricity distribution/transmission; use open access for natural monopoly networks-eg distribution wires, rail track)

(5)    Labor/Jobs: Simplify, Integrate Labor Laws, Rules & procedures, promote portability & competition in labor benefits & remove exit controls.

(6)   Land: Purge Land Acquisition Law of bureaucratic-socialist provisions not found in market economies. Modernize-digitize land records, promote transparency in land use and freedom in land markets (buy, sell, lease, rent). 

(7)    Education: Purge RTE Act of distorting elements & suggest a modern regulatory structure for Private & Public education to create transparency on costs & benefits for students & parents and eliminate unnecessary-dysfunctional  controls on private & public providers. Govt expenditure should focus on teacher training & E-learning, e-education platforms to reach poor and rural & remote areas

(8)    Public Health: Build an end-to-end Sewage & sanitation (collection, transport, treatment, disposal, recycling), water & drainage (collection, treatment, purification, recycling) network. Eliminate communicable disease. Teach basics of cleanliness, nutrition & health through schools, media, public health e-portal). This should have the highest priority in Central Govt. fund allocation for health sector. Second priority of CG should be e-medicine, e-health platform to reach the poor & rural-remote areas.

Institutional Reform Menu

(1)    Legal: Eliminate all antediluvian laws and integrate & simplify remaining laws. Simplify & reform Civil Procedure code to facilitate expeditious disposal of cases. Similarly integrate & simplify laws relating to crimes like murder, violence, rape and kidnapping. There is no need to have a separate law for each type of murder (private, public, social, rape related) and each form of violence- these can be clarified/detailed in the rules & procedures linked to the law.

(2)    Police: States must be pressured by citizens to adopt and implement SC directions (in Prakash Singh case) on Police reform.  Priority to separation, empowerment and independence of investigation & prosecution wing and citizens oversight board. Central government should create model legislation, rules and procedures for adoption by States. This single reform can make a big difference in respect for law and public security & safety with respect to riots, political murders, social violence (caste, religion, gender), rape & child molestation

(3)    Judicial: Judicial appointment procedure must be reformed urgently to expedite the filling up of 35% vacancy in judiciary. Management of courts, cases load and cases must be modernized through use of Information technology and modern management practices. Funds & positions must be provided for this purpose.

(4)    Electoral: Change laws, rules & regulations to eliminate criminals from politics. Introduce contributory State Funding of elections (with part of funding given after the results are known) along with independent auditing of party accounts and filing of income tax returns by parties.

(5)    Bureaucratic: E-governance systems for transparent decision making, that make details of all expenditure/contracting decisions accessible to public. Introduce system of electronic records for organizations notorious for harassing the public (e.g. revenue departments) so that accountability is enhanced by the possibility of post outcome analysis (e.g. relating to excessive tax demands & % of legal appeals lost/won).  Require all transfers of personnel in less than 2 & 1/2 years to be electronically filed (with reasons & record of decision makers involved-CM, HM, secy) on a portal run under the judiciary and open to the public. The transferee or others would be free to file a review case in court.

For details see, https://sites.google.com/site/chintan1997reg/ and/or  http://dravirmani.blogspot.in/p/index.html

Some Thoughts on Inflation & Monetary Policy

Q&A with Bloomberg News

Q1. Where does India stand on the growth-inflation trade-off? Do you think the central bank should now shift to a more growth-focused approach?
A1: There is no inflation-growth trade off in monetary policy at this point. Easing monetary policy will facilitate demand for consumer durables, encourage investment and facilitate recovery, without reversing the downtrend in inflation.

Q 2. With Finance Minister Jaitley now openly calling for a cut (even the technical advisory panel did in Sept.), do you think RBI should oblige and cut as early as the Dec 2 meeting?
A2: I have been arguing since September 2014 that inflation is firmly on a down trend and time for easing monetary policy has arrived. Two months later I am even more firmly of the view that Repo rate needs to be cut.

Q3. How beneficial would a rate cut at this juncture be for the Indian economy given that the decrease in oil prices is already acting as an indirect stimulus?
A3: Very. Both consume durables and non-durables show a decline in the latest availbale IIP data. Though the pass through of lower petrol price into household budgets will start having some effect on consumer non-durable demand soon, easier monetary policy is needed for reversing the decline in durables demand.

Q4. With RBI's 8% inflation estimate for Jan 2015 now expected largely to be met, do you think the 6% target for 2016 may also be undershot?
A4: According to me there is a 25% probability of CPI inflation in January 2015 itself being 6% or less, and a 51% probability of it being less than 7%. So, even though this puts RBI in a serious dilemma, I would predict that there is a more than even chance of it holding rates steady in December.

Q5. The RBI has been pointing at issues of structural inflation, especially around food. What part of these structural barriers are being addressed by the government, and which should be tackled most urgently?
A5: Inflation is down across all sub-categories, food, fuel and 'non-food, non-fuel' or core. So any talk of "urgency" is not credible. It is more important for govt not to forget the medium-long term need for agricultural policy reform to improve agricultural productivity, which is at 50% of global levels for decades.

Q6. How do you see the quality of fiscal consolidation by the Modi government? Do you think the 4.1% deficit target will be met?
A6: In my view the probability of the fiscal deficit meeting its target has gone up since it was first announced. Though the sharp fall in inflation traditionally reduces revenue growth more than expenditure growth, the reduction in oil prices will help reduce subsidies (e.g. fertilizers) and consequently total expenditures. The sharp increase in capital inflows also makes achievement of dis-investment targets easier.

Q7. What is your view on the Modi Govt's approach to reform so far...ensuring on the ground execution first rather than the big bang approach?
A7: The political economy of reforms is as important as the economics of reform. My reading of the government is that it is fully cognizant of both. Therefore it is likely to follow the approach that my reform experience suggests is the best for sustained & sustainable reform ( http://dravirmani.blogspot.in/2014/09/pm-modis-development-objectives-reform.html )

Q8. How do you see rural wages evolving in the coming months and what role will it play in the RBI's decision?
A8: Rural real wage growth rate has declined progressively over the last 12 months to around zero. There is now a danger of it becoming negative. It doesn't provide any support to RBI for retaining a tight monetary policy.
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Disclaimer: Bloomberg News designation of me as an "RBI Advisor," may be misleading. I am one of several members of the "Technical Advisory Committee on Monetary Policy(TAC)". The RBI has many such committees & groups on different issues.