The government has a duty to solve the problem, and the first step is to acknowledge the existence of a problem.
For an entire generation, for the first time in nearly three decades, personal economic insecurity has escaped from the cage of confusing statistical interpretations and debates on classifications of slowdown — is it cyclic, or is it structural? — and has gripped them at a personal level.
Those who don’t understand economics, or discern the difference between slowdown, stagflation and depression, also know this much from the pinch they feel — we are all in trouble. Beyond political arguments, TV debates, contrasting op-ed pieces, seminars on economy, views of experts, common Indians are feeling the pressure, and it is tightening. Common people are responding in simple commonsensical ways to inoculate themselves against a possible worsening of the situation — by cutting costs, forgoing or postponing purchases, stepping on the pedal on caution in investments, increasing savings, avoiding risks.
The government has accumulated a plethora of challenges on the economic front. Added together, it leaves no one in doubt that the slowdown is upon us — beyond any scope for denial.
The government has a duty to solve the problem, and the first step is to acknowledge the existence of a problem. Having done so, if not publicly, within, the Narendra Modi government, instead of getting bogged down by the largeness of it, must harness it as a great opportunity to do a 1991 redux. Or call it Reforms 2.0.
It is indeed an opportunity disguised as challenge. After all, tinkering with a good economy is too risky, not doing anything is an option when things are good. But, in an economy doing as badly as ours is today, reforms are expected, demanded and expected. Reforms, big bad bold ones, are not only inevitable as a solution out of this rut, but can also provide an aura of political vision and boldness to those who unleash it.
Beyond academic debates, the Indian economy needs two major changes — more investment and more expenditure. Investments from industrialists and businesses, domestic and global, would create jobs, capacity and supply; increased expenditure from common people would boost demand and consumption, and create a demand for more investment.
That is the problem too. Industry does not want to invest and common people don’t want to spend. Which is why we have been continually slowing down.
The government has tried to kill the slowdown beast with a thinking that it can spend its way to growth and prosperity — wherein instead of trusting and creating an ecosystem where businesses would love to invest and people would love to spend — they would do both. It has failed, as it was wont to.
The mindset of the Narendra Modi government must metamorphose from a trust premium in the bureaucratic muscle to spend taxed money to achieve prosperity for all, or hope to create a $5 trillion economy based on demand created by government expenditure in infrastructure. It must shift the onus of responsibility, power and trust to the private citizen. It must reform.
The simplest way to hit the ball out of the park on expenditure and investment is to reverse the thinking and push expenditure through citizens and investments through the private sector.
Here, the first major move in the Budget must be the complete abolition of income tax. This move can singularly put around `5 lakh crore a year, `20 lakh crore in the next four years, into the hands of earning Indians to spend. If this be the highlight of the Budget, it would not just make headlines, but history.
If the risk feels too great, not from fiscal deficit concerns, but political, another way is to still route that money into the hands of citizens by half. Cut all income tax rates by half, thus ensuring half the money is pushed into the hands of taxpayers. But declare the other half collected by income tax as being collected only for direct cash transfer into the hands of the poor. Split the cake of `5 lakh crore typically collected annually as additional wallet shared by rich and poor.
The captains of industry would be reinvigorated to revitalise their under-utilised capacity or build new ones to grab a share of this new additional purchasing power unleashed into the economy. Either approach, an astronomic quantum of money transfer from government to citizen, without any string, is the best way to address demand and consumption.
The second, to boost private investments as well as to make up for revenue losses, is to privatise public enterprises, not tactically, but wholesale, and as a principle. A declaration of not just intent that barring five enterprises maximum, including railways and in defence, the government would sell off everything, especially banks, insurance, media, steel, energy, telecom, civil aviation, mines within the next two to three years would bring back the global, and business, focus back to India’s economic story. Let the government exit business as a player completely in big strides.
Thirdly, the 2020 Modi Budget must set a new template to minimise government by rationalising the scope of taxes and subsidies. Historically, both ideological and pragmatic considerations have denied any consensus on how much to tax, how much to subsidise. There can, however, be a simple rationalisation based on ending double transactions that nullify themselves.
In simple words, if you impose one tax, and provide one subsidy to the same person — the net effect will be nullified on the citizen, but enlarges the government. Taxing subsidiary beneficiaries and subsidising taxpayers is a zero-sum game, which only leads to harmful augmenting of government size, enlarging the bureaucracy like cancer, but benefits neither citizens nor the economy.
Post the Budget, reforms in labour, land acquisition, setting up and running businesses must all be aimed at cutting government power, reducing need for licenses and permissions, lowering needless compliances, and reducing bureaucratic power. A push must be given to ending discretionary political and bureaucratic power in the economy.
Living up to his own oft-proclaimed mantra, “least governed is best governed”, Mr Modi can, and must, set back the Indian economy on track with a sui generis Budget, matching the 1991 reforms declaration, pushed as we are to the brink, and snatch the initiative.
The only words to guide him to courage during this daunting task are three questions, if not now, when; if not here, where; and if not he, who? In the lead-up to the Lok Sabha elections, the BJP had declared — Modi hain to mumkin hain — the Budget on February 1 will be the acid test for can he, and will he?