Indian Economy is going through troubling times with low growth, huge unemployment and higher taxes. Many people say that India is having a jobless growth that is not helping anybody but government to mope more taxes from the people and companies.
Modi Govt Finally accepts that economy is slowing down
After much criticisms from experts and industry representation, the government has finally accepted that they need to take some strong measures to revive the economy. If the numbers are analyzed, Indian economy would go into recession if government does not take big measures in next 2 quarters.
In short term to medium term, government should work on these lines if they are really serious about bringing back the Indian economy to its glory days and have inclusive growth,
- Identify Key troubled sectors and their issues to address.
- Re-define taxes and rationalize them as much as possible.
- Cut down on high investment low returns initiatives and focus more on Health, Education & Safety.
- Fast Track Committees for Ease of doing Business including State representation.
- IT system implementation across the board in Govt. & Govt. agencies.
- Benefits from schemes like SEZ.
- Digital India Incentives.
- Tough decisions like banks consolidation, Air India Sell, all loss making government entities, Real Estate.
- Bigger Reforms – Labor laws, MNREGA, Job Creation, limit salaries for top level position in public and private companies, Address the market pricing issues.
- A new body to track all that performance metrics of economy and publish quarterly.
All these measures are short term to medium term and by the time it starts showing correct consistent results, we would have next general elections. Mr. Modi & BJP still have an upper despite all the failures & blunders that they have done due to weak opposition who are equally better than Mr. Modi & BJP.
These measures would in a lot of ways would also help them retain power in 2019.
For a lot of people, it would mean that it’s going to hurt fiscal deficit in a big way but the economy right now needs a lot investment along with proper policy & taxation support to reboot & revive the economy.
Let’s look at each one of them carefully,
Identify Key troubled sectors and their issues to address
While pretty much is already known about the sectors that are going through some serious issues, Govt. should immediately form committees that has government & respective industries to figure out the measures to be taken. They should meet every alternate week and submit a report to PMO every month.
Sectors that are in deep red – Telecom, Steel, Construction, Real Estate, Agriculture, Banking & IT.
The objective of such committees is not just to revive growth but bring stability and increase full time employment. Based on this, government can either be a partner, or through private investment, policy change, tax reform, subsidies, etc. can reboot them which would impact the economy faster.
Re-define taxes and rationalize them as much as possible
Governments job is not to figure new taxes or imply taxes as much as possible. Instead it should be to ensure markets are going and no one is left out. Unfortunately, in India, governments have been trying exact as much as possible in form of taxes except when it really opened its economy in 1991.
While recently GST was rolled out in a haste and too many different taxes that it is now not serving the purpose of unifying taxes and promote tax paying among business class. At the same time, the income tax & its various exemptions are not appreciated by the salaried employees, and companies.
It is estimated that people who have declared their taxable income at 5 lacs or less contribute to approximately 5% of the tax collection. However, the time & money cost to get that 5% is huge for the government.
For GST & other indirect Tax reforms
- Bring down GST tax rates & categories so that it becomes reasonable enough for all parties involved. Right now government focused on not losing their tax kitty post GST implementation instead it should have been sector or industry specific to drive employment.
- Bring all items under GST including fuel, alcohol and state taxes to ensure that it is one nation, one tax.
- Reduce or remove GST for commodities under Essential commodities act to ensure that everyone is able to afford food which is basis for human life.
Direct Tax Reforms
- Direct Tax reforms need to be expedited. People under 5 lac income should not be taxed at all however return filing should be made compulsory.
- Income Tax on companies in form Minimum Alternate Tax (MAT) should be brought down significantly and device a mechanism that promotes full time employment.
- Current Exemption limits and categories need to be refined completely. Especially 80c section has been criticized heavily by almost everyone.
- The focus should be savings & investment that would keep the economy stable for each individual. Remember if India has maximum young people, the same people are growing old together with population growth coming down.
Cut down on high investment low returns initiatives and Focus more on Health, Education & Safety
- Today there are a lot of government schemes in the name of women, child and entrepreneurship. These schemes are hardly helping the nation at a large level. They should be scrapped and new better schemes should be launched.
- Initiatives such as bullet train, statue building etc. should be put on back burner as there are bigger challenges the nation is facing now and if not addressed would collapse the whole economy.
- After defense, maximum allocation should be on health, education & safety with reasonable defined targets to ensure the nation stays fit and age gracefully rather than full of diseases.
- Safety aspect should include Police reforms, Technology investments and women safety at grassroots level with month on month updates to ministry and PMO.
Fast Track Committees for Ease of doing Business including State representation
One of the long pending complains where India in practical sense has improved marginally, Ease of Business. To radically push this Ease of doing Business, all the governments need to join hands together and welcome investors with ready schemes, single window clearances and skilled labor.
A committee at central govt. level should be formed whose only work would be to bring ease of business across the states with each state’s representation that would work out local issues.
This would ensure that entrepreneurs need not go anywhere but to this committee to setup business as quickly as possible.
CIM @sureshpprabhu at ASEM: India is aggressively pursuing implementation of paperless trading and single window facilitation
— Commerce Minister (@CimGOI) September 22, 2017
IT system implementation across the board in Govt. & Govt. agencies
PM Narendra Modi brought Digital India with a lot of fanfare and aggressive vision to do away with things that lead to high level of corruption. Contrary to that, govt. itself has been very slow in adopting IT except in case of GST & Income Tax where they are set to gain immediately.
This needs to change and IT should be adopted in all government departments and agencies. Ensure that all firms have means to communicate, redress and cashless mechanism through such IT initiatives for common person.
This will also address a big jobless economic growth and it wjill do quite rapidly if the government intends to do as we have world class providers that are working with Fortune 500 companies.
Benefits from schemes like SEZ
Special Economic Zones (SEZ) one of the most popular schemes that worked well in the past but started to falter when MAT was implemented on firms under SEZ scheme as well. Today SEZs are not functioning and are also getting cancelled.
This needs to change, make more attractive, growth & development oriented and also expand to other sectors than limit to IT. The sole purpose of this scheme should be encourage job creation and develop the potential cities to do inclusive growth.
Digital India Incentives
Digital India is a great campaign that has not been implemented properly. India is a nation that works on incentives. What people gain for switching their loyalty? Government need to address this and sacrifice a few taxes or even take a cut in service charges it takes to promote digital payments in India and truly go less cash.
Such cuts can easily be monetized through better investment since government would have larger tax base along with quick money realizations that can be invested for short term. Having no discounts plus service charges & tax demotivates the people to use digital means.
Tough decisions like banks consolidation, Air India Sell, all loss making government entities, Real Estate
There are a lot of government owned companies or where majority owner is government are run at losses without putting any effort to bring them to profitability. Companies such as Air India, MTNL, BSNL etc. should be immediately be sold to private investors who would ensure it is brought to profitability.
FM @arunjaitley : We have ambitious Target for divestment this year. Even today,We have Air India divestment Meeting.
— Ministry of Finance (@FinMinIndia) September 21, 2017
At the same time, government spends a lot of money on re-capitalization of PSU banks which is most likely going to happen again soon. This needs to stop and government should take banks consolidation move at a much faster pace if it does not want wide scale loss making banks and high debt.
Real Estate is another sector that needs to be addressed. The amount of black money involved still today is huge and developers are not fulfilling their commitments on debt, delivery and quality.
Government has tried to address this a bit through RERA initiative but it needs much more than that. The difference between official and market rates is so huge that it promotes black money and at the same time having stamp duty as high as 10% does not make sense. They should hardly be 1-2% in ideal scenario.
Bigger Reforms – Labor laws, MNREGA, Job Creation, limit salaries for top level position in public and private companies, Address the market pricing issues
Labor laws have been quite outdated and have not been helping either the employer or the employee. This needs to change big time with proper salaries, proper incentives for full time employment, retirement benefits, easy exits & layoffs along with most important factor working hours’ and days policy that is strictly followed by each company.
More Schemes like MNREGA are needed to ensure that informal sector comes into formal sector with work & better pay.
These schemes have to be properly aligned with projects, deadlines, employment targets, budgets and development strategy across the country.
Construction, road, agriculture sectors are the most informal sectors and needs to be supported through such schemes. Central & state governments should come together with professional management that designs the strategy for respective places along with budgets and ensure that they are timely delivered.
Income disparity in India is huge where people at high posts are paid very high as compared to the lower strata of the economy. At the same time, pricing of any product or service is market based which leads to a large section already left out.
Government needs to have a floor and ceiling pricing for each and every product/service in the country which is acceptable to market also. This will ensure a majority gets an equal chance to participate in economy.
Along with this, companies in public and private sectors also need to be told to trim salaries of high paid executives. There should be a proper ratio followed so that everybody in the companies is reasonably well paid.
A new body to track all that performance metrics of economy and publish quarterly
One of the most important factor to really realign strategy, put money and control various economic situations is to set up a universal body that tracks performance of each and every sector along with key economic metrics such as inflation, investment, debt, GDP growth, employment & other such important measures that would help government in decision making.
The methods which are used to arrive at these metrics should also be reviewed so that true practical picture is reflected rather than having a different version altogether.
India is one of the fastest growing economies but….
There is no doubt that Indian economy is one of the fastest growing economies in the world that everybody is looking at but at the same time it is staring at one of its darkest downturns if these desperate measures are not taken to do bigger reforms, bigger changes and bring new thinking that helps in consistent growth, stability and equal opportunity for all.