Dou­ble The Growth Rate

Here are six doable, prac­ti­cal and quick ways to get to 10% GDP growth

The Times of India (New Delhi edition) - - Times Nation - Chetan Bha­gat

A 10% GDP growth is the right bench­mark for the cur­rent gov­ern­ment, which is sta­ble, not de­pen­dent on coali­tions and in its sec­ond term. After all, if the more left-lean­ing UPA, with all its coali­tion com­pro­mises and scams could reach 8% GDP growth, it is rea­son­able to ex­pect In­dia to grow at10% in the cur­rent regime, now in its sixth year.

How­ever, we are cur­rently only at around 5% growth. The rea­sons for this have been dis­cussed thread­bare in nu­mer­ous ar­ti­cles. It is time now to fo­cus on how to get that 10% growth. The re­cent big cuts in cor­po­rate taxes are a sure sign that the gov­ern­ment now ac­knowl­edges this is­sue, and cares about growth.

There are longer term mea­sures, such as in­vest­ing heav­ily in in­fra­struc­ture, which will ul­ti­mately de­liver GDP growth. How­ever, the fo­cus of this ar­ti­cle is rel­a­tively quicker, doable mea­sures that can rapidly en­hance our growth. Some of these mea­sures do in­volve giv­ing up con­trol, which our politi­cians and bu­reau­crats don’t like. How­ever, no ma­jor coun­try has grown at 10% with­out ced­ing some con­trol to the pri­vate sec­tor. When you fly a kite, the thread helps you con­trol it. How­ever, if you want the kite to soar higher, some­times you have to let the thread go loose.

In­dia’s 2019 GDP is ex­pected to be roughly $3 tril­lion (rounded for sim­pli­fi­ca­tion). Since we are al­ready at 5%, the ad­di­tional 5% to reach 10% growth re­quires an­other $150 bil­lion of eco­nomic ac­tiv­ity per year. This amounts to around Rs 3,000 crore of ex­tra eco­nomic ac­tiv­ity per day over the en­tire coun­try. Again, this is achiev­able. Here are six doable, prac­ti­cal and quick ways we can get that 10% growth.

Real es­tate – Real Es­tate drives a large amount of eco­nomic ac­tiv­ity and con­sumer sen­ti­ment. For per­haps the first time in decades, real es­tate prices are stuck for the last 5 years. It can be fixed by mas­sive stamp duty cuts (states will have to be re­im­bursed) and the gov­ern­ment it­self sell­ing a frac­tion of its mas­sive prime land hold­ings to gen­er­ate rev­enue.

Agri­cul­ture – It is dif­fi­cult to drive growth in In­dia with­out grow­ing agri­cul­ture. Most of the fixes here are long term, cen­tring around in­fra­struc­ture. How­ever, one quick fix ex­ists – le­gal­is­ing med­i­cal mar­i­juana. Al­ready a multi­bil­lion dol­lar in­dus­try world­wide, cannabis is al­ready part of In­dia’s cul­ture. As In­dia is an agri­cul­tural coun­try, we are miss­ing out on a world­wide boom. Twenty years later, in line with the world we will prob­a­bly le­galise it any­way. Why not now? Of course, as with any drug like this, a care­ful reg­u­la­tory pol­icy has to be thought through.

Di­vest­ment – The gov­ern­ment keeps talk­ing di­vest­ment, but is often un­able to meet tar­gets as sell­ing in­di­vid­ual units takes a lot of time. A bet­ter way might be to con­sol­i­date, say, 20 PSUs into a fund or hold­ing com­pany this is def­i­nitely chok­ing our growth.

Fi­nan­cial re­forms – The low­er­ing of cor­po­rate tax rates was a wel­come move. Some more steps are still re­quired. Long-term cap­i­tal gains tax should be re­moved. The ru­pee must move to­wards full con­vert­ibil­ity. An­other huge move the gov­ern­ment could con­sider is not tax­ing global in­come for res­i­dents, at least for the next ten years. The rev­enue loss from this will be lim­ited (as one gets credit for for­eign taxes paid any­way). How­ever, it will at­tract much-needed global in­vestors and firms, who are sit­ting on the side­lines right now, to in­cor­po­rate them­selves in In­dia.

In­vestor Pro­tec­tion Bill – We have to re­alise in­vestors in­vest based on pro­jec­tions. Imag­ine spread­sheets of fi­nan­cial mod­els filled with as­sump­tions on tax rates and other costs, go­ing out ten years. When the gov­ern­ment changes rates sud­denly, the model goes awry. In­vestors hate that un­cer­tainty. We need a law that essen­tially en­sures no sud­den, ad-hoc and fre­quent pol­icy changes in tax­a­tion or reg­u­la­tions that might be ad­verse to In­dian busi­ness.

The ideas above are rel­a­tively quick fixes to boost our GDP growth. Ul­ti­mately, we need longer term mea­sures too to cre­ate a solid foun­da­tion for a grow­ing econ­omy. In­fra­struc­ture is the sin­gle big­gest thing a gov­ern­ment can do – bet­ter roads, ports, air­ports, cell­phone net­works, power and wa­ter avail­abil­ity. In­dian in­fra­struc­ture used to all be at Third World lev­els. Things have im­proved some­what in the last two decades, but we still have a long way to go.

Ul­ti­mately, eco­nomic growth will be a big cri­te­rion when his­tory will judge In­dia’s cur­rent era. How­ever dis­pro­por­tion­ate neg­a­tive talk, ex­ces­sive politi­ci­sa­tion of the GDP num­ber and a de­featist at­ti­tude will get us nowhere. Nei­ther will too much con­trol. In­stead of head­lines like ‘high­est tax col­lec­tions ever,’ we have to now as­pire to head­lines like ‘high­est GDP growth ever!’ Stay pos­i­tive, think strate­gi­cally and do what it takes for 10% GDP growth, and it will hap­pen. This is In­dia’s time. Let’s do it!

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.