Modi 2.0: Agenda for the new government

The Global Analyst has published my article on "Agenda for Modi 2.0"** in their June 2019 issue. Submitted version of the article copied below:

M G Warrier
**Next issue (July 2019): Monetary Policy

Modi 2.0
Agenda for the new Government in Delhi

M G Warrier

Election 2019, despite the massive mandate for a second term for Narendra Modi, will remain a landmark in India’s electoral history. Though the political leadership is yet to assimilate the lessons from the post-independence history of India, the average Indian voter is today more aware of his responsibilities and has perfected the art of deciding the best among the available options.

We are paying the price for not cultivating a participative democratic process right from the time of independence. The then Indian National Congress considered governance as a responsibility transferred to that party by the British. This misunderstanding led to suppression of opposition till early 1960's. Right thing would have been to consciously allow a healthy opposition grow in an orderly manner. In which case, the present misconception that the role of opposition is to oppose the government of the day might not have grown to the present proportions.

People of India too, till the recent “India Against Corruption” days, considered leading the country the right to be exercised by some celebrity leaders, though the Indian Constitution was 'given to we the people'.

The 21st Century awakening around India Against Corruption movement which kindled hopes in GenNext too fizzled out with AAP making a hurry to grab power. Unless a people's movement enforces some discipline in the political leadership, it is doubtful whether the debates in the media or efforts from a few concerned citizens will be able to pull the country out of the political mess in which it has landed.

The earlier the political leadership consciously minimized the dependence on emotional vote banks and allows literacy level to go up and ensure that votes are cast based on informed debates about national level priorities, the better for the country. To make this happen, people’s trust in rule of law and constitutional institutions need to be restored first. We will revisit these issues in the coming months.

For now, let us congratulate the 542 members of Lok Sabha who have the mandate to oversee governance and make changes in legislations for upholding Indian Constitution and ensuring economic development. With reinforced confidence the new government in Delhi can take forward the NDA agenda announced in the 2014 Independence Day speech given by Narendra Modi. Then, the Prime Minister symbolically referred to the Planning Commission as a house in disrepair needing reconstruction. Today, many more institutions including those in judiciary, financial sector and statutory bodies responsible for carrying out different roles and responsibilities are awaiting thorough overhaul.

The resolve to this much and much more in the coming years was evident in Prime Minister Narendra Modi’s maiden speech after the decisive electoral victory on May 23, 2019. He said:

·       He will not do any work with bad intent or motive

·       There will be only two castes, those who are poor and those who work for the uplift of the poor

·       The country should be run through consensus and democratic spirit

·       This election victory was a win for the aspirations of the people, farmers and the middle class.

Some areas which need immediate attention and ‘out of the box’ approaches that comes to mind are discussed below.

Resources Management

Though our country has only one-third the geographical area as compared to US with more than 3 times population, we are blessed with much more resources and a much better weather cycle. Also, we have not appropriately accessed the potential of our workforce.

(a)            Land and buildings

We should immediately take up a survey of usable land and buildings in cities and towns with a population of 5 lakhs and above. The survey should cover Rashtrapathi Bhavan to temple/mosque/church premises with an objective of optimal use for public advantage. For example, the possibility of ministerial bungalows spread over the whole city getting substituted by residential complexes in the vicinity of Parliament House, Secretariats or Legislative Houses can be considered. The excess land and buildings that will get released will be worth billions which can be redeployed for economic development. The city traffic also will become smooth.

(b)            Domestic gold stocks

Gold Management needs amakeover. Domestic gold stock with individuals and institutions (including religious bodies) need to be accounted and mainstreamed for nation’s benefit.

Through an amendment to its earlier instructions RBI has expanded the ambit of gold-monetization scheme on January 9, 2019 to enable charitable institutions and temples/religious bodies, among others, to invest their gold stock under the Scheme. The revised instructions give a new avenue for productive deployment of idle domestic gold stock. This is a welcome move from RBI. The new entities which have become eligible to invest their gold stock under the scheme need to be educated about the advantages of mainstreaming their gold stock. Issues of trust, faith, emotion and sheer laziness to take responsibility on the part of voluntary social workers who generally manage the affairs of Trusts and Boards of Management of religious bodies need to be addressed with care and deftness.

Past experience shows, organizations do not spontaneously volunteer to part with gold, even if the investment fetches substantial returns. Perhaps, Tirupathi and Siddhivinayak (Mumbai) are the only temples which have already availed of the facility to deposit gold in banks and earn income from such deposits. Some of the other temples/religious bodies are sometimes secretive about even the quantity of gold in their vaults. Governments’ eye on every asset as an income source (read tax) also is behind such fear complex.

According to media reports during 2017 Tirupathi temple had gold deposits of over 4000kg with two banks fetching the equivalent of the value of around 80kg gold as interest per annum.

If Centre is serious about mainstreaming domestic stock of investible gold, massive efforts will have to be made to create awareness among the people about the benefits that will accrue to the country’s economy by deploying part of the surface gold stock productively. The availability of sovereign guarantee for the gold invested, professional handling of conversion of gold and timely payment of interest and return of gold or value of gold will have to be ensured by central/state governments. The existence of such protection and facilities should also be publicized in a business-like manner to attract investment.

Perhaps India may be alone in the world to sustain the dubious distinction of grossly mismanaging domestic gold stock the country has been holding for centuries in huge quantities, in multiple forms, and in various places. When the population starved and died as a consequence of bad governance or as victims of nature’s wrath, Indian rulers allowed use of huge quantities of gold (a) to be wasted for gold-plating of roofs, flag-masts, and statues and (b) to be held in underground vaults, hidden and unaccounted, as unproductive ‘assets’. A positive change in approach to gold is perceivable from the second half of the current decade.

Errol D’Souza, Director, IIM, Ahmedabad in his note recorded in the 3^rd Annual Report (2017-18) of the India Gold Policy Centre had this to say about gold management in India:

“As a macroeconomist, I uphold the view that integrating gold with India’s broader economic vision is the touchstone for India’s gold policy and gold markets. The foremost is adopting ‘Make in India’ policy which should address unexplored gold stocks below the ground, optimal use of gold stocks in circulation, and mobilize gold holdings held by individuals in lockers and temples.”

At this late hour, GOI need to understand the significance of the treasure in the form of gold stock with institutions and individuals lying idle in the country. As a short-term plan, concrete measures should be initiated for putting a substantial portion of the domestic gold stock to productive use in the next 5 years. This will reduce the country’s gold import bill considerably. This can be achieved by:

(a) Making a realistic assessment of gold stock remaining idle in the country

(b)                        Providing incentives to holders of gold stock to properly account for the stock with them

(c)  Making gold deposits with banks remunerative

(d)                         Introducing gold-backed financial instruments which are not dependent on imported gold (The tiny instruments now available in the form of Gold ETFs, gold coins and Sovereign Gold Bonds are indirectly dependent on import and have not attracted significant investor-interest)

(e)  Quickly arrange for infrastructure, technology support and linkages for gold refining and certification facilities of international standard

Reserve Bank of India also need to convert the entire gold stock with the central bank to purer variety conforming to internationally acceptable standard. If this happens, a new chapter in the country’s gold management will unfold. It is distressing to remember the 1991 ‘gold pledge’ episode to save the country from a payment default when the forex reserves of the country had touched its nadir. Think of the agony of a central bank Governor being forced to ‘ship’ a small portion of gold in the central bank vault for pledging to draw a small amount of dollars. Even though the gold lying with Bank of England has long been freed of pledge, it was not considered  necessary to physically ship the bullion back to India.

It should have been for valid reasons that options like selling a portion of gold stock or borrowing dollars against ‘stock’ of gold would have been dropped. Let us forget all that. But, let us remember, if the stock of gold was of internationally acceptable standard, things would have been different.

(c)             Long coastal areas

India’s long coastal areas remain underexploited. More Mini-ports, fishing harbours, tourism development, use of sea-belt for transportation of people and goods are all areas needing attention.

(d)            Forests

Forest mapping, planned re-forestation, development of medicinal plant gardens in and around existing forests and commercial exploitation of forest produce without destroying environment need to be prioritized.(e)            Workforce

Workforce in India is in disarray for various historic reasons. Privatization of public services and outsourcing of work by organizations reducing the number of regular employees have affected job security in the short term and social security in the long term. Remuneration for every day’s work should factor in the concept of fair wage comprising living wage and post-job survival costs.

Some more issues which need prioritization

There is something glaringly missing in management of resources and finance by GOI and that is planning. This is affecting smooth implementation of schemes and in some situations, effective functioning of institutions. Illustratively:

HR issues in financial sector and Indian Financial Sector Service

Reserve Bank of India (RBI) can be a case study to understand how interlinked are HR issues with the functional efficiency of public sector organizations. Presently, RBI is merging some departments concerned with supervision and regulation of different categories of institutions in the financial sector and is in the process of inducting expertise by making direct recruitments at higher levels. The dilution of expertise in departments other than the Monetary Policy and Statistics Departments has a historic background.

Till early 1970’s RBI had specialized departments for functions needing specialization. In 1972, combined seniority was introduced for some of the large departments and inter-mobility reduced the chances for development of expertise by remaining in the same work areas. Present effort is to induct experts from outside to compensate for this.

A better option would be to have an All India Financial Sector Service similar to Indian Civil Services or Tata Administrative Service with inter-mobility among finance ministries (Central and states), statutory bodies like RBI, NABARD and IRDA, as also banks and financial institutions in public and private sectors.

Indian Pension System

With the introduction of NPS effective January 1, 2004, all is not well on the Indian pension front. Review for an overhaul is overdue. Cost of post-retiral life need to be factored in the wage structure of employees in government, PSUs and in private sector.

Agricultural Income Tax

 A consensus has to be reached to tax agricultural income above a reasonably high threshold level.

Kisan Samman

Doling out the paltry amount of Rs17 or Rs18 per day to farmers below the poverty line is an insult to the Indian farming community. What is needed is to plug the leakages in pricing of farm produce between the farm gate and the consumer. Once a reasonable farm gate price for the produce is assured, the present generation of workers know to extract their share as wages. This can be achieved by promoting cooperatives for production, processing and marketing.

Funding government expenditure

GOI, of late, has been dipping too deep into the pockets of PSUs and GOI-owned bodies like RBI to meet shortfalls in revenue. This approach will definitely get sympathy from taxpayers and corporates. Taxpayers’ burden will be less to the extent GOI mobilizes resources from elsewhere and corporates can delay or deny repayments, if GOI make good the losses suffered by their creditors. But these are temporary reliefs and the country cannot delay mapping of domestic resources and ensuring distributive justice beyond a point.

Works in progress on the economic front

I think, we should listen first to experts’ views on what they think are the immediate possible measures to put the Indian Economy on a high growth trajectory. A beginner’s guide which gives illustrative notes on works in progress on the economic front is available in book form authored by experts who were and are associated with policy formulation/implementation in their work areas. I am referring to the book “What The Economy Needs Now” (April 2019) edited by Abhijit Banerjee, Gita Gopinath, Raghuram Rajan and Mihir Sharma. The book lists major issues facing Indian Economy needing immediate attention: Rising unemployment, Banking crisis, falling GDP, Farmers’ unrest et al and goes on to discuss solutions to the vexing problems like labour reforms, healthcare, education and environment.

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