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Economic response to Covid: Centre, states came together to roll out public friendly reforms, says PM Modi

In a blog, titled, "Reforms by Conviction and Incentives", the prime minister highlights the success of the Aatmanirbhar Bharat package, commending the partnership of the Centre and states.

Written by Harikishan Sharma | New Delhi |
Updated: June 23, 2021 2:35:08 am

DESCRIBING THE implementation of four reforms by states, which were linked to additional borrowing by them during 2020-21 and were announced as part of Aatmanirbhar Bharat package in response to Covid-19 pandemic last year, as a “rare nudge” in Indian public finance, Prime Minister Narendra Modi on Tuesday contrasted his government’s model of “reforms by conviction and incentives” against the earlier regimes’ model of “reforms by stealth and compulsion”.

“We have often seen that for various reasons, schemes and reforms remain un-operational often for years. This was a pleasant departure from the past where the Centre & States came together to roll out public friendly reforms in a short span of time amidst the pandemic,” he wrote in a post on social media platform LinkedIn.

“This was made possible due to our approach of Sabka Saath, Sabka Vikas and Sabka Vishwas. Officials who have been working on these reforms suggest that without this incentive of additional funds, enactment of these policies would have taken years.”

“India has seen a model of ‘reforms by stealth and compulsion’. This is a new model of ‘reforms by conviction and incentives’,” he wrote.

“When we formulated our economic response to the Covid-19 pandemic, we wanted to ensure that our solutions do not follow a ‘one size fits all’ model,” he wrote. “For a federal country of continental dimensions, finding policy instruments at the national level to promote reforms by state governments is indeed challenging. But we had faith in the robustness of our federal polity and we moved ahead in the spirit of Centre-State bhagidari [partnership].”

The Prime Minister said 23 states borrowed an extra Rs 1.06 lakh crore by implementing four reforms linked with the additional borrowing permission granted under Aatmanirbhar Bharat package in 2020-21.

In May last year, the Centre had announced to increase borrowing limits of states from 3 per cent to 5 per cent of their Gross State Domestic Product (GSDP) for 2020-21. Of the 2 per cent extra borrowing limit, 1 per cent was made conditional on the implementation of specified reforms in four focus areas – universalisation of ‘One Nation One Ration card’, Ease of Doing Business, Power Distribution and Urban Local Body revenues.

“This nudge for reform is rare in Indian public finance. This was a nudge, incentivising the states to adopt progressive policies to avail additional funds,” Modi wrote. “The results of this exercise are not only encouraging but also run contrary to the notion that there are limited takers for sound economic policies.”

Sharing the details of the reforms, he wrote, “The first reform under the ‘One Nation One Ration Card’ policy required state governments to ensure that all ration cards in the state under the National Food Security Act were seeded with the Aadhaar number of all family members and that all Fair Price Shops had Electronic Point of Sale devices. He said 17 states completed this reform and were granted additional borrowings of Rs 37,600 crore.

The second reform, aimed at improving ease of doing business, was completed by 20 states, which were allowed additional borrowing of Rs 39,521 crore.

On the third reform, related to property tax and water and sewerage charges, the Prime Minister said 11 states, which completed them, were allowed additional borrowing of Rs 15,957 crore. This reform “would enable better quality of services to the urban poor and middle class, support better infrastructure and stimulate growth”, Modi wrote.

The fourth reform, related to power distribution, had three components – introduction of Direct Benefit Transfer (DBT) in lieu of free electricity supply to farmers; reduction in technical and commercial losses; and reducing gap between revenues and costs. The states were required to formulate a state-wide scheme to implement the DBT component, “with actual implementation in one district on a pilot basis by year end”.

The Prime Minister wrote: “13 states implemented at least one component, while 6 states implemented the DBT component. As a result, Rs 13,201 crore of additional borrowings was permitted.”

“Overall, 23 states availed of additional borrowings of Rs 1.06 lakh crore out of a potential of Rs 2.14 lakh crore. As a result, the aggregate borrowing permission granted to states for 2020-21 (conditional and unconditional) was 4.5% of the initially estimated GSDP,” he wrote.

He said these four reforms had two characteristics. “Firstly, each of the reforms was linked to improving the Ease of Living to the public and particularly the poor, the vulnerable, and the middle class. Secondly, they also promoted fiscal sustainability.”

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