Opinion Gross domestic optimism
Four reasons why we can feel even better about the economy....
Indias economic performance over the last decade or so has produced a new,widely shared optimism that has survived the political complexity and policy muddle of an order that,if replicated in a Western liberal capitalist democracy,would have provoked profound national pessimism. This impressive growth in gross domestic optimism (GDO) clear to anyone but very intelligent radical left critiques of the neoliberal sellout is ready for a trend upgrade.
We dont need a great budget for this. Indeed,most likely,we will not get a structural reforms-laden budget. Note that even the Kaushik Basu-authored Economic Survey,while bearing the stamp of a clear-thinking,fine economist (especially Chapter 2,which deserves wide reading),is light on what the media calls a reforms wish list. The conflation of budget and reforms is in any case misleading. The reasons for an upgrade in GDO growth are to do with four areas in which there have been or will be significant government activity. All of them point to India getting a little
closer to addressing some of its toughest problems. They boost our GDO because they will boost our GDP. Here are the four optimism-enhancers.
First: theres policy movement in the Naxalite problem. Its obviously impossible to guess how the government-Naxalite offer-counter offer will play out. But three things are clear. First,the Centre is determined; if playing soft doesnt work,playing hard will resume. Second,the ridiculous state-level dithering,seen in Bengal for example,is on the wane. Third,those who murder in the name of Mao are beginning to feel the heat of the security forces attention. Its going to be a long haul,for sure. But for the first time,it is possible to feel optimistic that some time in the future journalists will stop calling Kishenjis mobile number because he will be far less news-worthy.
The possibility that the Naxalite problem is solvable is a huge optimism enhancer because apart from the obvious benefits,the fading of these groups will improve national economic discourse. The wholly untenable thesis about big capital exploiting poor tribals as it loots natural resources has gained intellectual and political traction as the body count from Naxalite attacks has gone up. In fact,thanks to a dreadfully complicated mining policy,private,including foreign,capital in mining has been in short supply. If the Naxalite-rich and mineral-rich states become only mineral-rich states,we can have a proper discussion about optimal resource extraction. The second GDO boost comes from the fact that official homework for such a discussion is on.
So,second: a new mining policy. Its taken a long time,an absurdly long time given that the first pro-reforms mining policy was formulated in 1993,but the Centre is close to finalising a set of rules that decentralises decisions on awarding licences and creates a regulatory/appellate structure on mining issues. Will the new regulators be perfect? TRAI in telecom,IRDA in insurance and SEBI in stock markets are not. But they have all presided over big sectoral upgrades. If theres a big sectoral upgrade in mining and if the Maoists are less of a factor in mineral rich-states,thats a huge GDO-
enhancer because sub-par mining activity represents significant lost output right now. However,in poor,mineral-rich states the question of well-targeted welfare spending will remain acutely relevant even after a significant
mining-led increase in state-level economic activity.
So,third: a clutch of new ideas on getting welfare money to those who deserve it. The ideas essentially aim to create an effective and cheap technology platform that will cut out intermediaries and put welfare money in some version of a bank account. More bank branches are too costly. But a combination of travelling bank personnel,a cheap connectivity platform and a reasonably robust national identity card system can completely change how money goes from governing centres to welfare beneficiaries. The RBI,economic ministries and the national ID card project authority are all thinking about various aspects of this. Its easy to be cynical about the prospects of a nationally effective welfare cash channel. But theres real political/
administrative traction behind these ideas. In the Economic Survey,Basus skills as a theoretical micro-economist are put to excellent use in a public policy document via the issue of targeting welfare beneficiaries. The socio-economic payoff is so huge that serious official thinking on this is automatically a GDO booster
Fourth: tax reforms. The 13th Finance Commissions report,also tabled in Parliament,gives a realistic timetable on implementing the goods and services tax (GST). Start with a few compromises,and get to the fully reformed system in three years. The political class should find this palatable. The GST will be a big game changer. The complex analysis of why this is so can be forbidding. It will suffice for our purpose to note three things: properly implemented it will boost national economic activity,it will comprehensively reduce state-level bizarre taxation,and it will make the Centres indirect tax code a thing of joy to behold. Plus,theres the ongoing debate on the proposed and radically simplified direct tax code. True,both the GST and the direct tax code reform are behind their original schedules. But most changes in India are behind schedule. The important thing is these tax reforms firmly belong in the doable-in-near-future category. Think about it this way: we are not too far from a big positive change in how we pay taxes. You have to feel more optimistic when you know that.
saubhik.chakrabarti@expressindia.com
Share
