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Thursday, October 29, 2020

An election of trust: 5 suggestions to take India from low income country to a mid income one

Prime Minister Narendra Modi did not make any significant new promises — what he did do was remind Indians of his commitment to the nation and asked them to trust that he would always act according to what he thought was best for our nation

Written by Abhishek Lodha | Updated: May 30, 2019 8:19:42 pm
narendra modi, Naveen Patnaik, lok sabha elections 2019, lok sabha elections results, abhishek lodha, lodha developers, narendra modi election win, modi lok sabha election win  Due to the non-trusting mindset, our laws and regulations have become so complex, difficult to follow and ever-changing, that virtually every Indian has become a rule-breaker. And this rule-breaking makes us distrustful of each other and of government. (Illustration by C R Sasikumar)

The 2019 election results have been sought to be explained by experts in many ways — TINA, hope, fear etc. My analysis is that if 2014 was the election of hope (“Acche Din Aayenge”), 2019 was the election of trust (“Main bhi Chowkidar”). The prime minister did not make any significant new promises — what he did do was remind Indians of his commitment to the nation and asked them to trust that he would always act according to what he thought was best for our nation. In a different manner, the same story of a good man doing his best for the people was successful in Odisha where Naveen Patnaik was elected for a fifth consecutive term with a two-third majority.

Whereas caste and religion used to be the basis of trusting leaders and voting for them earlier, the basis of trust has now shifted to an individual’s non-corruptibility, selflessness and commitment to the betterment of the people. In Modi and Patnaik, India finally has leaders who can be trusted and Indians have reposed their faith in a wholehearted manner. If this trend can persist for a couple of election cycles and the trust of the people can be complemented by trust in the people, the lives of crores of Indians can be significantly improved over the next two decades.

So what do I mean by “trust in the people”? For far too long, Indian administration has been characterised by lack of trust in our people. Our laws and regulations (and their administration) are drafted largely with a view to “stop” the 1 per cent rule-breakers (who, anyway, find their way around these laws). However, due to this non-trusting mindset, our laws and regulations have become so complex, difficult to follow and ever-changing, that virtually every Indian has become a rule-breaker. And this rule-breaking makes us distrustful of each other and of government.

For our nation to progress, we have to break away from the control mindset of the “British Raj” where they wanted Indians to take permission to do everything and instead move to the enabling mindset of a modern nation-state like the US, Australia or Singapore, where citizens are trusted, laws are framed to help them fulfil their aspirations and dreams, and except for a small list of “restricted items”, citizens are free to do what they want without administrative interference.

I suggest five solutions which can contribute to moving our nation from a low-income to mid-income country and increase social cohesion and harmony: One, for almost 70 years (1947-2014), India has tried a control and command economy — take permission to do this, to do that. This has not worked. Why don’t we try a different approach for 10 years — let people do whatever they want to do. Trust our people and trust markets. Have a few “nos” but everything else is “yes”. Don’t rule people (no British Raj), but empower and enable them — a great example of how to do this is the LPG subsidy give up scheme — government took the approach of appealing to the people and more than 1.2 crore people gave up their subsidy.

Two, every Indian has the right to be happy and for 90 per cent of the population, if happiness comes from being financially successful, we need to enable creation of wealth as a national duty. Wealth is good, job-creators are the most important members of society. The PM in his victory speech on May 23 very succinctly said that “India will now have only two castes — those who are poor and those who are striving to bring them out of poverty”. India has a national duty to ensure that we create enough wealth for every Indian to fulfil their aspirations and this can only happen by taking forward the PM’s statement and interpreting it to mean everyone who is a job-creator needs to be helped and supported.

Three, till such time that we make the transition to a more productive economy on the foundations of better education, better infrastructure, lower cost of capital, social safety net, which will take at least 10-15 years, we need to do something about the poorest in India. Agriculture needs only 5 per cent of our population but more than 40 per cent of our population is involved in agriculture. Till we create good jobs in other sectors for them, we need to bring in a “Universal Basic Income” for rural India — the equivalent of the US’s social security. This has been started by the NDA government in the interim budget of 2019 with Rs 6,000 per annum for farmers with small landholdings but can be expanded to ensure that no Indian family lives in poverty — and this can easily be financed by a part of the savings generated from the solution below.

Four, Indian real interest rates are the highest in the world. This is a huge tax on every job-creator, every borrower. How can “Make in India” succeed, how can we compete if Chinese and US manufacturers can borrow at 3-4 per cent and our job-creators have to borrow at 12-14 per cent. Due to the policy measures of the last five years, India has won a significant victory over inflation, with Indian inflation now around the same levels as that in the US and UK. We have not yet given Indians the benefit of the win in the war against inflation. We did not slay inflation just because we dislike it, but because it can enable India to become more prosperous by enabling consumption and investments, with a lower cost of money. We need at least 2 per cent (200 bps) of interest rate cuts over the next 12 months and a long-term glide path to real interest rates of approximately 1.5 per cent (over core inflation, that is, excluding changes in food and fuel prices which are not easily influenced by interest rates).

India’s Central government debt is about $1.2 trillion. Then there is state governments’ and PSU debt to consider. A reduction of interest costs on these borrowings could lead to annual savings of around $50 billion for the government. To put this in context, India’s fiscal deficit (Central government) is over $80 billion. This $50 billion can be put to use for important social sector spends and infrastructure creation. Indian banks will be able to recoup a significant portion of their losses from NPAs through one-time treasury gains from their holding of government bonds — this will enable the banking system to become functional again and fulfil its real goal of lending to every productive entrepreneur. As interest rates are reduced, for senior citizens/other special categories of savers, government can provide a phased out subsidy over for 3-5 years, which will cost far less than the $50 billion saved by the government.

Five, why shouldn’t India finance its capital needs from its own balance sheet? Globally, central banks have played significant roles in creating “capital” for their respective economies through quantitative easing. This has had no adverse inflationary impact and helped increase employment — Western countries today have the lowest unemployment in their recorded history. Our low inflation gives us the privilege to use the RBI’s balance sheet to stimulate the economy and help create jobs — the single biggest social, not just economic, challenge. The RBI should look at a programme of significant injection of liquidity into the Indian economy urgently.

While these five suggestions are only the start, “trust” is the underlying feature of everything successful about human existence — in relationships, in families, in communities and even across nations. I urge our leadership to embrace Indians with trust and assure them that this trust will be fully valued and used to make our nation into the “sone ki chidiya” that is India’s rightful place in the global order.

Postscript: This writer’s views are biased — he grew up in an RSS family and his grandfather and father are elected representatives of the BJP. His bias is compounded by the fact that he is managing director of one of India’s largest real estate companies. Before this job, he also worked for McKinsey & Co and was educated in the US — all of which make his views too right wing, capitalist and unrepresentative of real India.

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