Space to create efficient entrepreneurs shrinking in India, feels P. Chidambaram
In delivering the inaugral address Chidambaram said space to create efficient entrepreneurs is shrinking in India
Photolabs@ORF
2016
Nov
15
25 years of India’s liberalisation
Calling business establishments like Infosys, GMR, GVK, Wipro etc. as “children of 1991 reforms”, former Union Minister and Congress’s Member of Parliament P. Chidambaram said now the space to create efficient entrepreneurs is shrinking in India. He said that to remain at the edge of change, India must create opportunities for entrepreneurs to start brand new businesses from scratch.
Chidambaram was delivering the inaugural address at the conference on the occasion of 25 years of economic reforms in India: retrospect and prospects in Kolkata, organised by Observer Research Foundation, Kolkata, in collaboration with the Indian Institute of Management Calcutta on October 24 and 25. The conference brought together the thinkers of the past and present from various wakes of the economy, society, and polity with the idea of deliberating on various issues concerning: Challenges in Policy Making: Public Finance and Regulation; Opportunities and Challenges of Globalization: Digital India, International Trade and Economic Liberalization; Energy, Environment and Climate Change; Land and Agriculture, and Agenda for Economic Reforms 2.0: The Emerging Voices Forum.
Chidambaram, a former Minister of Finance, said “Twenty five years is not a long time in the life of a nation”. India has had other memorable periods of twenty five years; the period from 1919 to 1944; the Nehruvian era between 1947 to 1964, but in all of India’s history the twenty five years that have dramatically changed the face of India and altered the course of India’s history was a period 1991 to today. Citing examples from real life conditions 25 years ago, Chidambaram explained how the face of India has transformed over this period. For instance, India produced 263 million tonnes of food grains in 2014, which has further improved since then, and exported wheat, rice, cotton of which wheat, while not long ago, wheat was imported under PL-480 leading to a charming phrase that “India lived from ship to mouth”. India’s installed power capacity which was 2,34,600 MW around 2014 has also improved since then.
Chidambaram focused on India’s agenda for what it should attempt to achieve in the next twenty five years. Defining the scope of his agenda, which would have some red and green lines, Chidambaram desired to focus on getting closer to green lines and never crossing the red lines. Acknowledging that there are many red lines, a few red lines according to him would be: (i) India must achieve the target of fiscal deficit of 3 percent of GDP at least by 2017-18 and must always remain below that level. In this context, flexible fiscal target is a worrisome proposition, (ii) with the current account deficit to continue for some more years, Chidambaram suggested foreign investments (either FDI, FII, FPI or ECP) should be allowed for financing the deficit, and (iii) in a developing economy, aiming high growth, moderate inflation is inevitable. Hence, the monetary authority (particularly RBI) must strive to strike a balance between price stability and growth by formulating monetary policy. The final red line would be to be cautious of the civil service, which has indeed been a strong pillar of India’s governmental sector, but the rules and regulations, drafted by the civil service, must not stifle enterprise, initiative and growth. “Every law must have a sunset clause and must be mandatorily reviewed once in 5 or 10 years and laws which have survived for almost twenty years or so must be mandatorily replaced by laws written by new parliament or a new legislature” Chidambaram added.
The green lines (lines that India must actively pursue) represent targets India should aim to achieve: (i) restore the primacy of tax revenues; reliance on non-tax revenues, borrowings, aids, grants, must reduce. Taxation is a part of governance with many objectives and must restore the importance of tax revenues. They are needed to finance public infrastructure, education and health. Because India does not have adequate tax revenues, the public sector space in education and health is shrinking with severe consequences for the poor. They are being “priced out”.
Chidambaram felt that the society was moving away from the egalitarian system to a nation where basic health care and education is priced at a level beyond the capacity of the poor. The same applies to infrastructure as well as defence, law and order and justice delivery system in India. State has to play an important role and the primacy of tax revenues has to be restored. He urged that more and more people should come forward to pay taxes.
The second green line India must vigorously pursue is to create space and opportunities for new generation of private sector entrepreneurs.
Third green line which India must pursue vigorously is in reducing inequality and discrimination, which in the last few years has in fact increased. The growing inequality and a consequence of that the growing discrimination does not board well for India. And the one way to reduce inequality, among many ways, is to raise minimum wages across board. “A prosperous society cannot be built unless that society is tolerant of each other, unless it accepts more diversity and pluralism, unless it adopts the philosophy of live and let live” said Chidambaram. In the last few years, intolerance has grown in this country and it holds back the potential of the country to become prosperous and rich.
Chidambaram was hopeful of a bright future for India because India still is a vibrant democracy despite the setbacks from time-to- time. It is still an open society; an open polity where ideas can still clash. In his opinion, an open society, open economy, polity are the best assurances of prosperity. He was optimistic and confident that India will remain an open society, open polity and an open economy and in the next twenty five years India will grow at a much faster rate than in the last twenty five years.
Earlier, Ashok Dhar, Director, ORF Kolkata chapter, and Saibal Chattopadhyay, Director, IIM Calcutta welcomed all the speakers, panellists, colleagues and students present at the conference on the silver jubilee year of economic reforms in India. The discussions were divided under four major themes and a separate forum was organised on “Agenda for Economic Reforms 2.0: the Emerging Voices”.
Challenges in policy making in India
The first panel of the conference focused on the challenges in policy making in India, particularly issues concerning public finance and regulation. The panel was chaired by Anup Sinha, Professor (Retd.) of Economics, IIM Calcutta. The panellists were: Rathin Roy, Director, National Institute of Public Finance and Policy (NIPFP), Ashish Kumar Chauhan, MD & CEO, Bombay Stock Exchange (BSE) and Ma Zhanwu, Consul-General, People’s Republic of China, Kolkata. Sharing the experience of reforms in China, the Consul-General, mentioned the role reforms have played in helping China grow consistently at about 10 per cent per annum. Explaining how both urban and rural areas have benefitted from the reforms and reasons for the reforms being revolutionary in transforming the economy of China, the Consul-General, presented some of the challenges encountered in the process of reforms, referring to ‘people’s communes’ and the host of new problems accompanying the reform process. Taking from where the Consul-General ended his talk, Chauhan presented his view on the 1991 reforms: (i) reforms happened under duress: India was on the threshold of a balance of payments crisis and it was under the IMF mandate that India liberalised its economy and opened its borders for freer trade, (ii) the evolution of the IT industry and the timing of reforms coincided: Infosys, Wipro and the others are all ‘children’ of the reforms, and, finally, (iii) India had surpassed China’s fertility rate primarily due to the one-child per family norm of China. Continuing on the challenges in policy making, Roy explained that the reform process of the 1990s, did not adequately consider the role of fiscal discipline in government spending, and as a result, ten years later the country had witnessed a fiscal crisis caused by a drastic increase in the total liabilities of the government. Roy talked in detail about the incentive mechanism used by the Centre to instil fiscal discipline even among the States through the successive Finance Commissions.
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