The Hindu Business line, January 09, 2015

By Pradeep S Mehta

Astrong national market backed by clean procurement policies and realistic fiscal management can take us there

While the general mood in the country seems buoyant, the business sentiment is not quite in sync. The reasons are well known, but there is ardent hope for progress under Narendra Modi. We need to cross the Rubicon of 5 per cent-plus growth rate and aim for at least 6 per cent in the new financial year, with the goal of turning India into a $10 trillion economy by 2030 in absolute terms.

There are many things to do, but let me focus on some critical areas that come under the purview of the finance and corporate affairs ministries. Introducing reforms in four crucial areas can help the country in achieving optimal growth, while protecting the needs of vulnerable consumers, and bringing transparency and accountability in economic governance.

The areas are: competition, public procurement, financial consumer protection and fiscal management.

Phase two reforms

Implementing the Goods and Services Tax (GST) can help the government achieve game changing competition reform and step forward to a single, common market.

However, to become much more competitive and launch the second big wave of economic reforms, we need to adopt the draft National Competition Policy (NCP). The draft has been lying on the website of the Department of Corporate Affairs since November 2011.

The policy encourages adherence to competition principles in policies, laws and procedures of the central and state governments, sub-state authorities, optimising efficiency, achieving high growth, reducing inflation, maximising consumer welfare, and a common national market.

It also seeks to promote regulatory impact assessments to get rid of the arcane and irrational laws and policies.

As with VAT or GST, states should get fiscal incentives to facilitate adoption of NCP. I am sure the NITI Aayog will also look into it.

Transparency in procurement

Public procurement in India accounts for almost 30 per cent of the total GDP worth $536 billion annually and, thus, there is a need to usher transparency and efficiency in this area.

It would also promote good governance by curbing corruption in public procurement, something the government is keen to do.

An early adoption and implementation of the pending Public Procurement Bill is called for. In addition, a national public procurement policy should also be adopted to address interfaces between public procurement and related macroeconomic policies. These include trade policy, competition policy, sustainable procurement policy, fiscal policy and the new manufacturing policy, among others, to ensure coherence.

For finance consumers

Today, several Ponzi schemes have pushed people to the brink. A holistic approach is needed to to deal with them. While the country has taken long leaps in other areas, including being part of the G20 agenda, financial consumer protection has historically been subjected to short shrift.

Financial consumers have to deal with traditional problems such as hidden and inflated charges, unfair contract terms and conditions, undisclosed levels of financial risk, and problems arising out of advancement of technology, such as unauthorised fund transfers, fraudulent withdrawals from ATMs, phishing, etc. Moreover, the country remains a laggard with respect to achieving high financial inclusion.

We need to adopt and implement an omnibus financial consumer protection Act.

Such a law must take into account the practices implemented by various states and comparable jurisdictions.

It should establish a new national single financial consumer protection mechanism (regulator), having state units, thus covering the entire country. This has also been recommended by the Financial Sector Legislative Reforms Commission (FSLRC).

For fiscal common sense

With a direct tax shortfall of over ₹8 lakh crore this year, the government has resorted to sweeping, unhealthy budgetary cuts. Over time, harmful practices of over-budgeting and under-budgeting have cropped up in fiscal management. Consistent diversions of around 20 per cent have been recorded over the years.

In addition, the government has been ready to sacrifice social sector and rural development expenditure at the altar of fiscal deficit, but shies away from avoiding unproductive populist expenditure on subsidies, pay revisions etc.

We need a comprehensive review of government planning and budgetary practices, and the long-term strategy to contain fiscal deficit. A possible start could be establishment of a Parliamentary Budget Office, an independent fiscal watchdog to provide research and review support for budget, and adoption of ‘balanced budget’ principle.

States could be given greater role in planning and implementation of welfare schemes, as has been envisaged in the agenda for NITI Aayog. Also, a clear distinction must be made between merit and non-merit subsidies and the latter should be gradually reduced. One hopes that the Expenditure Management Commission will address these issues and the government will bite the bullet.

The writer is the secretary general of CUTS International

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