India Needs Modern Land Use Policies: Ajay Chhibber
Businessworld’s Policy Matters, engages with policy makers, the private sector, experts, and grassroots activists to shed light on what ails the Indian economy at the village, town, district, state and national level today, and how innovative and focused public policy can find solutions towards recovery.
In this installment of Policy Matters, our executive editor for public policy Neeta Misra speaks with Ajay Chhibber on his new book and policies for the upcoming budget.
You recently co-authored a book on the Indian economy. What is your big takeaway on the Indian economy and society?
I have just published a book "Unshackling India : Hard Truths and Clear Choices for Economic Revival ", with Salman Soz published by Harper Collins India, which is Book of the Month in India. It lays out what India must do over the next twenty-five years to become a prosperous nation by 2047. The COVID-19 pandemic has not only cost India many lives and livelihoods, it has also exposed major structural weaknesses in the economy. A huge farm and jobs crisis, rising and massive inequalities, tepid investment growth and chronic banking-sector challenges have plagued the economy for many years. The pandemic has exacerbated these challenges.
It has also exposed the limitations of the Indian state, which tries to control too much—and ends up stifling the economy and the inherent energies of its young population. Climate change is no longer a distant threat, while disruptive technology has huge implications for India’s demographic dividend. In addition, the dangerous lurch towards majoritarianism will cast its shadow on India’s pursuit of prosperity for all. Across a range of areas—role of the state, human capital, technology, agriculture, finance, trade, public-service delivery and more—new ideas are proposed in the book. This book concludes that India can foster a prosperous and inclusive economy if it sets its mind to it, acknowledges the hard truths and lays out the clear choices and new ideas India must adopt towards that end.
What is your current prognosis For January 2022 and which sectors will be driving the growth in 2022-23?
Since the beginning of the pandemic in March 2020, we ended up with a much bigger decline in GDP in FY20-21 ( -7.3%) as the second wave hit India very hard. We are seeing a recovery which is projected to see a GDP growth of over 9% in FY 21-22. But a third wave of the pandemic is building again and may affect economic the recovery. Fortunately, India is now better prepared and unlikely to make the mistakes made then - such as a drastic lockdown. India is also better vaccinated now . The recovery is uneven both across income groups and across sector . India will have to learn to live with the pandemic and hope it turns endemic and help those left behind as it tries to bolster the recovery into FY22-23. Exports have picked up quite significantly and if the world economy does not slow down should remain buoyant. Construction and real estate are showing signs of an uptick and if the Omicron surge dissipates by March 2022, then we should see a revival in travel and recreation and tourism as people who have been locked down for so long start to move again.
What should be the public policy focus in the upcoming budget?
First, keep the emphasis on infrastructure and capital spending. Second, to move forward on farm reform, the government should initiate proposals to convert agricultural input subsidies – fertilizer, free electricity, pesticides into higher Direct benefit Transfer (DBT) under PM-Kisan in a budget neutral manner and provide a plan to move in the same direction for minimum support prices (MSPs). It should also enact labour laws with safeguards for workers and allow states flexibility for their implementation.
Third, privatization of public sector assets should continue but within a transparent framework and a clear plan, instead of one-year announcements. Asset sale proceeds should become part of a “fund for the future”, not a tool for managing the government’s deficit. Fourth, the government must increase education and health spend, starting by at least 0.5% of GDP in 2022 and find resources through its upcoming asset monetization schemes. The New Education Policy should allow states and local administration more flexibility in implementation.
Fifth, India has the most inefficient and least inclusive financial system in the world even before the pandemic. To start clear up the Non-Performing Assets (NPAs) through asset reconstruction companies and other mechanisms more aggressively and move ahead on the already-promised privatization of two state banks, as it improves the languishing IBC.
Sixth, India needs modern land use policies, and as an example, we must increase floor area ratios (FAR) in cities, also as a boost to the real estate sector which needs urgent revival. It must also rationalize electricity and rail tariffs to avoid cross subsidy from producers to consumers, which make India uncompetitive.
Seventh, India must move more aggressively to finalize trade agreements with the USA, EU and others and keep the door open to RCEP and other arrangements and avoid sinking further into protectionism.
What measures can the government take to get employment to pre pandemic levels.
India was not providing sufficient employment even before the pandemic because India's industrial growth was low - but of course the pandemic reduced it even further. But getting growth on a sustained basis is key to employment growth , and with a special emphasis on manufacturing and industrial jobs. The key to growth and employment is recovery in private investment which will be uneven as capacity utilisation remains low in some sectors - especially in services. Firms bolstered profits by cutting employment in FY 20-21 , and some recovery is underway now, but this can be encouraged by introducing the new labour codes and discouraging state government's from introducing labour quotas.
Historically India’s spending on health has been low what % of GDP should the country be investing on health expenditures and where would the re-allocation come from?
India spends around 1.27% of GDP on health - this should be at least 3% of GDP Such a huge shift will take time to materialize but if health spend could be increased by 0.5% of GDP every year for the next 3 years that should be a way forward. Rationalising wasteful subsidies by shifting to DBT, more aggressive privatisation and monetisation of state-owned assets is another source of funding. Shifting the balance sheet of the government from equity in PSU's to more social and physical public infrastructure is the way forward for India. India could also allow increases in property taxes and user fees and use these to allow local government's more spending on health and education, especially at the primary level .
Thank you!
The Policy Matters initiative is headed by Neeta Misra neetamisra@alum.mit.edu; kindly direct enquiries related to the initiative to her.
