A Historic Opportunity To Remake India
There is something significant and poignant about independent India and its trysts with upheavals every 30 years or so. Each tryst has battered the country and then helped it emerge stronger. The first such tryst after independence in 1947 came in 1962 when China inflicted a humiliating military defeat on India. The country still suffers from a hangover of that ignominy. But that war triggered a complete makeover of India's armed forces. India has never lost a war since then; in fact, it delivered a bloody nose to China during a border skirmish in 1967.
Almost 30 years later, in 1991, the Indian economy was in such deep trouble that there were enough foreign exchange reserves to pay for just two weeks of imports. We were literally on the verge of defaulting on our sovereign obligations, an unthinkable and unimaginable event. So India pledged its gold reserves with global banks to get enough dollars to survive. But the crisis triggered the famous economic reforms ushered in by the then finance minister Dr. Manmohan Singh (with the political blessings of prime minister P. V. Narashima Rao) that transformed the Indian economy. In 1991, we were almost written off as a basket case. But the abolition of the so-called "license-permit" unleashed the long-dormant entrepreneurial spirits of India and we created dozens of world-class companies even as poverty witnessed a massive decline. Today, India boasts of the fifth largest economy in the world.
Close to 30 more years have passed since that crisis and the Covid-19 (some call it the Wuhan virus) pandemic has delivered a virtual knockout blow to India and the world. This time around, we are facing unprecedented health as well as the economic crisis. We will leave the health crisis for medical professionals and focus here on the economy. Industrial output actually declined by 16% in March 2020, unemployment has grown to 24% and we will be lucky if the GDP growth rate for the fiscal year 2020-21 is in positive territory. In fact, there is no doubt whatsoever that the GDP of economies like the US, UK, Germany, Japan and France will actually shrink.
Will this third thirty-year tryst once again help India emerge stronger and more resilient? Will our leaders and policymakers rise to the occasion like they did in the wake of 1962 and 1991? By announcing a Rs 20 lakh crore economic revival package and promising fundamental reforms, prime minister Narendra Modi has triggered a wide-ranging debate over what needs to be done to remake India as the 21st-century economic powerhouse. Even before this, many state chief ministers have announced sweeping changes to labour and land laws and regulations. The intent is crystal clear. But the multi-billion-dollar question is: what exactly must be done in the sphere of policymaking and implementation to make this happen?
Perhaps the most important reform might appear trivial. But like India abolished the so-called "license-permit" raj in 1991, it must abolish the "inspector raj" before 2021. We have tax, labour, factory, fire safety, hygiene and god knows how many other kinds of inspectors who make life hell for ordinary citizens, but particularly for entrepreneurs. This inspector raj has allowed corruption to continue unabated. Between 2014 and now, India has jumped 79 places from 142nd to 63th, a remarkable feat for a large and complex economy like India. But the abolition of inspector raj is a must, along with other reforms to help India become even more business-friendly. This becomes critical as the COVID pandemic has forced companies across the world to seriously consider restructuring supply chains and shifting manufacturing operations from China.
These army of inspectors and the obsolete rules they seek to enforce result in a wave of legal disputes that drag on for years and years. In fact, that brings us to the second critical reform that must be implemented as fast as possible. And that is judicial reforms. Anything to do with courts and related quasi-judicial bodies is a nightmare. No wonder, when it came to "enforcing contracts", India's rank remained static at a pathetic 163rd. There was a minor improvement in rankings from 166th to 154th in the case of "registering property". But being ranked 154th out of 190 countries on such a critical parameter will hardly inspire confidence in global investors.
These steps will send out a powerful message to Indian investors as well as global investors. What more can be done to ensure that our rank not only improves to coming in the top 30 but actually convincing everyone that India really means business this time?
Let's look at what needs to be done with land, labour and bureaucracy in the next feature.
