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RSTV- The Big Picture : Taking Stock of PM Modi’s Reform Agenda

  • IASbaba
  • December 10, 2017
  • 3
The Big Picture- RSTV
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Taking Stock of PM Modi’s Reform Agenda

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TOPIC: General Studies 2

  • Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Some of major reform agenda of government are:

GST

It is the biggest economic constitutional change since independence. The implementation of GST by the constitutionally mandated deadline had to be hurried through but even then, the implementation had been largely smooth in such a large country. It is a huge reform in the polity itself and the system was able to adopt this radical reform without much hassle.

There was a grand bargain struck between centre and the states and among the states. It wasn’t easy to strike such a deal, as India is a federal structure where states have surrendered a part of their economic sovereignty and so has the centre.

The GST council is doing detailed implementation plan and designing. At present, an advisory committee has been constituted to provide the inputs to revamp the entire GST in the way it is implemented today to make it simpler.

One of the major impact is on agriculture sector as though it is not going to be directly impacted by GST but there are other ways in which it will come under GST ambit. GST on agri inputs such as fertilisers, equipment, drip irrigation is there. So GST is not in agriculture produce but on agri-inputs.

Recapitalisation of banks

Since 2014, there have been several economists who had been urging recapitalisation. Government tried to reform the PSBs through plans such as indradhanush and bankruptcy law. After that, the question was how long to postpone reforms PSBs by diluting equity. Many of the government shareholdings in PSBs is still 60% and now it should go down to 50%. However, once there is recapitalisation, the government’s share will again go above 50%.  Hence it is significant to have sequencing of capitalisation -> Whether there is dilution of government stake in PSBs first or there is recap of banks and then dilution.

It is important that the banks first dilute government equity and then recapitalisation is done. For the banks to dilute their equity, they need to clean up their balance sheet which is a big challenge now.

A critical agenda for recapitalisation of banks is to expand their business. However, today the bank lending capacity is 60 year low. So bank business is not growing. When their business is not expanding, the need to infuse such huge capital immediately has to be closely monitored to prevent high inflation.

Overtime the share of term loan has declined. Share of short loan has increased. Term loan declining has effect on capital formation in agriculture and that has effect in long run growth of agri sector. Very little credit is going to dairy sector which has 28% share in agri growth. It is sunrise sector and growth is also stable. It has to be considered that now with recapitalisation, banks should expand their scope of institutional credit as still large numbers of farmers don’t get loans from institutional sources and many don’t get any loan at all. Many states also don’t have sufficient institutional credit facilities. This should be encouraged now.

Other reforms are

  • PM ujjwala Yojana
  • Jan Dhan Account scheme
  • Pandit Deendayal Upadhyay Gram Jyoti Yojana
  • Focus on policies such as ‘Make in India’ and ‘Digital India’.

Push towards public investment in infrastructure, strengthening the banking sector and capitalising private investments are some of the things that government has been highlighting. This should be supported by some more reforms such as

  • Labour market reforms
  • Digital push through essentials such as mobile phones
  • Entrepreneurship encouragement to accelerate job creation

Conclusion

From a fiscal and welfare perspective, most of the money for poor goes wasted. One third goes into corruption, one third lost in inefficiency and one third comes in use. In some cases, subsidies are needed and in some not at all. It shouldn’t be at the cost of infrastructure. The rural India is seeing experiments on direct benefit transfer particularly for fertilisers. Still learnings are being derived from those experiences. There is need to distinguish between income augmenting effect of subsidy and particular purpose for which subsidy is given. For eg., direct cash subsidy in place of product/thing needed (fertilisers, ration etc.), if used for other uses, then the purpose of providing subsidy will be defeated. The reform of the subsidy transfer system has been taken up starting from LPG, fertilisers and then kerosene. The bank accounts of people have been opened to enable digital literacy as well as less use of cash.

Now more welfare schemes are not needed. The need is to reengineer the schemes so that there are fewer leakages and maximum beneficiaries are benefited.

Connecting the dots:

  • The government has been focusing on radical reforms which has the potential to hurt the economy. Critically analyse your stance on the same.

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