Editorial: Nine Steps to Salvation in 1999

EDITORIAL
Nine Steps to Salvation in 1999

Nine Steps to Salvation in 1999 Badly-begun is, often, half-doomed. The year awoke to a collapsing economy, a corporate sector still in the grips of a recession, fast-shrinking exports, crumbling infrastructure, foreign investment outflow, and lacklustre stockmarkets--all of them seeking succour from a coalition government trying to rise above inner conflicts, and a drubbing in the state assembly elections. While these would be enough to bring any economy to its knees, the crisis was compounded for Union Finance Minister Yashwant Sinha by the fact that the government was hurtling towards bankruptcy, its projections of revenues for the financial year proving to be ultra-Utopian. Indeed, the only victory that the financial managers of the economy could claim was the pyrrhic one over inflation. Within this very crisis, however, lies the opportunity for the same financial managers to implement the bold decisions that the combination of sheer timidity, political compulsions, and pressure-group lobbying have obstructed until now.

I Step up the pace of investment in infrastructure immediately. Borrow, from the markets as far as possible, and channel the funds into projects with clear time targets. Remove all hurdles in the path of private sector investment in infrastructure, and ensure quick financial closure. This is the most powerful engine of growth that there can be today.

II Begin the process of eliminating all subsidies, starting with the biggest. Commission a study to compute the total subsidies being extended to the public sector, and work out schedules for phasing them out.

III Reduce the number and levels of Excise and Customs duty rates to 3 each--10, 20, and 30 per cent for the former, and 5, 10, and 20 per cent for the latter. With the recession threatening to intensify, only lower taxes and, therefore, lower prices can galvanise demand and production.

IV Abolish the system of effecting ad-hoc increases in Customs tariffs in particular. Now that the barriers have been half-dismantled, competitiveness, not protection, is the only way to build a vibrant industry.

V Set up an information-technology-enabled tax intelligence centre to store information on tax-dues, liabilities, and defaults, which can be used by the taxation department to streamline procedures and collect dues quickly.

VI Set a condition that makes it impossible for the government to exceed its borrowing target from the Reserve Bank of India (RBI) except in the case of an emergency, and clarify that revenue expenditure will be frozen if the borrowing limit is reached.

VII Direct the RBI to provide Rs 5,000 crore to the financial institutions for lending to medium and small-scale industry. This will not only enable them to invest, it will also offer an industrial demand-boost.

VIII Start a new programme for disinvestment in Public Sector Undertakings (PSUs), listing a 3-year timetable, specifying the amount to be sold in each corporation. Classify all PSUs under 3 heads: those in which the government will hold 51 per cent and above; those in which it will hold between 26 and 51 per cent; and those in which it will hold less than 26 per cent. Promise to adhere to the disinvestment schedule, irrespective of market conditions.

IX Eliminate all remaining impediments in the path of Foreign Direct Investment (FDI). Follow up the monitoring mechanism suggested in Budget 98 to ensure speedy clearance of proposals. Relax the remittance policy and capital controls on FDI. Re-organise the bureaucratic channels of clearance for foreign investment to speed up the process.

Let us not delude ourselves. The ninth-hour attempt to rescue revenues--and meet the disinvestment target--by inducing PSUs to buy back their own shares and pick up cross-holdings in one another smacks of panic-stricken ingenuity that will do nothing for the resuscitation of the economy. Putting the fundamentals of the economy back in place really requires looking beyond the annual exercise of the Budget, and making efforts to enhance labour and capital productivity, carrying out administrative reforms, evolving proper systems of public enterprise management, and opening up the economy without sly impediments blocking the path of investors. Reforms, after all, can never work until they are complete. And half-undone will only prove badly-done.

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