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    Hello and welcome to a webchat with Mihir Sharma, Editor - Opinion, Business Standard, as he interprets the state of economic reforms and why they are not picking up speed

  • S


    Reforms not picking up speed, what are the reasons behind it?


    Simply put: the government is doing as much as it thinks is necessary. If it hasn't done more, it is because it is not convinced it has to. I don't know what it needs to know in order to change its mind.

  • R


    Hypothetically speaking, if you were appointed the FM of India, what are the 5 immediate priorities you would take up in the present economic landscape and why?


    OK, that's a really big hypothetical, isn't it? But seriously, the big picture answer is this: As I argue in my book (quick plug here, it's called 'Restart', and it's about the Indian economy's problems and possibilities) our post-1991 reform process is half-done. The first thing to do is to ensure that the factors of production - labour, land, capital and even entrepreneurship - are available through market systems rather than in the very policy-constrained and state-controlled ways they are currently. That's four very big things, I guess. The fifth should be administrative reform - fix the way the government interacts with, governs and regulates citizens and companies. This should be a major part of the agenda, but isn't even on it at the moment. (For more - second plug - read my book.)

  • C


    There are so many reforms which have come up so far and there is no order followed for the implementation. So these reforms are just to prove the government power and no serious course of action has been taken so far. What are your thoughts on this?


    Well, this gets at the heart of the problem. Look, the problem is this: if you want to create a reform agenda, you need to free up policymakers like ministers to make their own decisions -- subject to a certain ideological direction set at the top. Mr Modi's governance style does not, it appears, permit that. He likes to have a look at what's happening in his government; and rather than set an ideological template that policymakers can look at and make their own decisions, he sets a broad overall set of *objectives* and expects policymakers to come up with ideas, many of which the PMO will clear before they are implemented. So the consequence of this is twofold: one, there is a traffic jam at the PMO, as some things are cleared, some things are not, and a lot waits for attention. So there's a sequencing and a clearing problem. And two, the kinds of ideas that are brought forward are not a coherent agenda. Some ministries push for privatization, some don't; some expand state intervention, some don't; some are business-friendly, some aren't.

  • A


    Will GST get its clearance in the Winter session of the Parliament? Even if it does, could it be implemented in the next FY?


    Will GST be cleared? I don't know - only Sonia Gandhi knows for sure, I expect. Many people think even if cleared in the Winter Session, it's too late for April 2016. (As it happens, I believe this is not a bad thing. The government needs to fix its draft of GST, and remove the dilutions it has introduced. As it stands now, it won't help create a single Indian market, which was the real point of the tax reform.)

  • J


    There seems to be a disconnect between government's GDP growth statistics and the growth of Sensex or Nifty toplines. The growth in profits, if any is driven more by margin expansion on the back of lower commodity prices and aggressive cost cutting measures. Isn't there a disconnect between Corporate topline revenues and the governments contention that GDP is growing at 7.5% ?


    The new GDP statistics have come in for a bit of criticism. The methodology underlying them was recently revised; now, value added is calculated by looking at actual submissions by companies to the ministry of corporate affairs, rather than through a survey. So, technically, there should be a tighter link between company profits and GDP growth than earlier. It will matter less, perhaps, how the profits are made. Even if they come from cost compression in a particular sector, then we will still see the sector grow. So revenue might reveal depressed demand - but it's bottomlines that matter more for new GDP.

  • A


    Do global investment summits being conducted by states serve any practical purpose except political image-building for governments? Analysis based on govt data suggest a minuscule percentage of investments actually materialize on the ground. Your views.


    In India we have a memory-memorandum problem. We look at all the big memorandums of understanding being signed at such summits and said: Wow, that's a lot. If only 1% of those become real investments, then, sadly, we have no memory of the original, promised number. So we can get taken in again the next time such a summit comes around. Are these mainly political image-building? Kind of. Some states do need to repair their image - West Bengal, for example. So they can certainly work on these summits. Its Stage One, as it were. But some other states are different; they already have a positive image. If they want to work on investment growth, summits aren't the tool they need. They need to show that investor wealth and returns have been protected in their states. They're at Stage Two.

  • A


    Hi Mihir, My question to you - Do you think investment summits being organized by states serve any practical purpose except political image-building?


    Hi Alok - I already answered this, a little further up the page.

  • R


    I understand economic reforms in an abstract way. 300 million people working in the organized sector are allowed to transfer their inefficiencies to the 900 million poor people who pay for it as a result of higher inflation, lack of resources for basic social and other infrastructure for human life. As long as the levers of the economy are pulled for protecting the organized, the 900 million people will never get a good deal. Every power cut, bad road, traffic jam adds to the costs which are transferred to the poor through the principle of transfer pricing. Unless we root out protection for the organized, there is no hope for the poor. Am I being simplistic?


    This is not a bad way of thinking about it at all, at first reading at least. I'm going to have to think about it harder. But, definitely, a lack of reform usually benefits those with access, those who can handle imperfect markets, those who have the levers of power - we see this in sector after sector. Power cuts mean that entry costs to a business go up, because you have to pay for a genset and diesel as back-up. This means only richer people start businesses. And so on ad infinitum, across sectors.

  • R


    Apart from the Land Bill and GST, can you spell out five other things that the government can focus on and implement to kick-start the economy?


    1. Bankruptcy law; 2. incentives for state electricity boards and implementing the rights of consumers under the electricity Act; 3. reducing drastically paperwork for imports and exports; 4. increasing commercial court capacity; 5. Central labour law reform.

  • P


    Why banks are forced to implement Pension Yojana and Jandhan Yojana when they should devote more time to NPA recovery?


    Well, I think that banks could perhaps do both - if, and this is a big if, the Pension and Jan Dhan schemes are profitable for them. If they become a sink for PSU bank money, then they will neither be implementable in the medium term, nor sustainable in the long term. NPAs, remember, are top-heavy in India: there are a lot of big accounts that make up a sizeable proportion. This means that, given political and bureaucratic will, and the ability to push cases through the courts, the NPA problem could be attacked fairly swiftly. Govt could set up a big-NPA advisory and recovery cell, independent of individual banks or of the finance ministry, which banks could go to in order to speed the process onward.

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