How to Save the Indian Economy

COVID has brought our economy to a standstill, and many companies are staring at a bleak future. Jobs are being lost, and someone must be done. 

But... what? I attempt to answer that question in this article!

First things first, my overarching theme is to get people stable, secure jobs. Get India back to work!

There is a simple (and common) answer that is doing the rounds in all business publications — the government can print money and provide relief to the common man, SMEs, and also provide credit guarantee schemes to banks to allow them to lend freely. I will explore additional solutions! 

1. Never waste a crisis. This is the time to do land, labour, and capital reforms. You want to attract factories moving out of China? Remove all labour laws, and make it simple to handle. Very happy to see UP, Gujarat, Rajasthan and MP start with this trend by suspending labour laws for a period. Critics will say this will lead to the suppression of the workforce. But critics don’t know that only 1/10 of the actual labour in India comes under the current labour laws. So the current labour laws actually protect the RICH labour - those who have jobs, ESI, PF, security. The poor guy washing cars without an offer letter at a car wash has none of this, and no job security. The chai-shop employees don’t have the same either. The guys working in small scale industries? Nothing. Why discourage larger factories? It’s very counter-intuitive — if you allow companies to fire people easily, they will actually hire more. Now, there is a caveat here — the government will need to step up and provide a social net (i.e. unemployment insurance). Regarding land reforms, there is massive potential. If industry can buy from the farmer, the farmer won’t get exploited but will in fact get a more remunerative amount. Right now they are selling to land sharks or the politico-mafia, who then get the land converted, and sell to industry at far higher prices. Cut out the middleman! Additionally, if we can get titles clarified (i.e. government guaranteed titles), this can double our GDP easily, as now we will increase the ability of the common man to “monetise” or “financialise” his land easily by taking loans against it. The USA has been built leverage. We can do the same. But only if we clarify land titles first. 

2. Stop promoting tax evaders. There is this romanticization of kirana stores in India. I hate them. They evade taxes, don’t employ staff with offer letters (i.e. no ESI, PF, job security / wages upon termination, no paid leaves). They don’t comply with local norms - they are commercial establishments in residential areas, have no parking spaces and use up the road for parking, have no fire safety norms despite storing flammable items, etc. The kiosks / hand carts are an even bigger scam. They litter, pay no taxes, and are even out of the GST net even though their sales are far higher than the limits set by the government. They also pay large bribes to local corporators, and cops to keep this going. If we want to employ our large masses, we need to promote professional retail in lieu of roadside kiranas and hand carts. I simplify this point and I understand some carts pay local license fees. But if you don’t promote folks you follow the law, and allow others who flout it to compete with these same folks, then why would someone be able to prosper by following the law. In India, if you follow the law, you are called a… well, you know what you are called. 

3. Stop tormenting Job creators (aka the “Rich”). Celebrate wealth - if a country doesn’t celebrate wealth, it will never get rich. Anyone who has a “high profile” is likely to attract scrutiny in India. People are scared to “celebrate” here. So fancy weddings where crores are spent are being held abroad. Our economy could use all of this spending! Celebrate the big fat Indian wedding - the money is being spent on halls (benefits hotels), flowers (benefits Indian growers, florists), Sweets (local sweet vendors, milk and sugar suppliers), Jewellery (local jewellers), and on feeding many thousands (benefitting caterers). Thousands of people are employed per wedding. Our “scrutiny” has sent all of this abroad. I see so many LinkedIn posts where people are saying “what a waste of money” when they see someone spend their hard-earned money. Yes, but you’re missing the point. If the money is being spent —someone is also earning it. Don’t hate the game because you’re not a player. Just encourage people to spend their hard-earned money in India! And you can stand to benefit from their largesse!

4. Stop penalising people having fun. Do you know why people prefer Phuket to Goa? Not because the beaches are better. It’s because of government laws. The CRZ means literally only a few Goan hotel rooms have a sea view, versus several in Phuket. The “fun” quotient in Phuket attracts our Indians in droves (which means the market exists). Look at Colombo - the casinos are filled with Indians. But Sri Lanka gets the lions share of casino revenues, and we just get random newspapers howling about how gambling is ruining people’s lives. Goa is going through a tough time. If it allowed land casinos, maybe a more liberal night-life, and even (gasp) booze on the beach, it will earn so much revenue that it’s citizens will be first-world rich. But this is never going to happen as we hate people having fun in India. If you want to have fun, you have to go out of India. So Dubai, Bangkok, Phuket, Singapore, will benefit. Emirates will grow, but not Indigo. Do we realise that we are importing our entertainment, which we can clearly export? Will not more foreigners come to India if we are more relaxed? Our simplistic criticism is that making things more easily available increases crime. This is absolutely ridiculous. If you sell using official means, then you are raising taxes for the government. Else you are funding a mafia, who will be the ones benefitting from bootlegging. Raising taxes means a large police force, and the latter means a larger mafia. What is safer? Why don’t we look at developed countries and emulate them? Because the answer is that India can’t work like that. But aren’t we aping everything anyways? We haven’t invented anything of note in the last few decades. It’s true. Who’s researching the COVID vaccine? Who’s researching the medicines? Who makes our phones? Who makes the software in all our phones? All our infrastructure projects have foreign assistance or technology. Our gleaming airports are a veritable brochure of foreign brands. If we can ape literally everything from the western world because it is good, then why not their idea of fun? Because this is the land of Mahatma Gandhi? Don’t make me laugh. We put Mahatma Gandhi on our currency. The Mahatma. On currency. Next! 

5. Get the government out of business. Government distorts every industry it is in. And any industry with has a named minister typically results in regulatory capture. Let’s look at any privatisation done in the last few decades (okay, that’s easy because so few have been done sadly). They have done well. Just google what happened to Hindustan Zinc (trust me, do it!). The employees have benefited, and great shareholder wealth (and taxation) has come out of it. Look at Telecom - how much money has the government made by milking this sector? What if only BSNL and MTNL provided connectivity? Where would we be? Look at Airlines? Why not use a great idea like UDAAN, instead of having a government airline? People keep saying only Air India goes for repatriation flights. That’s rubbish. Pay a private airline and even they will do the same work (and they have!). People will say jobs will be lost if Air India is privatised. Yes a few may be lost. That is necessary for the rest to be saved. And for the industry to become profitable. More profits means more tax. You get the picture. I put on record here that Coal India should be split up and privatised, it can be made nearly 3x more efficient in private hands, and we can export coal. The time for coal is getting over, and we will be left with massive reserves which will become worthless. Let’s export our coal now!

6. Reduce the tax rates! This current government’s single biggest contribution to India is the reduction of tax rates for corporates. It should go further and reduce taxes for individuals. Start taxing rich farmers, instead! You know who a rich farmer is? A politician. The poor farmers anyways will not come under the tax slabs. If we actually taxed the real income of bureaucrats and politicians, well then, we wouldn’t have a deficit in this country. Plain and simple. Why aren’t the middle class protesting the high taxation on them? How can they unfairly shoulder all the burden? Reducing tax rates will spur consumption, increase savings, lead to higher investments and start a virtuous cycle. 

7. Stop this hogwash of depreciating our currency. The expert on this is Manish Chokhani. Watch his recent interviews. This man understands Macro like no one else in India. Every time we have a crisis we allow the rupee to depreciate thinking it will save our exporters. Our exporters are a minority, and haven’t captured the market despite a 100% depreciation in our currency over the last decade. Instead, it has made our 1.3 billion people poorer by 2x on a per-capita dollar basis. Our basic needs are all imported in dollar terms! If our currency was stronger we would be richer. It’s as simple as that. One more thing — remember our major expense? It is INTEREST on our DEBT. Which is denominated in dollars.

8. Professionalise the government. Why can’t the government appoint a local equivalent of McKinsey to get advise? I know why. Because we have the IAS already there to advise it. I believe the IAS should be completely overhauled. It’s a great idea for certain aspects, but I think we need deeper expertise in our departments. The Finance ministry should be staffed with PhD’s in finance, economics, statistics, and accounting. Not by career babus who have been paratrooped in a few months ago from another industry. This is painfully obvious. Oh, and here’s another thing we can do — shrink the government. We pay too much of our tax income on just sustaining the government’s costs. The private sector is far more efficient, and a MUCH better way to operate. Anyone got a passport in the last few years? Seamless, isn’t it? That’s thanks to the government partnering with TCS for processing our passports. Now, why can’t this idea be replicated everywhere? Who prefers an AAI run airport to a private run one? Who prefers an ITDC hotel to a private run hotel? This will create immense jobs, and will help the common man get better services. The common man is willing to pay for services - see the number of people paying for JIO, see the uptake in gas cylinders! Only if the service is available, and provided well. 

9. I’ve saved the best for last. If we want to create jobs, and truly build on India’s competitive advantage, we need to Get the Government Out of Agriculture. Totally out. We have been “saving” the small farmer since independence. Yet the poor farmer is impoverished, and always at the margin. Farming is form of entrepreneurship, and entrepreneurship needs capital and scale. One bad crop, and the farmer goes bankrupt. The farmer takes loans from loan sharks who make his life miserable, and sometimes this leads to them committing suicide. Why should farmers take on such crazy risks? Because it is nearly impossible to get good companies into farming. Contract farming is strictly controlled, and farmers can only sell their produce to the Mandis. The middlemen, the erratic price controls, the distortion created by minimum supply prices, all ensure that the farmers only make a fraction of the actual price of the food on our plate. If this were deregulated, the farmers would get rich overnight. Private organisations (I believe Mahindra has got into this) would contract lacs of farmers - sort of employment - provide seeds, fertiliser, mechanised implements, crop insurance, crop know-how and training, transportation for produce, and most importantly the guidance for what to grow, and when. If there is a crop disaster, the company would be able to bear the loss, or better able to capitalise on farm insurance. The farmer gets a fixed income. Variants of this model also exist. You can allow the farmer to lease or sell his land to the company to increase the size of each holding. We could increase our productivity manifold, and India could export food world wide. This can make our farmers rich. Similar ideas can be thought of for livestock rearing. Now people will say AMUL is a better way to go - with cooperatives. I feel AMUL is a case study, but very difficult to implement. Many other cooperatives have been hijacked and fleeced by politicians. Let’s have private sector in agriculture, and you will see India grow like never before. 

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