India - Rising from the Corona Ashes ?

Creation is inherent in destruction. Our ancient Indian philosophy places a great emphasis on the alternating cycles of creation, sustenance and destruction, each of which call for corresponding righteous actions. Often, in our overreaching ambitions, we go farther and farther, until our feathers are burnt like Icarus’ in Greek Mythology, for being too close to the sun.

COVID-19 brought a period that no one in the world of today had ever imagined. Along with severe health implications, it has sent destructive ripples to both the local and global economy, and to the everyday sustenance of a large under-privileged section of society. It is undoubtedly clear, that the aftermath will signal a different world with behavioural and economic changes that could not have been brought about by a ‘Business As Usual’ attitude.

Economically, it has forced countries to look within, to look at their pillars of growth, and evaluate if their fundamentals are robust enough to weather all seasons. Countries will undoubtedly have to examine their economic models and their over-dependence on extraneous factors that can change in the blink of an eye.

While no one wished s for a stoppage of such nature, it still presents us an opportunity of 3Rs -Rebuild everything that is broken, Reshape the domestic economic model, and Revisit factors of global dependence.

Like in the times of War, during this period everyone is preoccupied with dealing with the unseen enemy, but once the Corona’s dance of destruction is behind us, we will have to deal with the ruins of a broken economy. Guided by our collective philosophical principles, it is time to go inwards, and bring in reforms that wouldn’t have been possible otherwise.

1     Volumetric based Taxation

While the Goods and Services Tax is well-intentioned in liberalizing the erstwhile extremely complicated indirect tax regime in India, its implementation ran into several issues due to the presence of four different slabs, overloaded with compounding luxury taxes on some expensive products. With 1% income-tax payers (High taxes mean that citizens are disincentivized from declaring their incomes, leading to significant tax evasion) and few sources of revenue in a country with 130 cr. people, the Government has a huge expenditure burden which it tries to finance by high indirect taxes, making business out of the reach of common people as well as losing its competitive advantages w.r.t foreign businesses, to more efficient countries in the South East Asian belt.

Given the lull in the economy, it is an opportune time to aim for a higher volume-based tax system, where tax rates are made dependent on volumes of transactions / people paying. Thus, higher consumption of raw material will lead to lower taxes on the commodity. This indexing can be formula-based and used for both direct and indirect taxes. Both businesses and the government will benefit greatly, with an increase in tax-compliance (greater govt revenues) and subsequent lower rates for industry.

2     Land Reforms

Land is an irreplaceable economic factor of manufacturing or any infrastructural initiative. Since independence, land acquisition has seen various avatars with the earlier ones making it easy for the government to snatch the land of the poor, to the recent ones which protect their interests but require a long, tedious mode of implementation. However, in a country struggling with availability of free land parcels and the emotive issues associated with ownership of land, land acquisition remains prickly and tedious, making it one of the biggest reasons for international manufacturing giants choosing other countries for expansion (e.g POSCO in 2009). The byproduct of the 2013 amendment LA&RR law which sought to protect the interests of farmers, was that under its impact, compensation amount closely mirrored the prevailing rates in developed countries. However, the projects that came up on these land parcels commanded tolls and user charges that are placed as per the WTP (Willingness to Pay) of the developing world, making the projects unviable. Add to that, the multiple issues in ownership of land, which remains contentious, unsolved and under litigation in many cases.

Thus, without major land reforms that achieve a middle ground between buyer and seller interests (lessening of per acre compensation amount from the 2013 law), and introduces tech-enabled Land Titling, Indian manufacturing dream will remain a shut-eye phenomenon. Centre should think of a creative remodeled Land Reform Law allowing enough flexibility to states to customize it as per their conditions.

3     Make in India - for real

While India had missed the Manufacturing bus several times in the last 75 years, the opportunity is almost holding it out itself on a platter. There is now a ‘moral cost’ attached to the continuation of manufacturing in China by global companies, and they are looking for alternatives that can potentially replace China by offering a competitive environment, cheap labour, ease of operations and a complementary cleaner conscience. Immediately, an outreach campaign to invite manufacturing companies to India should be taken up at the highest priority, to target ready-to-move-in sectors such as electronic parts manufacturing, auto parts, plastic products, pharmaceuticals, spare parts, low-end machinery, assembling plants etc. For this, the Government can invite domestic MSMEs to participate in the target sectors and announce a corpus fund to grant loans to offset capital costs, for starting enterprises in the above sectors. 

Often manufacturing companies find it difficult to navigate the complex guidelines and policies of both the center and the state, finding themselves submerged among the red-tapism, a natural output of a large, diverse democracy.  The GoI must take up this opportunity to streamline sector wise policies – along with a line-up of states and their individual regulations in sector-wise compendiums and send to global giants through the country’s outreach programmes, especially presenting progressive states with the fastest ease of doing business timelines.

However, while the outreach campaign is necessary, a lot of housekeeping has to be done internally in terms of listing of available land assets, categorization of land into productive and wasteland with mapped purposes, bringing in high-impact labour reforms, reducing time in granting approvals, making credit available to downstream players to enable them to plug into the foreign campanies OEMs, modifying PPP frameworks, upgrading contractual capabilities to make them enforceable, devising a proper risk-sharing framework, and enabling fast-track corporate law courts.

4. Slum Re-Development

India is home to large and small slums prevalent in all cities and urban centers. This isn’t surprising as China with the largest and US with the third largest population have a density of only 153/sq km and 36/ sq km respectively. India, with the second largest has 412 people living in one sq km, and given the propensity of cities to drive economies, urban agglomerations see the largest slums. COVID-19 shows that the threat associated with uncontrolled community spread of diseases in such areas is a real fear faced by the country.

Slum redevelopment efforts meet with immense resistance, and not without reason. There is a natural latent political intervention in slum redevelopment matters due to the trust deficit between the dwellers and government. Often, redevelopment projects mean relocation to areas outside the city, sometimes cut off from transport linkages or even basic utilities in some cases. Cities then find to their chagrin that the people relocated, find their way back, due to the resultant dislocation from economic activities. Hence, it is time that to free up space in a cramped country, slum redevelopment projects must again be taken up with a focus on in-situ upgradation with higher FAR and access to metered utilities as was done successfully in Ahmedabad and Indore. Since there exists a trust deficit between illegal slum-dwellers and the government, civil society organisations trusted by slum-dwellers must be brought on board to navigate the entire process.

5. APMC Reforms

In his second stint, the Prime Minister had called for an ‘unshackling’ of the existing agricultural market (Agricultural Produce Market Committee), which have been documented multiple times over - to be one of the biggest impediments in increasing farmer incomes. Contrary to its original objective, mandis are exploited by middlemen and license-holders who have a complete control over the buyer-seller trade. The design of the mandi system is such that it incentivizes the middleman to minimize the price he pays for the farmer’s produce. Often, this system is also rigged with political motivations, and the lack of alternative market systems for the farmers. Only two states came forward (till the date of publication) to amend the laws in line with PM’s call for direct selling of farmer produce (during lockdown) through e-NAM and at warehouses.  This ‘lockdown pilot’ can be used to make full-fledged reforms by leveraging e-NAMs and shifting the burden of transporting produce from farmers to buyers. Ensuring alternative channels for sale of produce will inhibit the tendency of mandi middleman to exploit the situation of farmers and play the market to their interest. Promotion of Farmer Producing Organisations (FPOs) is a step in the right direction and the lockdown relaxation of enabling FPOs to conduct sale from their collection centers than mandis should be permanently activated.

6. Modal Share of Freight to move to Railways and Inland Waterways

With a 60% modal share, Roads bear the higher load of logistics movement, ceding only 31% to Railways and 9% to Waterways, even as internationally, rail owns to close about 50-55%, roads to 25-30%, and the rest to waterways. The predominance of road in logistics in India is primarily due to an uncertainty in container railway schedule, slow speed of cargo express trains and a preference for point-to-point travel. Cold chain logistics on rail is also hampered by unavailability of real-time temperature monitoring over the network. Add to it, the unpredictability and erratic table schedules of cargo trains, insufficient hinterland connectivity and goods-unsuitable trains, and the modal share of rail remains much lower than global standards. Logistics continues to face challenges and is one of our major impediments in achieving desired economic growth.

Thus, a strategic look towards modal share should be taken with the view to increase the railways and waterways participation in logistics transportation. COVID-19 goods supply has demonstrated that even as road transport has slightly reduced, railways have stepped up to bear the excess load. Strategically, the country can take a hard-look at introducing private-sector owned and operated parcel and freight trains (especially e-commerce, logistics, and leasing companies). Private sector can also be incentivized to offer Third Party Logistics (Warehousing and Parcel Cargo Service). Government can look at rationalizing freight rates and containerization of cargo by especially double-stacked trains (as are being built on both Eastern & Western Freight corridor). In the long-term, once the economy is moving, operationalize the 5 planned Dedicated Freight Corridors besides modernization of existing terminals.

Besides railway network, inland waterways can also be leveraged to reduce both load and cost of cargo goods logistics. As per the studies done for the 111 National waterways, 22 have been found to be economically and technically viable. Given that, cost of transportation through waterways comes to around Rs 1.2 per tonne, compared to 2.28 for Road and 1.41 for Rail; Government should take up the operationalization of waterways on a priority. This will also attract investments from the private sector. For this, the private sector must be allowed to build and operate jetties, incentivize vessel sector development through a variety of steps – vessel financing scheme, new policy for Inland Vessel etc; and lead the way by asking PSUs and Govts to prioritize 15-20% of their cargo movement to inland waterways (as it had done for preferential procurement from start-ups).

7. Return to the Roots

The lockdown saw a resurgence in the soft power of Indian culture, wherein normal gestures and practices of the country were being adopted world over – Greeting without touching (Namaste), discouragement of exotic or over-meat eating, alternative natural herbs to boost immunity, yoga to strengthen body etc. This should compel us to look within and question if our future development plan is customized to the Indian context. In a ‘Return to the Roots’ development plan, we should base it on pillars of inherited traditional knowledge and requirements of our future, without aping formulas that do not work for our country (e.g cycling tracks in hot urban cities).  

India should prioritize domestic manufacturing through a surplus of incentives and boost the development of a robust India-centric value-chain across most of the sectors where we have considerable presence, as well as invest in sectors that are relevant for future such as Life Sciences.  The Prime Minister in his call to the Nation on 12th May asked for ‘Local to Vocal’, wherein he asked countrymen to prioritize and publicize domestically manufactured purchases. Given that there will be a tendency for countries world over to adopt a more protectionist inward-looking stance to recoup from the economic limbo everyone is in, India must not let go of the opportunity to mend its fences – upgrade its domestic manufacturing set-up, increase reliance on ‘swadeshi goods’, offer to global companies an alternative to China.

Given that there will be a tendency towards dissatisfaction among people out of jobs or in struggling businesses, in a stunted economy – an aftermath of COVID-19, there may be a natural tendency for regionalism, and the overall time and opportunity for fueling inter-state issues in a hot weather, less resources environment. Thus, along with economic development, we must also focus on weaving a united picture of a country striving to fight back the tragedies a la Germany and Japan after the wars and destruction suffered during World wars.  We must also leverage our unique strengths and build sustainable institutions based on them – Ayurveda and Traditional Medicine, voluntary service, codification of Indian social and cultural development from a centrist perspective, Yoga, Indigenous arts and crafts, spiritual healing and well-being etc.

8. Labour Reforms

A few months ago it would have been unthinkable that states such as Uttar Pradesh and Madhya Pradesh, two Hindi ‘cow belt’ states with a considerable degree of under-development, a high density of underprivileged population, and the publicly-perceived conservative governments, would bring in such labour reforms which could not be brought about by even the highly industrialised states of Gujarat and Maharashtra. In a welfare country like ours, with a high percentage of people working in the informal ‘labour’ market, reforms that aim to smooth things for companies, would be normally politically suicidal. But such opportunities lie in the difficult times as these. For next three years, all businesses have been made exempt from the approximately 200 state labour-centric laws in Uttar Pradesh, in a clear-cut invitation to foreign firms desperate to move out of China. Ironically, it seems that the Chief Minister was guided by the Sanskritic quote ‘Ati Sarvatra Varjayet’ or ‘Anything in excess is bad’. Too much protectionism and overzealousness in securing lives of any section of society, only results in killing their prospects. Complex labour laws aiming to secure job prospects of employed labours ultimately pushed the case for contractual labour since no employer wanted unnecessary trouble on their head.

However, this is not possible in long-term, as the capitalistic mode of development will push the wage down to the lowest possible in an exempt scenario, and the tolerance for suspension of rights and a decent standard of living, would not be possible in a non-constricted environment. Thus, the Centre must take the bull by its horns and draft the framework of a Common Labour Law that aims to sanitize and rationalize the close to 200-250 varied laws prevalent in states. Schemes that offer labour protection and benefits must be clubbed to increase efficiency and dovetail with non-labour departmental initiatives (such as health insurance). Instead of punitive actions against companies that flout labour norms, incentives should be considered for the well-performing ones. However, the actual steps will reveal themselves once the political will for ‘labour reforms’ is undertaken.

When all is done and lost, and all replicable ideas have failed, it is time to go to first principles. In Indian vedic systems, the culmination of a pooja prayer can only be sought if a ‘sankalp’ or a deterministic oath is taken at the beginning, because all actions need a defined goal. India should not let go of this crisis-opportunity duality and take ‘sankalp’ to bring in game-changing reforms that will help sculpt a brighter future.

 Author - Vivek Agarwal and Aparajita Tripathi

"All views are in personal capacity"