I was sitting in the waiting room of perhaps the most accomplished orthopaedic surgeon in the world. Mahogany and burgundy leather, the trappings were oh so rich and aristocratic Manhattan. The doctor was advising a reluctant parent to put his afflicted infant under the scalpel. “When you have to make a cut, make it deep, large and decisive. Even if plenty of healthy tissue is lost, don’t worry – you don’t want to open the boy again and again, do you?”
I wish our finance mandarins had been there, to overhear such compelling words of wisdom. Ever since the Modi government has taken office, some of its reform intentions have been breathtaking. It’s hacked one archaic policy after another, but has the swing of the axe been “deep, large and decisive”? Let’s look at three stellar reforms, in land, coal and foreign direct investments (FDI), to find the answer.
I applaud the amendments to the land acquisition law. The “four times market value” compensation for farmers has been kept intact, transferring massive wealth from urban industry/consumers to rural asset owners. It will reduce income inequality, which is a guarantor of sustained economic growth. But the crippling procedures – obtaining approvals from 80% of the sellers, carrying out a social impact assessment study etc – have been jettisoned only for nationally important projects in infrastructure and defence. Alas, it was a unique opportunity to kill an old socialist prejudice against “private” capital and “big manufacturing”.
Why should relief have come only for public sector companies? And why consider “big manufacturing” to be any less deserving than infrastructure and defence projects? Unfortunately, the axe was swung, but its arc should have been larger.
Edging into the slipstream of an angry Supreme Court order, the government killed the truly nihilistic coal nationalisation law. It allowed private industry to mine and sell coal; but for now, this shall not be sold in the free market, only to actual users. Once again, this is a slip at the last step. By imposing limits on the market, the auctions will elicit a lower price and fewer bidders. It’s a fettered salute to free markets – the axe has not struck deep.
Finally, changes to FDI rules. Why do we have this khichdi, this hotchpotch of numbers, a 20% limit here, a 40% there, sometimes including, then excluding, FIIs/NRIs in its ambit etc. For anybody even remotely acquainted with corporate structures, only four numbers matter, i.e. 0% (which is a ban); 49% (allowing for strategic influence but not control); 74% (giving constrained control); and 100% (full control). That’s it! Everything else should be whacked out of the statute. Again, the axe has been swung, but not decisively.
As the venerable American doctor said, you should not “open the boy again and again”. Similarly, you can’t push ordinances again and again. So when you make a cut, do it deep, large, and decisive.
Perhaps the government should employ a doctor of medicine, not economics, in the finance ministry!
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