Six months into his first term in office, Prime Minister Narendra Modi must be searching for ways of improving his performance. The economy is still stuck at a 5% rate of growth (or half of what it needs), while companies and individual investors still hold on to their cash rather than investing it in new (job-creating) plants. Apart from the nightmare that procedures have evolved into during the Manmohan decade, other factors holding back job-creating investment are the limitless powers of the tax authorities, as well as high bank interest rates. Former Finance Minister Palaniappan Chidambaram has placed the responsibility for the dampening of investor sentiment at the door of the retrospective tax proposals of Pranab Mukherjee, omitting to mention that he himself had imposed retrospective imposts more than two dozen times while he was the Finance Minister. The refusal of Chidambaram to accept that his officers may sometimes go wrong in their assessments resulted in a “fear factor” among investors, who became unsure of just how much tax they would have to pay, and when. The unpredictability of tax demands and the extreme powers given to officers to enforce them have made India an impossible place to do business in for those not close to the Finance Minister.
Finance Minister Arun Jaitley needs to retrieve the situation, not by soothing sound-bites, but by removing bribe-generating discretionary powers, abandoning the retrospective tax route and lowering tax rates so as to boost compliance and collections. Jaitley needs to lean on the RBI to stop that institution’s obsession with slowing down the economy to a crawl. Another minister who needs to deliver jobs is Piyush Goyal, who should ensure that procedures and practices in the power sector get more transparent and even-handed, so that others besides a handful of corporates with political influence can safely invest in expanding electricity generation. Conditions need to be further relaxed for those investing in natural resources. For example, those companies without a steel plant are handicapped from bidding for coal mines. This means that almost all the major international coal mining companies will be barred from investing in India, because they do not have a steel mill as part of the product mix. While some distance has been traversed, much more needs to be done by Piyush Goyal before India becomes a top destination for investment in energy and natural resources. His colleague Nitin Gadkari needs to stop believing that only the state (which by the way has no money) should build roads and other infrastructure. Instead, he needs to attract capital from across the globe for such a purpose.
Defence Minister Manohar Parrikar needs to do away with the absurd suggestion to bar defence PSUs from competing with private companies for certain orders. Both public and private companies in India should compete with each other. Just as blocking the private sector was wrong, so is any move to block the public sector now. Also, in this globalised age, it makes no sense to limit external ownership to just 49%. Provided each company has a “golden share” belonging to the state, and which can be used in case of emergency, there is no harm in permitting near-100% foreign ownership in almost all sectors. What is needed is to ensure that surveillance systems be improved to ensure compliance with national interest, rather than continue with the existing policy of blocking investment.
Ravi Shankar Prasad looks after ICT (Information Communications Technology), which is potentially capable of generating $15 billion of investment into India, provided he can convince intending investors that he will ensure fairness, transparency and speed in the decision-making process. For too long, a perception has taken root within investors that only favourites get the inside track in getting projects cleared, often on terms which give undue benefit to themselves. Such a UPA-era policy has to change, and in this process, the Modi Council of Ministers has to demonstrate through their actions that they have no favourites, barring the 1.26 billion people of India and their interests.
“Make in India” is a brilliant slogan, but for its promise to get realised, Modi’s ministers need to deliver on performance. Those with good records such as Suresh Prabhu or Manohar Parrikar need to do even better this time around. By March 2015, Narendra Modi needs to show that he can run the Government of India at the same level of performance as he supervised the Government of Gujarat. In such a task, his ministers need to not just talk, but deliver on policies which can ensure the 12 million jobs this country needs annually.