Can the Centre and States work together?

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Shantanu Guha Ray

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An interesting report from Pahle Indian Foundation has made many sit up and take notice, especially at a time when everyone is talking about jobs, and the need for it. So how does one help the economy, how does one create jobs, and more importantly, how does one plug these huge gaps? The markets, as many television anchors say during their primetime news, need to know. So does India, where the economy is not in the best of shape.

The Foundation has put forward – probably for the first time in India – a very interesting argument, stressing the need to adopt a sector-specific approach for enhancing ease of doing business. The process, claim economists who wrote the note, is a necessity to check what many claims are rapidly declining health of the country’s economy. So what is this alternative approach? The Foundation says the Ease of Doing Business needs to be handled by adopting a sector-specific approach based on integrated value-chain, a good step towards achieving all-round sectoral sustainable growth.

Is it possible? Yes, it is possible, argues the Foundation, an FCRA certified policy think-tank.

It says India has never been an economy driven by just a few sectors. Right from the early days of public policy formulation, policymakers in the Indian Capital have laid enough stress on the all-round development of the economy, emphasising on growth across sectors whether industrial, agricultural, or even in the later part, services.  A healthy interplay of various sectors has kept the economic engine running and also building strength over the years. That way, there have been better management of black swan events or shocks that haunted growth from time to time.

In an era of political decision-making which has seen unparalleled conviction and judgement, thanks to the stability that the current dispensation enjoys, some hiccups are bound to disrupt and prevent a linear growth pattern expected by many. When this happens, the only way to get over is to rethink, redraw and reshape and eventually course correct to put things in place.

India now needs solutions. It is important to fix the problem and not the blame. Though there can be no quick fix solution for this problem of a slowing economy, there are measures which if implemented in earnest can help arrest the slowdown and put growth back on track. The Ease of Doing Business revolves around an intriguing and interesting case study of sugar, alcohol beverages and tourism. Will it work, yes argues the Foundation.

The study says an integrated sectoral approach is needed to enhance EoDB for more quantifiable gains to state GDP, and a sectoral approach to EoDB should be adopted by identifying all the necessary reforms across an entire value chain for a sector, including the backward and forward linked sectors. This will have a greater impact on the economy. The current Business Reform Action Plan (BRAP) framework, which is a list of reforms released by the Department for Promotion of Industry and Internal Trade (DPIIT) in collaboration with the World Bank takes away a part of the regulatory burden based on which States are ranked. But this largely ignores the forward and backward linkages thereby resulting in an insignificant impact on the entire regulatory process.

In each of these three sectors, a small reform can create cumulative economic impact across the value chain for both the Centre and the states because of their inter-linkages. Consider this one. The three sectors present an interesting case of regulations. While sugar is regulated completely by the Centre, alcohol by the states, and tourism by both Centre and State the overall policy landscape for these sectors need to be aligned with the linkages – backward as well as forward – between them.

The several challenges that Indian businesses face are similar to those faced by businesses in any other developing country.  In order to put a sustainable economic growth model in place, effective business regulations are the only way. Minimizing the chance for market distortions or failures will happen only by creating policies conducive to sectors.

So the need of the hour is sector-specific reform. Take for instance the Excise Act. While measures have been initiated by the Central government to weed out outdated laws and practices, State governments need to follow suit in doing so too. Doing this will not only ensure ease of doing business for many of the sectors but also help in improving the States’ revenues.

The day-to-day business decisions of manufacturers are approved by Excise. In the absence of strictly enforced deadlines, doing business easily takes a back seat. Alcoholic beverage is a regulated sector and should continue to be so. However, there is an urgent need to introduce stricter timelines for all processes that are administered by Excise. The absence of these is the cause for inefficiency, lack of transparency, and therefore, discourage good business practices. Now how does this link with the Sugar or the Tourism sector? The largest input material for the Alco-beverage sector comes from the Sugar sector (molasses) and there is no need to mention how important the alco-beverage sector is for the tourism sector.

As a result, policy changes need to happen right from the point of input to the point of the final sale. The multiplier effect of adopting an integrated value chain will work. And the trickle-down effect on the performance of various sectors will surely help in pulling the overall economy out of the slump that it currently is in.

Someone needs to act, and act fast.

DISCLAIMER : Views expressed above are the author’s own.



via TOI Blog

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