The Prime Minister put seven questions to the industrialists he had call-ed for counsel. Their well-oiled machinery must be humming already; in a few weeks they will come up with impressive answers presented in multicolour on powerpoint. In the meantime, I will take a shot at giving quick ans- wers churned out by my single rusty brain.
1. How to rekindle the spirit of entrepreneurship?
You don't have to rekindle entrepreneurship; it is there in plenty. Instead, remove the hurdles that waste the energy of entrepreneurs. Introduce competition in the electricity market and let industries buy it from the cheapest source. Divorce railway tariff from the commodity carried and relate it to weight or volume and distance. Remove checkposts from trunk roads, sell access to them and use the sales proceeds to upgrade and widen them. Simplify and unify taxes so as to minimise corruption. Abolish all privileges that small industry gets on condition that it does not outgrow the set limits. Remove licence raj in aviation, telecommunications, automobiles -- wherever you have kept it and expanded it.
2. How to deal with the global meltdown?
First of all, get the exchange rate down. Exports are falling. Air travel and hotel costs are so high that Indian tourists are going abroad instead. The paper industry's raw material costs alone exceed the cost of imported paper. Interest rates are far higher than abroad. Look everywhere; talk to exp-orters, producers and importers. You cannot escape the conclusion that the rupee is overvalued. Second, as you bring the rupee down, reduce import duties on industrial inputs to stimulate exports. Third, remove restrictions on foreign portfolio investments; they will bring in foreign investment with-out the passing of control to foreigners about which your government is so sensitive.
3. How to enhance industrial productivity and competitiveness?
First, make it possible for producers to tailor their labour force to production. Change labour laws to make recruitment and retrenchment contractual processes with no state interference. Give liberal subsidies to voluntary retrenchment, retraining, and travel for seeking jobs. Second, relax state-induced constraints on production-- electricity, railways, telecommunications, air transport, ports, roads -- introduce competition in these industries, and reduce the costs they impose on industry. Third, reduce interest rates; but for that you will have to bring down the absolute fiscal deficit of the Centre and the states combined, not just its ratio to GDP. Finally, while bringing down the deficit, reduce government expenditure on subsidies and unproductive consumption, and shift it to subsidising investment in infrastructure.
4. How to get on to a higher growth path?
Industry has considerable surplus capacity, and will grow faster if demand for its products increases faster. Foreign demand will incr-ease and foreign supply will bec-ome more expensive if the rupee is brought down; so, devalue. Dem-and for industrial goods will incr-ease if investment in infrastructure is raised: the governments should shift expenditure to infrastructure. Agriculture will produce more if competition is introduced in the markets for agricultural products, fertilisers, power and water: controls in all four areas should be removed. Electronic technology is simply waiting to be introduced into financial services; all it needs is competition. Instead of killing thousands of non-bank financial companies, the Reserve Bank should be licensing more private universal banks. It should force banks into electronic banking and cash transfer. Sebi should allow all stock exchanges to set up terminals wherever they wish.
5. How to improve the government's communication strategy?
This assumes that you have something to communicate which is not getting through. This is a common feeling of all governments. However, the fault does not lie with the channels of communication: a good deal has to do with the government. First, the government must speak with one voice. This government needs to become considerably more disciplined in making statements; the number of spokesmen, the number of statements and the number of occasions on which they are made needs to be more closely defined and controlled. Second, there should be regular, predictable contacts with the media: frequent, periodic press conferences are one possibility. Third, briefings should be as broad as possible, and non-discriminatory. All politicians like to play favourites amongst the media, but favouritism invariably reduces exposure. Finally, the quality of government spokesmen needs to be considerably improved.
6. How to foster the knowledge industry?
Get away from the government-funded, government-run, government-controlled model, and introduce competition. You have banned direct-to-home television services. Instead, negotiate with Murdoch. A DTH system could carry 200 channels; offer him a licence if he would give the government 100 channels. Use these 100 channels to beam all education from primary school to university. Lease them out competitively; let them operate as open schools and universities. Let the conventional teaching institutions compete with the broadcasting institutions. Set common examinations; stop subsidising teachers and their employers, and instead subsidise students on the basis of their examination results.
7. How to reach a growth rate of 7 per cent?
How ambitions have fallen! Manmohan Singh, a most cautious man, used to talk of achieving 7-8 per cent growth; this Prime Minister aspires to reach Manmohan Sin-gh's lower limit. He should draw the implications of his ambition of making India a global power -- anything less than 10 per cent would be too low. First, the country faces a far less favourable external environment than the East and Southeast Asian countries did during their period of runaway growth. Hence it will have to aim for efficient import substitution rather than spectacular export growth; for this, a consistently undervalued exchange rate and extremely low import duties are imperative. Second, the impetus to growth will come from industrial profits; the way to boost them is to reduce infrastructure costs-- costs of electricity, transport, communications. Finally, India will have to rely far more on domestic savings than the Asian tigers did -- especially if this swadeshi government lasts. Reducing excess consumption by the Centre and the states is the best way to release investment resources for productive industry.
