‘For a country to be called an equitable economy, it has to plan its social programmes to help the poor and needy’

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Photo Courtesy: blog.ficci.com

TEHELKA: India is growing at 5.5 percent today, and there is a clamour for decision and acts to put it back to 9 percent. Should India consider this a second chance to grow inclusively by putting forth a stronger foundation for education, health and rural infrastructure, among other things?

Naina Lal Kidwai: For an economy that registered an annual average growth of nearly 9 percent during 2003-04 and 2007-08, and faced the headwinds of the global crisis of 2008 with aplomb, this sudden loss of momentum is indeed a cause for concern. Several studies have shown that it is possible for India to continue to grow at the 8 percent level or thereabouts for a reasonably long period of time. From FICCI we have been urging the government that we must return to this high growth path, as it is absolutely essential to meet the rising aspirations of our youth.

Over the past few months, the government has taken a series of measures that have lifted the business sentiment and we now hope that this reforms process would continue. We are at a stage, where, if we do not pay adequate attention to social sectors such as health, education, vocational training, etc, we will not be able to sustain high growth for an extended period. And since the government alone cannot deliver these requirements, it must engage the private sector in such sectors. 

The budget talks of taxes and outlays. In the time to come, how much importance should be accorded to issues like water scarcity, land usage and environment preservation?

Our budgets talk of taxes mainly because our taxation systems have not stabilised and require reforms and improvements. Our tax to GDP ratio needs to go up substantially and till such time this is achieved our annual financial exercise will continue to focus on tax reforms. In no other country the annual budgetary exercise is awaited with such an anxiety as in India because in our country the tax rates, exemptions, slabs (both direct and indirect taxes) are often modified and impact a substantial portion of the working population. Once GST is introduced and the tax GDP ratio reaches a healthy level along with streamlining of the tax administration, our budgets also would not be about taxes but about allocations to different sectors of the economy.

The government faces difficult decisions on allocating new resources to personal healthcare, catastrophic care, and population-based public health interventions. Currently, all are inadequately financed. It also faces tough decisions on how to allocate these resources: through the demand side purchasing approach pioneered by the new generation of government-sponsored health insurance schemes (GSHIS) or through the traditional supply-side public delivery system.

On the education front, there is a strong need to incentivise the private sector in education projects and give tax rebates to credible private education institutes in order to help in infusing capital in the sector for capacity-building and faculty training.

One big aspect of growth is going to be resources. Availability of water is going to be a major challenge in the years to come. India ranks high in terms of water risk. Trends indicate that India will move into the category of a water-stressed State by 2050. (Water-stressed State is defined when the per capita availability of water declines to less than 1,700 cubic metres). With regard to industrial water availability, water related risk is very high. A FICCI survey across 27 industrial sectors indicated that availability of water is becoming an area of concern for industry. This is true for industries across sectors. With regard to the current availability of water, while 60 percent of the respondents agree that availability of water is impacting their business today, the figure rises to 87 percent after 10 years.

Indian industry is realising the importance of water, its conservation and management. This is not only because of the growing scarcity and poor water quality impacting industrial operations, but also because they are becoming conscious of their responsibility to conserve natural resources. 

Do we sometimes get euphoric about the rising stock market despite the kind of fundamental economic issues we face around improving growth and livelihood for people?

The movement in stock markets are a reflection of a country’s and its enterprises’ growth prospects. However, we cannot remain fixated on the market movements and turn our attention away from the real issues and challenges we face in the realm of social sectors. 

Is India too often enamoured by what others think of her economy? Are we too caught up in the perception problem?

We live in a globalised world that is extremely competitive. How the rest of the world views an economy is extremely important, as these perceptions and beliefs help shape and contribute towards its external economic engagements. We in India must also be mindful of how the world perceives us and make all efforts to project the good stories that we have to offer. Perception management is important and it should not be seen as something, which one can do without. We need to send the right signals to prospective investors and maintain a positive image for attracting investment to facilitate growth. Introduction of GAAR (general anti-avoidance tax rules) and retrospective tax had sent very negative signals to the global community leading to drying up of investments. Negative perception had an adverse impact on investments. The Government of India has in the past few months tried to work on changing this negative perception and has succeeded in improving the perception of India as an investment destination and in attracting the attention of investors once again. 

In terms of tax, this budget is expected to look at a tax on the rich. Will that hit perception? Or do you believe taxing the rich will be the ideal signal for a government going to elections?

India has evolved as a democracy. If you look at the state elections that have happened in the recent past, one of the key messages is that people identify with economic development. Today, elections are fought on the development plank and all political parties are trying to make development an integral part of their election manifesto and work programme.

The fiscal situation is a matter of concern for the Central government and there are compulsions to raise more resources and bring in greater efficiency in expenditure to bridge the fiscal deficit. And in its effort to raise more resources, senior government functionaries have spoken about the need to evaluate some new taxes particularly on the higher income category of people. However, after discussions, it has become clear that the need of the hour is to bring in greater efficiency in tax administration and to widen the tax base for getting more revenues rather than introducing any new tax, which could turn out to be a counter-productive move. 

But the attempt to tax rich is squarely to send the signal that indeed India is an equitable economy.

For any country to be considered as an equitable economy, the yardstick is not how it treats the richer class but how it plans its social programmes to reach out to the poor and genuinely needy people. When viewed in this manner, you see that a lot of effort is being made to distribute the fruits of growth and development amongst all segments of society. Recent moves by the government to go for direct cash transfer of subsidy are a case in point on how the government is looking at bringing in greater efficiency in income redistribution efforts.

shaili@tehelka.com

1 COMMENT

  1. Sharing a story that’s making its rounds on the Internet.

    An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama’s socialism worked and that no one would be poor and no one would be rich, a great equalizer.

    The professor then said, “OK, we will have an experiment in this class on Obama’s plan”.. All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A…. (substituting grades for dollars – something closer to home and more readily understood by all).

    After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.

    The second test average was a D! No one was happy.
    When the 3rd test rolled around, the average was an F.

    As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

    To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed. Could not be any simpler than that. (Please pass this on) These are possibly the 5 best sentences you’ll ever read and all applicable to this experiment:

    1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.

    2. What one person receives without working for, another person must work for without receiving.

    3. The government cannot give to anybody anything that the government does not first take from somebody else.

    4. You cannot multiply wealth by dividing it!

    5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation.

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