Opinion | Govt uses virus crisis to push basic reforms


There is an emphasis on enhancing the quantum of inward investments

Now that finance minister Nirmala Sitharaman has announced all key elements of the ₹20 trillion economic package, the basic contours of the post-covid economic strategy have been laid out. This includes a focus on providing nutritional security and protecting livelihoods, facilitating business continuity, resilience, growth opportunities for micro, small, and medium enterprises, easing regulatory compliance to account for the pandemic’s impact, infrastructure augmentation and enlarged market access for the agriculture sector, financial incentives to grow social infrastructure, and key reforms in sectors such as defence production, coal and mines, and energy.

This package of reforms, programmes, and schemes appear to be informed by the philosophy that, while the most pressing concern is to protect vulnerable people and enable their access to livelihoods, and to keep the economy on the rails, there is also the larger need to make the best use of the crisis to induce another round of basic reforms in governance systems, as well as in the country’s economic architecture.

One of the most striking innovations has been the announcement that while the borrowing limits of state governments will be enhanced from 3% to 5% of each state’s GDP, the enhancement will be contingent on milestone-linked reforms by states in areas that will bring transformational benefits to the economy such as reducing process barriers that impede the ease of doing business, power sector and discom reforms, and modernizing the accounting systems and revenues of urban local bodies. The national portability of ration cards and the digitization of the public distribution system are necessary compliance milestones for states to tap these enhanced borrowing limits.

Another basic strand of thinking visible in this package is the desire to make India self-reliant in manufacturing, with a focus on strategic areas linked to national security and well-being such as defence manufacturing and healthcare. There is an emphasis on enhancing the quantum of inward investments, even in hitherto sensitive areas such as defence production. The move to rank states on reforms to enhance the ease of doing business will hopefully bring in a spirit of self-selection and healthy competition.

There has been a very longstanding, and contentious, national debate on the need to make public sector enterprises more competitive and to liberate them from the comfort zones of close governmental oversight and sectoral monopoly. This looks set to finally happen, with the finance minister’s announcement that even the traditionally reserved strategic sectors will be thrown open to private enterprise, that in these sectors the number of PSEs will be reduced to four, and in the other sectors existing PSEs will be privatized and allowed to function with autonomy.

Given the sweep and ambition of many of these reforms, these will likely set off a national debate. However, there can be little debate about the main objectives, which include providing immediate relief to the vulnerable and distressed, enabling survival and business continuity, providing fresh energy and a more conducive environment for the rural and agricultural sector, as also the long-term objective of transforming India into a key node in the global manufacturing and services value chain.

It is worth pondering whether the virus crisis should also be viewed as an opportunity to create a new security net architecture for the population at the very bottom of the pyramid. This could include a rigorous focus on education and healthcare, as well as the security of a robust basic income programme.


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