Will economic reforms continue after the crisis?

J Mulraj | Updated on May 22, 2020

It was Thomas Jefferson who stated that ‘I predict future happiness for Americans if they can prevent the government from wasting the labours of people on the pretence of taking care of them’.

The recent, long-overdue reforms in the agriculture sector are testimony to the abject and criminal neglect of this vital sector, so far, all in the name of protecting the poor farmers. Agriculture provides income to over half of India’s population; yet, it gets 15 per cent of the national income, an unfair travesty. The main reasons were the stifling laws, mainly the Essential Commodities Act and the Agriculture Produce Market Committee Act. These, combined with powers given to inspectors under other Acts, to inspect, raid and supervise made farmers the most enslaved community in India. They were not free to sell their produce to anyone other than in the APMC mandis, at prices set by others.

Basically, this ensured that farmers got a small share in the value chain, and traders took the cream.

The Covid-19 crisis has resulted in reforms, and farmers are now free to sell their produce in the market. This would, it is hoped, allow corporate buyers to deal directly with farmers, providing them greater safety than the coterie of traders and money lenders. But it took a crisis for the government to act when the urgent imperative to undertake such reforms had been known to several governments.

That begs the question — for whom does the polity practise democracy? For the people? Or for themselves?

Huge funds are needed to run the charade of democracy in India. Charade because public meetings of prominent politicians are attended by huge crowds, all paid for by the party, to meet expenses of which bribes are taken and policies twisted to favour the giver.

After the crisis is over, will we get serious about governance, and make sensible reforms, or will we revert to our old ways of crony capitalism?

Several reforms are crying out, and oft spoken about.

Judicial reforms: India ranks a poor 163rd in Enforcement of Contracts, compared to an overall rank of 63. The judiciary needs to get strict on enforcement of contracts, the bedrock of any society. In agriculture, if the corporate sector gets involved majorly, the contracts must be honoured strictly, by both sides. This is true for all contracts. The judiciary will be overloaded with cases which are now on hold, under lockdown, including the IBC ones. Has any thought gone into how to gear the judicial system to cope with the overload? How about ensuring that each side to a dispute gets permission to ask for only one adjournment per case, to ensure speed? How about judges chalking out a fixed timetable at the start of each trial, allotting each side a fixed number of days for arguments, as well as summation?

Rent reforms: Introduced as a purely temporary measure, to provide accommodation to visiting troops, the Rent Act has become a permanent feature. It needs to be phased out, as it is hurting more than helping. Freezing of rents (like job security through labour laws, now suspended) protects those already having one, but harms the millions of others needing one. A simple solution would be to abolish it prospectively, say, from June 1, for future rental agreements. That hurts no one. But it ensures that job seekers get accommodation in places where they get jobs. Can the politicians get the backbone to do this simple solution?

Tax reforms: This columnist, among many, has long been advocating subjecting large agri income (say, over ₹24 lakh a year) to the same rates of tax as for all other incomes. Any exemptions distort a market economy. The tax exempt status is used to launder bribe money. Perhaps that is why law makers are reluctant to change it. Peruse any statement filed by them before elections; their agriculture income is seen galloping. Compel them to pay tax on it and it will go slow. If you want good governance, undertake this reform. History will judge you well.

Power sector reforms: There have been many reforms in this sector, but not, as pointed out by RN Bhaskar, a crucial one of encouraging rooftop solar, with an enticing feed in tariff. Germany did this, years ago, creating lots of jobs in installation and maintenance of solar panels. India can, too, and provide millions of jobs if the feed in tariff is attractive enough. This would be a shining example.

Post Covid, if migrant labourers do not return to cities, as is likely, then the jobs must need go to them. The industries which would do well in rural areas are those linked to agriculture, such as contract farming, cold chains, and organic farming, among others. We must create the proper environment for this to take place. There are two ways to deal with a global crisis. Either bury your head in your hands, in despair.

Or, set your mind free to think about what you need to do to improve, and to create innovative opportunities.

The market would react to whatever choice the policy makers make.

(The writer is India Head — Finance, Asia/Haymarket. The views are personal.)

Published on May 22, 2020

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