Small reforms: As vital as the big ones

Big bang reforms make for good headlines. Small reforms, on the other hand, make for good governance.

India witnessed two big-ticket reforms last year, viz. demonetisation and introduction of GST. These will, hopefully, lead to a reduction in the cash economy and to greater digitisation of payments that can be tracked. The government promises to streamline GST rates and procedures, which would be welcome.

The highest rate of 28 per cent GST acts as a mental block for consumers, who are seeking to avoid it. They therefore, turn to the unofficial sector. It is difficult to convince them that the final rate of the product is more or less the same, as producers lower the prices to the extent of excise and sales tax, now replaced by GST. So, if this is reduced, the law abiding manufacturers will not suffer loss of market share to those willing to transact in cash. But the government would do well to concentrate on small reforms. There are several of them. Here are a few.

Mumbai, India’s commercial capital, has one of the highest rentals in the world. RN Bhaskar in his article ‘What do Rentals Say about Maximum City, Mumbai’, says this is because only 30 per cent of the land available pays market rents. Nearly half the city has slum dwellers, encouraged by local politicians in order to gain a vote bank.

Higher rents deny the fundamental right of freedom of movement of citizens. If jobs are available in Mumbai or Delhi but rents are unaffordable, it impedes citizens’ right to travel to wherever work beckons them. In short, rent control benefits the handful who are already protected by it but harms the millions who need rental accommodation to get a job. The solution is simple. Government should remove the rent control prospectively, whilst allowing courts of law, and time, to sort out the problem of existing tenants.

There are other, similar, artificial impediments which need to be carefully looked at, such as the concept of floor space index (FSI ), Coastal Zonal Regulations, etc. Cities like New York, Shanghai, and Dubai have high rise apartments going up to 100 stories, without any damage being done to the city’s facilities, and the capacity to bear the load. On the other hand, by creating artificial scarcities, increase prices of apartments and benefit those who invest in them.

This column last week wrote about the need to concentrate on areas where our Ease of Doing Business Rankings was low. One is ‘Enforcement of Contracts’ where India ranks 164/190. The government is proposing a radical change to make contracts more enforceable, which ought to have been done years ago .

Judicial delays are legendary, and one suggestion can be easily implemented, if there is will. Restrict the number of permitted adjournments to just one or two per side, and hold continuous hearing of cases.

Because of judicial delays and unenforceability of contracts, foreign direct investment is adversely affected. In Bilateral Investment Treaties, India insists that in case of a dispute, legal remedies in India must first be exhausted before going for international arbitration. Other countries, naturally, refuse to accept this clause.

Small reforms should include restricting adjournments in courts and not insisting on going to India’s overburdened judicial system in bilateral treaties.

Don’t ignore small reforms at local levels. For, corruption starts there. Deal firmly with it.

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