An economic revival plan for the States

India is rich in resources which can create huge wealth and employment for the country with least investment. But these have not been explored effectively by either the Centre or the States.

At the same time, there are the numbers that keep flitting around to show the ongoing down-slide in India’s growth — GDP growth is at a 15-year low, unemployment rate is at a 45-year high, household consumption at a four-decade low, retail inflation at a new high, and banks are straddled with bad loans.

Some economists and pundits are on overdrive, burning their precious midnight oil in dissecting what’s wrong with the current socio-economic framework, rather than identifying areas which can bring change for betterment of the country. All these issues can be addressed if due attention is given to what resources the country has and how they can be managed better.

Quick fixes needed

The fact is long-term solutions are best administered when the economy is out of the ICU and gained enough strength to continue its journey on the growth path. For now, what the country needs are some quick fixes to ensure meaningful outcomes which are visible so that the scars don’t turn into chronic wounds.

Slight policy tweaks and relaxations across industry sectors may work best in the current scenario, especially when any further tax sops or interest rate cuts seem improbable.

To understand how such reforms can be achieved in a short time, there is no harm in borrowing sensible and practical ideas. The recently launched report on ‘ease of doing business’ in States and Union Territories offers some interesting ideas.

Last month, Amitabh Kant, chief of the government’s policy think-tank NITI Aayog, unveiled an “interesting” report in New Delhi, even as he promised to share its findings and suggestions with the State governments.

The report, ‘An Integrated Value Chain Approach to Ease of Doing Business: A Case Study of Sugar, Alcohol Beverages, and Tourism Sectors’, put together by another policy think-tank, Pahle India Foundation, is interesting on many counts. Firstly, it makes some unique observations and suggestions for the three industry sectors — sugar, alcoholic-beverages and tourism. These are high value and high employment generating sectors. All these sectors already use existing low-cost resources, and have the potential to generate regular revenue and support employment in the States. These sectors have inter-linkages to support each other.

The report suggests that if the policy reforms being implemented under the Business Reforms Action Plan (BRAP) framework (under the Department of Industry and Internal Trade, or DPIIT) had been linked to these three inter-linked sectors, the GDP of States and UTs would have received a boost.

Currently, the DPIIT’s BRAP framework comprises a list of general reforms, and we have used this generalised approach in benchmarking States based on the World Bank’s Ease of Doing Business study. The Pahle India Foundation study recommends that, in place of this generic method followed by DPIIT, policy reforms should take a sectoral approach after conducting sector-specific studies to understand the inter-linkages and impact on the value chain. This makes sense as it will address ground-level challenges more effectively.

Every State has a few sectors such as tourism, and its allied and supporting activities, which contribute more to its economy than the other sectors. For some, the agriculture sector could be more important than services. But if these sectors are viewed in light of their interplay with other sectors, then the impact of even small reforms in one of the sectors can be felt across the entire value chain and benefit the State’s economy.

Right policy

The Pahle India Foundation report establishes how such small reforms in any one of the three sectors included in the report — sugar, alco-beverages and tourism — could create a cumulative economic impact across the entire value chain.

Take the example of the tourism industry. We have historical sites all over, and if we focus on allied activities to ensure better tourist experience — a proper policy for restaurants and bars, safe and well-planned local transport, hygienically managed budget hotels, and tourist-friendly police and drivers — the country can generate much more revenue and employment. Why we are not doing it is difficult to understand.

Citing the example of the Pub, Bar, Café, Lounge (PBCL) segment, which is part of the tourism industry, the report says that by simply reducing the time taken to give approvals to restaurants from nine months to three months, the States can get an additional revenue of ₹38.5 crore per annum, and sugar mills and distilleries an additional ₹51 lakh. A major part of this will go in taxes and in generating localised employment. Interestingly, such reforms do not result in revenue outgo.

This amount may seem insignificant on the face of it, but this is the outcome of just one small change in one sector. If these minor reforms are replicated across all States and industries, the domino effect on their respective GDPs and employment generation opportunities will be huge.

Even a small policy change can impact the entire value chain of the interlinked industry sectors, translating into better earnings for businesses and, therefore, higher revenues for the State exchequer.

A sector-specific approach can, thus, be the quick fix that our country needs now. The outcome of the reforms can also be measured and quantified. Will States re-look at their policy-making approaches? Only time will tell.

The writer is Member, Commodity Derivatives Advisory Committee of SEBI. Views are personal

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