Govt must pay attention to issues raised by Panagariya

The Narendra Modi government is not known for taking criticism in a gentle manner. Its critics are often dubbed as anti-national or foreign-funded. However, they cannot accuse Arvind Panagariya, Chairman of the 16th Finance Commission, of being politically or ideologically-motivated. A Professor of Economics at the US-based Columbia University, who was earlier appointed by the Union Government as vice-chairman of Niti Aayog. In a recent interview, he said, “India remains, I think, for the foreigners a very difficult place to do business with. You can see that much of the foreign investment that comes into India comes into private equity. You don’t see foreigners actually setting up companies and enterprises themselves here, unlike, say, in China...” Liberalisation happened, ending the license-raj, “but some of it has been replaced by what I have been calling permission-raj,” he said. He also expressed concern over excessive regulation. On the technological side, there have been overwhelming improvements, resulting in the creation of massive conveniences. “Now, on the other side, there is the regulatory side. There, things have become worse… We have simply put in too many regulations… And departments that should not be involved in regulating become involved…”

What the eminent economist said is not some esoteric revelation that only mystics deep in trance can have; every businessperson, from the local grocer to the top corporate tycoon, knows these facts. But their voice rarely reaches the high and mighty running the Central and state governments; ever rarer is the action taken in accordance with that. A government run by the supposedly largest party of the world, the Bharatiya Janata Party, with ample support from the grassroots organisation, the RSS, must have shown much greater responsiveness to the feedback from the ground. To be fair to the Modi regime, we should also highlight the good work it has done to boost economic growth and development. From introducing fiscal prudence and building infrastructure to GST and the Insolvency & Bankruptcy Code (IBC), it has carried out important reforms. This has resulted in India becoming the fastest-growing large economy. But more needs to be done. And the government will do itself and the nation a favour if it pays attention to the sagacious words of Panagariya. India has made remarkable progress in digitising public services, formalising the economy, weeding out non-deserving beneficiaries from welfare programmes, and creating a more integrated national market.

Yet these achievements will not be enough to sustain rapid growth unless the everyday business environment also becomes substantially easier, more predictable and less burdensome.

The Central and state governments (where the BJP mostly rules) need to undertake a serious review of the maze of permissions, licences, inspections, and compliances that businesses face. Regulations that serve no clear public purpose should be removed, while those that are necessary should be made transparent, time-bound and technology-driven. Government departments must also resist the temptation to regulate areas beyond their legitimate responsibilities. A culture of trust, rather than suspicion, can encourage entrepreneurs to invest, expand and create jobs. This is particularly important for attracting FDIs. We cannot aspire to become a global manufacturing and investment hub when companies remain uncertain about approvals, taxation, contracts and regulatory decisions. For that matter, even domestic entrepreneurs deserve the same confidence and ease of doing business. The next phase of reforms must be deregulation rather than announcing new schemes.

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The Hans India