Whenever the critics of the government or its policies debate over the TV, we are left waiting for one reasonable answer; the answer to what shall change the system or what kind of policies can lead us to a better future.
For the next few minutes, you are about to read three basic policy changes I propose, that though not directly look to be an economic policy, would change Indian facets of the economy in a positive way
Goods and Service Tax
The Indian corporates have not progressed because of the government but despite governments. Government regulations are too many and tax officials constantly harass businessmen. A higher tax rate makes investing unattractive in India.
One big tax reform that needs a transformation is the GST. The CAG report on GST is very critical of the reform. The time has come to revamp the phoenix from its ashes. The GST is supposed to be a uniform tax rolled uniformly all over the country. However, Indian GST couldn’t make that mark. On the one hand, India had five slabs for consumers (0%, 5%, 12%, 18%, and 28%). It also has 3 separate slabs for manufacturers & traders, services and restaurants under composition scheme. With that many slabs, we ended up complicating it. It raised not just cost to business but also the cost of tax collection. No doubt, the collections and businesses have been significantly hurt.
India, if it may not be able to emulate New Zealand with a single tax rate, should come down to 2 or 3 slabs- suggestively, 0%, 5% and 14%. For simplicity, we may have a single composition of 3%. This would make the business simpler.
Some may argue that a needle and a car cannot be taxed the same. Well, it has always been taxed the same. One should understand that tax is levied on the value of the product and not the purpose of it. The refunds should be within a specified time and concerns of exporters should be addressed.
If done properly, it will be one of the most significant structural reforms.
Financial Year Change
India is an agriculture-based economy. Our first sowing season begins from June, and end up in October. The most people affected by any change in policies are those in this sector.
Have you ever wondered why India needs a British style April to March financial year? The US have it from October-September. Even RBI has it from July-June.
The financial year is decided as per the requirements of the country. Alas, India never thought that way.
Indian Financial Year is from April. The budget is proposed in February. Then there is a 4-week cool-off before demanding for grants. Then there are discussions. By the time the budget procedures get done, we are already at the onset of May. The sowing season is hardly 15 days away. The budget allocation reaches the concerned department in another couple of months. It's been 3 months your financial year has started and all you have is monsoon all over the country.
What happened? The farmers who might have reaped benefits out of budget missed one season. The infrastructure building cannot go further ahead because it is raining. We have deprived a huge population of an income boost that we could provide.
Instead, the government has to push hard in February and March to finish its targets.
Imagine the entire scenario if India’s financial year would be January to December. Your money would reach the markets by March. This is the harvest season, so people would have money to pay the farmers. You have a sunny quarter to push your infrastructure. People now have budget money to sow in June already (so they have their resources saved). The festival season post-harvest would enrich markets for another sowing in November! Infrastructure would continue to build November to February as always. What a rosy picture!
The Lateral Entry
India has always been governed by the bureaucrats. Most of the time, politicians don't have the vision to execute, and then, we all fall prey to the policies. It is essential to understand that all of us look for incentives in our life. An incentive to a bureaucrat is the power to control. Hence, most laws in India have so many regulations. However, here we would talk about the much bigger issue- the expertise. It is true that bureaucrats in India are the best minds, but they are generalists. They are head of the water department on one day, they get transferred and become head of the education department the other day. How bizarre is the system one can only imagine.
The government should open certain policy-making positions for the experts of the domain. They should be given secretary-level ranks and allowed to put their expertise to best use. The domains like education, health, finance, law, industry, and so many others can comfortably accommodate them and can reap the benefits to a broader public. The tenure of lateral entry experts should be limited to 3 to 5 years. This way we have updated and capable capacity builders coming in to innovate and accelerate the Indian growth story.
There are already several such structures in India. ISRO, RBI, SEBI, BARC, and DRDO are well-governed and have successfully delivered because the domain experts ran them.
Of all the three reforms, one thing is common. The more freedom, the better growth.