This Article is From May 26, 2020

Modi 2.0's Bold Structural Reforms - By Feroze Varun Gandhi

There is no doubt that this has been a challenging year (perhaps even its annus horribilis) for the Republic and our government (starting out a year into its second term), one which requires the government at all levels to be organised on a war footing. Fortunately, India is in a much stronger position to deal with this crisis (along with a supercyclone, border tensions and global uncertainty) - this position is a hallmark of the progress our nation has made in the last six years. Unlike many developed countries, India was able to quickly enforce a lockdown ahead of the curve while scaling up production of testing kits and PPEs. All this is down to strong leadership at the centre, and the consistent application of key structural reforms over the past six years. Amidst this seminal moment, we must pause to understand the implications of such reforms.

To start with, the government has sought to reduce input costs for the poor, both in rural and urban India, with a particular focus on healthcare. The roll-out of the AYUSH scheme is a hallmark of this effort - of course, this will now have to be supplemented by a large push at the block-level for building up primary healthcare including diagnostics. India, as with many developing countries, has for decades invested sub-optimally in healthcare. The Ayushman Bharat PM-Jan Aarogya Yojana (PM-JAY) was launched in September 2018, aiming to provide comprehensive inpatient healthcare insurance to ~500 million people across rural and urban India.

Each family included gained a health cover of Rs 5 lakh per family per year for secondary and tertiary hospitalisations across public and private empaneled hospitals. By May 2020, ~21,500 empaneled hospitals had seen ~1 crore hospital admissions (PMJAY, 2020). More than just reducing input costs, it also provided an avenue for creating jobs - it was estimated that approximately 11 lakh jobs may be created over a 5-7 year period, making it the second-largest employer in the country after the Indian Railways. The centre's push for reducing open defecation via a programme of building toilets and changing sanitation behaviour has meant that attitudes towards hygiene and healthcare are also changing - since the inception of Swachh Bharat Mission in October 2014, the government has constructed 102,867,271 toilets, approximately 2,137 toilets each hour. Similarly, the Pradhan Mantri Ujjwala Yojana (PM-UY) has improved access to LPG cooking fuel. With an initial target to provide approximately 80 million connections by March 2020, the scheme achieved the target by September 2019, covering approximately 715 districts (PMUY, July 2019).

There has also been a strategic push for expanding rural banking: in a post COVID-19 age, where currency itself can be infectious, a country that embraces banking and seeks to shift away from cash can provide a stimulus when required quickly. The government has focused on ensuring financial inclusion, laying the infrastructure for transferring direct benefit. The PM Jan Dhan Yojana was a significant step-up in improving access to finance for the majority of India's rural and poor population, with the centre mobilising a recalcitrant state to target ~75 million people with access to bank accounts, with aggregate deposits reaching ~ 1 lakh Cr and financial services (e.g. debit cards, insurance coverage, overdraft facilities, etc),all within a short time-span of ~3 months (Saraswathy, M, November 2014). By August 2017, the scheme had expanded to ~294 million accounts (Khosla, Saksham, August 2017), with 384.1 million beneficiaries now banking through it and maintaining ~131.8 thousand Cr (PMJDY, 2020). Having a population with access to banking accounts enables the government to provide income support, with potential to even launch a basic income program in the long term if required.

This was also combined with a push for Direct Benefit Transfer (DBT) to farmers: while MGNREGA created a capability for the government to create jobs at a local level, DBT enables the government to fix leakage in payments, cutting out intermediaries and benefiting the poor. This government helped push the Overton window towards Universal Basic Income, instituting the PM-Kisan Yojana which provides for an annual transfer of Rs 6,000 (payable in three instalments of Rs 2,000 each) directly into the farmers' bank accounts. While this was initially restricted to small and marginal farmers, this has since been expanded significantly as of June 2019 to include all farmers (irrespective of their land holding status, with some exclusions). The impact has been significant, with ~54,000 Cr distributed to benefit 87.1 million farmers (Tiwari, Rituraj, March 2020), with the government potentially ramping up to ~100 million farmers in the near-term. The launch of the PM-Kisan Maan-Dhan Yojana (PM-KMY), a voluntary pension scheme for small and marginal farmers, has ensured retirement security (Rs 3,000 per month for each farmer) with farmers developing a habit of a monthly contribution of Rs 55 - Rs 200 (depending on their age, and matched by the government). This has also seen significant expansion, with ~18.3 lakh farmers registered (Press Information Bureau, November 2019). In an age of economic uncertainty, the government now has the capability to create targeted interventions at the ground level without significant leakage - very few countries are able to do this.

With the infrastructure laid down for providing subsidies to farmers in a relatively more efficient manner (though implementation across the value chain will take time), the government has also decided to radically restructure agriculture by pursuing APMC reforms: to survive in a post COVID-19 age, India's farmers had to be provided marketing freedom. The proposed reforms, as announced by the Finance Minister, will end the compulsion of farmers to sell only in local APMC markets, allowing them to sell to anybody. It will improve farm-gate realisations, enable barrier-free, inter-state trade of agri-produce, and provide framework for e-trading of agricultural produce. Currently, producers only get ~20-25% (as per anecdotal reports) of total consumer price, mainly due to lack of marketing freedom, which further gets eroded due to high transaction costs to the farmer in taking their produce to mandi whose density remains less (~1 mandi per 487 sq. km) than stipulated (~1 mandi per 80 sq. km) (Verma Sanju, May 2020). his reform may also encourage continuing investment in warehouses and cold chains by the private sector, while limiting government intervention (at the state level) on stock limits and inter-state sales.

On the larger economy, the government took note of the fact that the real estate (and its ancillary, construction), a primary driver of economic growth in the last decade, has been in the doldrums for a range of reasons. The government sought to cut this Gordian knot with a push for restructuring real estate. Consumers are increasingly utilising the law to raise complaints on Real Estate (Regulation and Development) Act (RERA) registered projects in states as varied as Karnataka and Haryana. Conciliation forums associated with RERA are bringing consumers and developers to the same table to resolve issues. On the whole, the real estate market has consolidated, with ~200,000 primary units sold annually, while ~350,000 - 400,000 units are sold in the secondary market (Nandy, Madhurima, Apr 2018). Signs of consolidation are also being observed on the supply side, with a number of fly-by-night developers quitting the market due to RERA's stringent provisions. Eventually, India's estimated 45,000 developers may shrink by over half (Ministry of Urban Housing and Development, 2018). The real estate industry took time in adapting to RERA-related compliance requirements, particularly during 2017; while this led to a general slowdown in the industry, it also raised consumer confidence (Halan, Monika, Apr 2018).

It may sound simple, but the success of the Insolvency and Bankruptcy Code (IBC) did not come through easily. Behind it is a litany of failed insolvency laws, such as the Sick Industrial Companies (Special Provisions) Act (1985); Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Act (Sarfeasi) (2002); all this meant that bankruptcy was a messy process, one typically avoided by lenders. Defaulting promoters now have a credible way out. Section 29A was included in IBC, preventing any defaulting promoters from seeking to buy any assets on the cheap. The Supreme Court also helped over-rule the National Company Law Tribunal, ensuring a differential treatment of secured creditors compared to unsecured ones. IBC itself has been announced as a transparent and credible resolution framework for India's NPA problem - the IBC process helped recover ~70,000 Cr in FY19, compared to ~35,000 Cr that was recovered via the debt recovery tribunal, Lok Adalat and other mechanisms in FY18 (Ministry of Finance, 2019). 

In the larger economy, all this has a limited impact unless unproductive assets in the economy are unlocked. Privatisation has always moved in fits and starts in India, with the government reluctant to let go of the commanding heights of the economy. Letting no crisis go to waste, this government has pushed for full liberalisation, enabling weaker PSUs (barring a few in strategic sectors) to be sold off or privatised or wound down. This will unlock productivity in a long dead part of the economy, while creating scale to compete at a global level (for e.g. India's PSU banks are likely to be consolidated into 4 mega-banks as a consequence). This is structural reform at its boldest.

Finally, the push for reviving self-sufficiency or Atmanirbharta, with a focus on exports, is timely. To enable self-sufficiency, India's demographic dividend needs to be realised. The government, via the Skill India Program, has achieved significant progress - more than 1.17 crore people skilled under MSDE program with ~5 lakh trained under Pradhan Mantri Kaushal Vikas Yojana (PMKVY), ~162 Pradhan Mantri Kaushal Kendras (PMKK) established while the ITI ecosystem has been re-energised with a focus on modernisation of Industrial Institutes; 9 lakh youth engaged in apprenticeship through NAPS. In addition, the government has made a massive push for assembling and manufacturing in India via Make in India. The consequence of this has been a significant boost in local assembling and manufacturing. For example, FDI grew 4.4 times in Electronics & IT sector: from USD 2.77 billion (2011-14) to USD 12.24 billion (2014-17) (Singh, Gurdip, Dec 2017), and 113 new mobile manufacturing units setup. These units are providing employment to about 4 lakh persons (direct and indirect) as of 2018. Nine Mega Food Parks were operationalised during 2014-18 with 83 Cold Chain Projects operationalised and 3.9 lakh tonnes food processing capacity was created. There has also been particular emphasis on MSMEs via the Prime Minister's Employment Generation Programme (PMEGP) with 1.7 lakh units set up, providing employment to 12.82 lakh persons; Rs 139.58 crore was approved for clusters providing employment to 59,900 artisans across 72 clusters; MSMEs were allowed to participate for 'Make in India' projects and granted relaxation in the registration and profitability criteria. Moreover, the push by the Finance Minister to improve financing options for MSMEs and provide preference to them in procurement is a welcome step.

Such structural reforms position us well for a rejuvenation in a time that calls for unity and solidarity. These reforms are here to stay in institutional structure, and will provide a buffer to the current and future economic headwinds, while enabling a flexible responsible by this government and our country. The Modi government's strong and decisive leadership will position us for transformational change. Given a paradigm shift in leadership, this is a moment for India to continue to pursue structural reform, renewing its tryst with destiny.

(Feroze Varun Gandhi is a member of the BJP and a three-time member of parliament.)

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