Vous êtes sur la page 1sur 2

Reforms: Good, Bad and Ugly

Page 1 of 2

Publication: The Economic Times Delhi; Date:2012 Oct 31; Section:Editorial; Page
Number: 16

Reforms: Good, Bad and Ugly


Not everything labelled reforms is so; some policy proposals need to be refined and
even reversed
Now that reforms have returned to the policy agenda, we may ask which reforms should
receive priority during the remaining oneand-a-half years of the present government.
Simultaneously, we must expose policy proposals on the table that would take the nation
backwards.
The recent Vijay Kelkar Committee report offers an excellent roadmap for the reforms the
government may tackle during its remaining term. Though the report is principally about fiscal
consolidation, the effects of the measures it recommends will go well beyond cutting high fiscal
deficits. This is as it should be since the ultimate goal behind fiscal consolidation is to foster
efficiency and accelerate growth. As the report rightly argues, urgent efforts are required to
raise the tax-to-GDP ratio. A government that defines itself as the champion of inclusion and,
therefore, also redistribution in favour of the poor, can ill-afford the decline in tax revenues
from 12% of the GDP in 2007-08 to 10% in 2011-12. The government must widen the indirecttax base, rethink the proposed Direct Taxes Code that would poke yet more holes in the leaky
tax system and, above all, improve tax collection through more improvements in tax
administration.
In parallel, public revenues must also be enhanced through disinvestment. In addition to
bringing sizeable revenues, this measure would greatly improve economic efficiency of the
enterprises subject to disinvestment.
But there are limits to the increase in revenues that can be achieved in a short period. Some
tax reforms, notably the move to the goods and services tax (GST), require legislative changes
that are unlikely in the immediate future. So, it is essential to trim expenditure. Here, speaking
for the government, Arvind Mayaram, secretary, department of economic affairs, has expressed
concern that the measures recommended by the Kelkar Committee may compromise the
interests of the poor. This is a genuine concern, but given the regressive nature of our transfers
and the huge inefficiencies in the way, the benefits of our social expenditures trickle down to
the poor, there remains vast scope for cutting total expenditures while transferring greater
purchasing power to the poor and improving efficiency. Plan expenditures have skyrocketed in
recent years under a hyperactive Planning Commission. As the Kelkar report correctly notes,
There is so much leakage in Plan schemes that by better design and targeting, it should be
easily possible to actually improve outcomes while, at the same time, cutting expenditure.
Additionally, the bulk of our subsidies such as those on fertiliser, diesel, LPG, electricity and
food procurement are regressive. Food procurement, fertiliser and electricity subsidies benefit
primarily large farmers, while diesel and LPG subsidies benefit middle-class urban consumers.
Cuts in these will not only enhance efficiency but also be progressive.
While moving ahead with fiscal consolidation, the government needs to be vigilant that policy
proposals that would damage the poor, and are being promoted as reforms, must be stopped
before they turn into Frankenstein. Foremost among these measures are a series of proposals
the labour ministry has recently floated.
These include an amendment to the Contract Labour Act that would effectively eliminate the
only available flexibility that our otherwise highly-rigid labour laws offer: the ability to hire and
lay off workers as per need at competitive wages for at least some of the tasks firms perform.
While the labour ministrys intentions may be laudable, its proposed harmonisation of benefits
and wages across regular and contract workers without the introduction of some flexibility in
the rules governing worker layoffs will seal any residual prospects of growth in organised sector
employment. Already, entrepreneurs in the organised sector have been laying off workers,
installing machines to replace them wherever they can. It is shocking that according to the
latest available data, organised private sector employs a paltry 2.5% of the workforce in the

http://epaper.timesofindia.com/APA26300/PrintArt.asp?SkinFolder=pastissues2

11/2/2012

Reforms: Good, Bad and Ugly

Page 2 of 2

country. Reform proposals of labour ministry relating to Minimum Wage Act, Employees
Provident Fund Act, Factories Act and the Building and Other Construction Workers Act go in the
same direction, lowering employment prospects.
While these proposals are in the early stages, so their advance is easier to arrest, there is
greater urgency for a second look at two other measures that are far advanced on the way to
becoming laws. As I argued in The Times of India on October 19, 2012, the government needs
to resist pressing ahead with the flawed food security Bill. Given that the government has
already put in motion the programme on cash transfers, it makes little sense to duplicate the
effort via this inferior instrument, especially since it will be almost impossible to reverse it in the
future. Minimally, the Bill should be modified to offer the beneficiary the option to choose
between subsidised grain and equivalent subsidy in cash.
Finally, the government needs to take a fresh look at the land acquisition Bill before bringing it
to a vote on the floor of the Parliament. The Bill needs to be clearer on the definition of public
use of the land acquired under eminent-domain provisions and to leave land acquisition for
private projects to entrepreneurs at genuine market prices.

AFTERTHOUGHT
If you put two economists in a room, you get
two opinions, unless one
of them is Lord Keynes,
in which case you get
three opinions.
Winston Churchill,
British statesman

ARVIND PANAGARIYA
PROFESSOR, COLUMBIA UNIVERSITY

http://epaper.timesofindia.com/APA26300/PrintArt.asp?SkinFolder=pastissues2

11/2/2012

Vous aimerez peut-être aussi