As we all know, the economic reforms of the big bang of the 90s helped change India. This was followed by several gradual and somewhat substantial reforms by various central governments. However, if India needs to shift to a higher growth path, deeper reforms need to be undertaken at the state level. It is important to note that in two specific areas – agriculture and all areas covered by the Seventh Schedule of the Constitution in the list of states that can help increase state revenues, which include stamp duty, excise duty state and electricity rights.
The India Public Affairs Forum (PAFI) in its annual event for 2021 will focus on the need to reimagine, restart and reform to revive the economy. States will be important stakeholders in the deliberations and should discuss the next steps to relaunch growth while remaining committed to the broader vision of cooperative federalism.
It might be worth it if some important state-level reforms could be undertaken over the next two years to restart the economy capable of withstanding the kind of shocks caused by Covid.
For starters, they may want to focus on agricultural reforms. Reforms in this very critical sector are constantly mired in a political quagmire. In their attempt to help small farmers, states often yield to the voice of the large farmers who have the greatest influence. It is important to consider the fact that nothing substantial has been done by most states to improve farm incomes.
Most announcements from states in the sector remain populist. It is very difficult to find good practices in states that help farmers to be part of a value chain with industry to increase income levels. Examples of such value chains remain very rare and very intermediate. Certainly, one size fits all will not work for all states that are ready to reform this sector as the challenges differ. It is important to note that states must recognize that this sector needs tough reforms if the livelihoods of farmers, especially small farmers, are to be improved.
The GST system is the best example of cooperative federalism. However, a close reading of the reports on GST meetings indicates that the bulk of the deliberations in the Council are only about how to increase revenues and that no significant time appears to be spent discussing how. this powerful tool in the hands of the Center and the States can be used to help sectors stimulate demand and therefore growth.
GST rates can play an important role in securing investments in states. And, therefore, states may want to consider taking a more holistic view while looking at different sectors while suggesting changes in GST rates. It might be useful for the Council to launch an independent study that can examine the links between GST rates and the investment plans of businesses in all sectors. A similar exercise is also required in other areas that generate revenue for states – excise taxes on alcoholic beverages and stamp duties on real estate. Studying the impact of income generation tools on economic growth and eventual employment can be an interesting exercise for states.
The next two years after disruption from the pandemic will be critical for states to boost investment. So they might want to look at a three-point program.
First, make sure that the discussion of cooperative federalism is not tainted with underlying political currents. Second, income generation does not become a stand-alone exercise, but relies on in-depth and continuous consultation with stakeholders and is linked to the larger vision of stimulating investment and growth. Third, involve all stakeholders, especially businesses, in the policy-making process so that there is full transparency and that there are no surprises for stakeholders when policies that impact them are. announced.
The author, TS Vishwanath, is Senior Advisor, ASL and Co-Founder, RV-VeKommunicate and Past President and Founding Member of PAFI. Views are personal