Fiscal Prudence: Some Specific Ideas For The New Government

Fiscal Prudence: Some Specific Ideas For The New Government

Let’s examine what are the pressing priorities of the new government in Delhi, and what measures can be used to address them

Ajit RanadeUpdated: Monday, June 10, 2024, 09:48 PM IST
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Representative Image | File

A new government has been sworn in, with Narendra Modi taking charge as Prime Minister for the third time. Even though his party has not been able to secure an absolute majority in the Lok Sabha, as on two previous occasions, it is still the largest single party. India’s political history is more dominated by governments formed by coalitions than by parties enjoying an absolute majority mandate. So, the after the last ten years, India’s polity is reverting to a configuration which is a more common historical pattern. This should not be surprising for a country that exhibits an incredible diversity in every conceivable dimension. In that sense the national election to the Lok Sabha is not one, but 543 separate elections. And they are fought on issues which are mostly local. Of course, there is sometimes a national wave attributed to a charismatic or powerful personality, but more often than not, the electoral victory determinant boils down to local issues, more than other factors.

The national government has responsibilities which are distinct from those of the state governments, as specified in the seventh schedule of the constitution. Over time there has been a “creep” of the turf of state governments being “encroached” by the union government. This has often been necessitated by need to strengthen or accelerate development processes. So, programs like the National Food Security Act of 2013 passed by the central government, addresses issues like food security, hunger and nutrition which are squarely the domain of states. The same goes for employment (National Rural Employment Guarantee), education (Right to Education), health insurance (Ayushman Bharat) to name a few examples. Such national policy intervention is supposed to supplement or strengthen the states and not to undermine their efforts. But the very nature of a nationwide initiative has the elements of a “uniform” approach, which tends to paper over regional differences.

With that background, let’s examine what are the pressing priorities of the new government in Delhi, and what measures can be used to address them. The most important issue is that of employment and livelihood. A recent report by the Institute of Human Development and International Labour Organisation said that 83 percent of the unemployed were youth below the age of 29. Thus, tackling youth unemployment is a very high priority. This challenge is further aggravated due to two factors. First there is the threat of automation and artificial intelligence, which can wipe out present employment options. According to a McKinsey report nearly 70 percent of manufacturing jobs in India are vulnerable to this phenomenon. The second factor is the wide skills mismatch. We have a coexistence of jobs shortage and a skills shortage. We need skills and training programs which make the youth ready for the jobs of tomorrow, which perhaps don’t even exist today. Much of the skilling and enhancement of human capital happens on the job, via learning by doing. So, one measure that the new government could undertake is to push for a nationwide apprenticeship program. This would consist of six-to-nine month long employment, with no obligation on the employer to make the worker “permanent”. The apprenticeship certificate so obtained should have the stamp of authenticity by a national authority and should be portable and acceptable across the nation. As such there are apprenticeship policies and programs in place in many states, but this needs a national big push in a creative way. Another smaller opportunity to enhance employment is to extend the Agniveer program by another three to four years, because four years is too short. The officers short service commission is for ten years, so it makes sense for the non-commissioned ones, such as the Agniveer tenure to be extended. Their experience, training and discipline will increase their future employment opportunities in the private sector.

The second important area for the government to focus on is small entrepreneurs. There are an estimated 70 million enterprises, each employing between one to 10 or 20 employees. These are sought to be brought into the formal sector via Udyam registrations and into the net of the Goods and Services Network. The main challenges of small and tiny businesses are four. Access to credit and working capital, access to markets, access to technology, and financial and tax literacy. The first requires that their Udyam registration be linked to the GST Network, to ensure automatic enforcement of no payment delay beyond 45 days, as mandated by the MSME Act of 2006. In practice the small suppliers are squeezed by their big customers, against whom the supplier has no recourse, because often that is the only one and repeat customer. Hence, we can use the digital technology to ensure payment discipline. The estimated size of delayed payments in the country is close to 10 trillion rupees. It will provide a shot in the arm to the small entrepreneur, if such a legislation and mechanism is implemented by the central government.

Access to markets can be enabled through e-commerce and initiatives like the Open Network for Digital Commerce. Credit flow to MSMEs can also be enhanced by allowing peer to peer lending, as well as allowing localised equity ownership. Details of these are available with the authorities, and it needs an implementation push. To help with technology, the government can sponsor the development of a free super app, a sort of enterprise management software, which takes care of everything from taxes, inventory planning, marketing and customer relationship. Just as BHIM is an app for digital cashless payment, which is available free, and is a government initiative, a tech product for micro enterprises can be freely distributed by the government.

The third suggestion relates to farmers, and assured prices. It is high time that the Minimum Support Price (MSP) mechanism be give legal teeth and made into law. As such the MSP for twenty-two crops kicks in only when the market prices fall below the threshold. This happens roughly half the time, statistically speaking. Hence the net fiscal burden is not as high as feared. Besides when the government gets into procurement, that puts an upward pressure on prices, negating the need for an MSP guarantee. The MSP law is primarily a political decision at this stage but will earn the trust of farmers. Its time has come.

Dr Ajit Ranade is a noted Pune-based economist. Syndicate: The Billion Press (email: editor@thebillionpress.org)

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