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Corona-virus crisis offers a good chance for structural reforms

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sachinlokanna
sachinlokanna
Engineering Student - NIT Karnataka 

A policy change forced by a crisis has often helped in India. Take for example the economic liberation in 1991. Recently I saw news that over 93% trust Modi Government will handle Covid-19 crisis well http://toi.in/WFVrDY/a24gk. PM can push hard economic reforms using this unmatched political support.

First we need to reform GST further from complex to simple

An ideal GST means a single rate with negligible exemptions. In India, things are different because of political circumstances. Petroleum products, real estate and liquor remain out of its purview and there’s an excess of rates. The single rate would also eliminate production inefficiencies since it would tax value added at each stage of production at the same rate. Given the vast exclusions, high GST rate and evasions the high rate would attract. Hence reform from multi rated GST to single rate GST with the uniform GST rate at 12% with fewer exemptions.

reform of personal income tax

Modi Government has taken the maximum marginal income tax rate for individuals to a 3 decades high of 43.7%. Too many exemptions, which erode the tax base, have led the government to increase the top effective marginal tax rate to 43.7%.

High rates with loopholes embedded in exemptions invite corruption and harassment. Aligning the top personal income tax rate to the corporate profit tax rate at 25%, with all exemptions eliminated, would curb corruption and minimize tax disputes. If the government credibly assures taxpayers that higher declared incomes on future tax returns will not form the basis of investigation of past reported incomes, reductions in tax rates will also yield higher, not lower, revenues. The expansion of tax base will offset the effect of the reduction in the tax rate.

Reduce the number of ministries

Recently Professor Arvind Panagariya in his new book said Government of India has far too many ministries. And asked GOI to phase out and merge many of them for better policy delivery.

The central government in India has far too many ministries. As of now India has total of 58 ministries which is more than almost any other country. Most of the well governed countries have 30 or fewer ministries, hence government at least try to get down number of ministries to 35-40 for better policy delivery. Professor Explained well about hurdles in more ministries :

Hence there is a need to phase out many of the ministries and amalgamate others to create more encompassing ones. Replace the numerous sectoral ministries by a ministry of industry and a ministry of services. A single transport ministry could replace the ministries of roads, shipping, civil aviation and railways. An energy ministry could be created by merging coal, power, petroleum and gas, and new and renewable energy. Numerous social welfare-related ministries such as minority affairs, tribal affairs, women and child development, and social justice and empowerment could also be consolidated into a single ministry. Likewise, the skill ministry could be merged with the human resource development (HRD) ministry.

privatization of all public sector banks (PSBs) other than the State Bank of India.

First, scholarly research overwhelmingly shows that private banks exhibit significantly higher productivity and growth than PSBs. Though not an end in itself, faster growth of banking is desirable for two reasons. One, it speeds up the growth of the economy thereby bringing overall prosperity faster. And two, it translates into faster growth in credit and hence faster expansion of priority sector lending, an important social goal.

The second argument in favor of privatization concerns governance. Over time, committee after committee has pointed to myriad governance problems afflicting PSBs. The latest among them is the 2014 PJ Nayak Committee, which notes that the boards of most PSBs are increasingly compromised and lack the requisite sense of purpose.

Corporatization of Indian Railways

China dismantled its rail ministry corporatised Railways, handed regulation to transport ministry in 2013. Now China is one of best railway systems in world. GOI must begin corporatisation of train coach and locomotive factories.

Restructuring of the Indian Military

India’s Defence Forces need a new doctrine. Less men and more machine.

Pensions in India’s army now exceeds salary bills, both much higher than modernization & maintenance budgets. When OROP was implemented, cost was estimated 12K Crore/year. That cost is now 30-40K Crore and is eating into the budget for equipment and modernization. Modi Government damaged credibility by not explaining fiscal impact of OROP to army veterans.

The full impact of OROP is still unfolding. The pension cost has more than trebled in 6 years and is eating into the cost of equipment and armament.

Even as the defence expenditure is going up, the capital outlay (money for buying fighting machines, aircrafts etc.) is flat.

US military supported by far rich economy has a pension coverage of 20% whereas Indian military has pension coverage of 70%. The Defense Budget is frozen as a percentage of the overall Union Budget, and the share of capital outlay is shrinking year after year as the pension cost is ballooning. The CDS must find a way to increase the retirement age. Reduces army by half; increases size of navy, air force in big way and boost new strategic units and downsized its land-based Army.

Expansion of nuclear energy

In a 2006 study by Ravi Grover and Subhash Chandra, both then of the Strategic Planning Group within the Department of Atomic Energy, a seven per cent growth trajectory was calculated to require the electricity generating potential of 1,400 GW by 2060.

As of January 2018, India generated 331 GW of electricity. Of this, some 66 per cent comes from thermal energy, 13.6 per cent from hydroelectric power, 18 per cent from renewable energy, and a mere two per cent from nuclear energy. Industry consumes 40 per cent of the total capacity, agriculture takes 18 per cent, domestic consumption is 24 per cent, and the rest goes to railways, commercial use, and other odds and ends. India’s per capita consumption of power is approximately 1,122 kWh and over 240 million people in India still have no access to electricity.

Can this not be achieved by solar or wind power – renewable energy?
The short answer is no. It is one thing to reduce the burden on the grid by installing solar panels on residential buildings but domestic electricity consumption represents only 22 per cent of the total. Scaling up renewable energy to meet the demands of the next century is a challenge of an entirely different magnitude. Again limiting ourselves to analyzing logistical difficulties alone, mining the rare earths for the solar paneling and energy storage required is well beyond global manufacturing capabilities.

If India is to have ample energy for its economic growth and that story includes high speed rail, electric cars, and other substitutions of electrical power for fossil fuels, it cannot afford not to get bullish on nuclear power.

In the last 70 years,India built 22 nuclear reactors and in 2017 Modi Government approved construction of 9 new ones but Government should not be thinking about 30 or 40 reactors – it should be considering 300 or 400. Even with such a massive investment over the next 50 years, nuclear power will still amount to less than 35 per cent of India’s total energy mix. Contemplating 400 reactors may seem lunacy at first but a closer consideration of the circumstances shows that these numbers are not fantastic.

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sachinlokanna
sachinlokanna
Engineering Student - NIT Karnataka 
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