Economic reforms need introspection and course correction

Economic reforms need introspection and course correction
Posted by
Story Dated : October 11, 2016

India needs a different approach to grow its economy and must remove bottlenecks so that foreign investors can operate in the country just as its own corporates expand their global footprint, Singapore Prime Minister Lee Hsien Loong said during his India visit last week.

His remarks may appear out of sync with the official discourse on India’s recent economic performance, especially the liberalisation of foreign direct investment and record inflows clocked since the Modi government was sworn in.

Mr. Lee’s concerns, however, don’t stem from FDI policy per se, but two intertwined reform showpieces of the NDA — one abandoned after hot pursuit in its first year and another that remains a work in progress. These are amendments to the land acquisition law and improvements in the ease of doing business, respectively.

Indian officials told business leaders accompanying the Singapore Prime Minister that they are free to invest in India if they can, on their own, acquire the land to set up shop on.

As Mr. Lee pointed out, that makes investing in India virtually impossible — industrial parks that Singapore had proposed in the past remain non-starters.

The Centre may not be used to such public plain-speaking, even from Western leaders with longer reform wish lists, but it must take the Prime Minister’s cue for introspection and course correction.

Modernising India’s land laws was high on the government’s agenda in 2014-15; an ordinance was promulgated thrice to effect necessary changes till Parliament could pass a law.

Global investors were assured that land acquired under the ordinance would be safe from any subsequent changes to the law. But the Centre wilted in the face of Opposition resistance.

A model land-leasing law formulated by the Niti Aayog was mooted for States to adopt instead, but a billion-dollar plant is unlikely to come up on leased foundations.

Since then, a proposed nuclear plant has moved out from Gujarat owing to land acquisition problems, India’s largest FDI proposal from South Korea’s Posco is all but off, and job creation has hit a five-year low.

India moved up 12 places in the World Bank’s Ease of Doing Business index last year and may rise further. But the index is only based on speed of paperwork in Mumbai and Delhi, where there is little space for big new industries; such rankings don’t directly translate into more FDI.

The Prime Minister has set a target for India to reach the top 50 ranks in the index, but getting a construction permit online is no good if large tracts of land cannot be provided job-creating investment.

If the idea to bury the land reform was to secure farmers’ votes and, in the process, alternative jobs are not created for the young and those who want to move out of agriculture, castles in the air are all that will be built.

 

Comments