Indian Economy Will Not Thrive Unless Reforms Take Place


The FDI (Foreign Direct Investment) in Retail is one such bill that was pushed through a couple of months back. This is expected to bring in huge investments into the retail sector, better technology and improved farm-to-fork processes to bring down the powerful influence of intermediaries in the supply chain who only help to push up end-consumer prices.

Big players like IKEA and WalMart are expected to bring in overhauls in the current supply-chain processes which in turn will benefit both, the manufacturer and the consumer. Quite obviously this will not be acceptable to the affected parties, who have been using their political constituencies to stall the passing of this reform for the last few years. But that’s out of the way now and we need to wait and see how it is implemented and if the expected benefits actually accrue to the beneficiaries.

Similarly such overseas investments in other sectors like Insurance is expected to bring in operational efficiencies, better disposal of claims and larger bouquet of offerings, which currently are quite limited and more focused towards life and accident insurance.

Insurance for covering risks on loans towards house or education is a good example. The big problem with the current insurance companies is disbursal of claims. They consider it their prime objective to limit settlement of claims and put the insurer through a lot of procedural headaches and try every trick in the book to limit the actual settlement to the bare minimum. This forces the insured person, who has paid up all premiums till the time of claim, to approach the consumer court and fight a long drawn out battle to get his just dues. Hopefully, with the entry of large overseas insurance companies, their best-practices will be employed and in time become the best-practices of the industry here in general, which will benefit the common man.

Till now, the energy sector (oil, electricity, natural gas etc.) has been sole undertaking of the Government of India. All such public sector undertakings, which have ownership over such key sectors, are owned by the government and all key positions in such companies are government appointees, brought in with a lot of political influence. Quite obviously where such government controls exist, catering to political whims and fancies will naturally follow.

The reason for such huge subsidies on fuel is political expediency, which has contributed significantly to the prevailing Current Account Deficit as 80% of the fuel consumed is imported. Such subsidies are given as largesse by the government to shore up the economy or get political mileage, especially close to elections. As a result, most of these public sector undertakings are all loss-making behemoths being run on tax payer’s money. Reforms in this sector will bring in private players, who will not only bring in operational efficiencies and a more customer-centric work culture, but will also help maintain market prices and reflect the actual health of the economy.

GST (Goods & Services Tax) has been in the offing for quite some time and would be very welcome by the general tax paying public. Right now, there are several layers of tax for each and every product that the consumer buys. Starting with Excise Duty which is levied on manufacture, there is VAT, Service Tax, Cess on Service Tax, local state level taxes etc. Add to this the regular income tax deductions. As a result, the common man actually ends up spending close to 65% of his earnings on direct and indirect taxes.

Moreover, the current tax system has numerous loopholes using which the average businessman ends up paying just a fraction of the tax he is meant to pay. Others use various methods to avoid paying tax altogether. Whilst there has been a tightening of the tax system and collections have seen a significant rise, there is still a huge shortfall. GST would help to rationalise the tax system, put in place a uniform tax regime across the country and bring most of these defaulters into the tax net. All this would help to significantly reduce the current fiscal deficit.

With the 2014 general elections just a few months away, the incumbent government is keen to push these reforms through to gain political mileage and for exactly the same reasons the opposition parties are going to try their darndest to stall the proceedings and ensure these reform bills never see the light of day. This is despite the fact that if and when they come to power they will also try to push these through, as everyone knows what ails the economy and what needs to be done. So the next few months will see a lot of action in Parliament and we will wait and see what happens to these reforms.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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