Reforms seems to be the buzz word these days in talking about addressing long standing challenges to the Pakistani economy, but what exactly does this mean? It is all very well to be talking in generic terms about the urgent need for third generation reforms in Pakistan, but such statements only confuse policy makers or leaders alike and add little clarity on what truly is required or should be done. Along with others, I also have been urging the government to immediately undertake some necessary reforms instead of sweeping things under the carpet or waiting till after next year’s general elections. Having said this, one does at the same time realize that explaining a comprehensive reforms’ draft can both be technically difficult and rather complex.
So for simplicity’s sake and for the ease of understanding of an average reader, I thought that perhaps a good way to present the endless possibilities on reforms would be by quoting as examples some landmark reforms that have recently been successfully undertaken by our neighbor, India. And how these reforms over there have already started to a make significant difference to the lives of the common men. While one can blame the Modi government on many fronts like intolerance, blatant breach of human rights, stoking regional instability, aiding terrorism at home and abroad, genocide of minorities, etc., but one must concede that when it comes to the Indian economy it has taken some bold decisions on de-monetization, documentation of the economy and ringing innovative structural reforms, which are already beginning to pay off. These structural reforms unleashed by India in the last two to three years have been aimed at providing jobs to a gush of young Indians entering the job market every year and more importantly, at making the resultant economy more equitable, thereby allowing average Indians to lead a better life. So, coming directly to the point here, what exactly have they done? Answer: The following:
Dismantling of Foreign Investment Promotion Board (FIPB) of India and easing rules on foreign investment in order to open up the economy. Streamlining a rule based FDI regime is inspiring confidence and FDI touched $60billion in 2017, up nearly 100% over 2014 figures.
Three main steps: 1) A completely new system on the general sales tax (GST) that discourages evaders, encourages national harmonization and consciously avoids a culture of coercive oversight; 2) Demonetization of the economy per se; and 3) Resorting to maximum digital payments have been game changing efforts to formalize the Indian economy. Transactions that were taking place outside of the tax net and in the informal sector have been brought into the formal sector. In the long term, formalization will mean, a) tax collections will go up to place more resources at the state’s disposal, b) size of the GDP will enhance, and c) citizens will be able to establish credit more effectively as their transaction records get digitized.
Indian economy is a place where the government still extensively involves itself in large direct cash doll-outs for poverty alleviation or kitchen-support, and where a lot of business is done through licenses and quota allocations. For the former, the JAM (Jan Dhan-Aadhaar-Mobile) trinity is now powering Direct Benefit Transfer (DBT) and has significantly reduced leakages. Just in 3 years, benefits amounting to IRS 1.75 lakh crore were transferred directly to beneficiaries, in-turn weeding out many ghost and fake beneficiaries and cutting out middlemen. On the latter, policy making in ministries has been made strictly rule-based: All licenses, e.g. coal, spectrum, UDAN routes, etc., can now only be allocated through transparent auctions.
The much-awaited (by businesses) legislations on the Bankruptcy Code and an Alternative Assets Industry are now in place. Thus capital can be efficiently reallocated from unviable industries to newer, faster growing industries.
Freeing up or opening the Indian economy has yielded other visionary breakthroughs. In that, one suddenly finds India at the forefront of innovations. Just in 2016-17, there were more than 400 new startups from student hostel rooms mainly from IIT (Indian Institute of Technology) campuses. The development is being linked to the Atal Innovation Mission, which is busy creating innovation centers in more 1,000 campuses, enabling new incubation centers, In addition, the Mudra program and the IAF (India Aspiration Fund) provide the necessary capital to transition these inventions into actual start-ups. Research tells us that “entirely” new industries or industrious ventures carry the optimum potential for new jobs and also comparatively incur faster economic growth.
India is well on course to achieve 100% village electrification by 2018 with the number of villages remaining to be electrified having reduced to only 4,941 from 18,452 in 2014. As the new generation and market economy based structural reforms unleashed by the Modi Sarkar take root in the Indian economy, they endeavor to balance a better life for Indians where they can look forward to a basic safety net guaranteeing food, electricity, some form of employment, housing, a bank account, toilet, gas-based cooking, insurance coverage, micro-loans, and an infrastructure that helps ease of doing business. Also, the cost of doing business in the Indian economy is decreasing fast, giving Indian businesses an edge over their regional competitors. In a buoyant Indian economy the economic activity is growing exponentially and as a yardstick, in the FY 2016-17 alone, more than 160 million passengers flew from one place to another (an increase of 60% in less than 3 years), simply because these third generation reforms have been able reduce the cost of long-distance air travel (essential to connectivity within & without) in India to a paltry IRS5/km, lower than even the auto-rickshaw fares in New Delhi!