A few weeks ago, I requested my Facebook friends to help me in drafting a manifesto of expectations. I wrote:
I am planning to write an economic manifesto (demand) from the next government. I would like to use that to evaluate/choose the national party that comes closest to what I care about. Obviously, it will be an economic right manifesto, and my sympathies are very clear. But I want to do this objectively so that it can help other like-minded (or undecided) people make their choice. If you'd like to collaborate on this, please let me know.
Many of us have already made up our minds about which party to vote for, but there are quite a few who appear (based on their public pronouncements at least) undecided. For the former group, this manifesto would be a way of putting pressure on the chosen party to take cognizance of our demands. For the latter group, this may be a way to evaluate the various options available.
As I warned at the outset, this is an economically right manifesto. Also, please note that this is not a fully-baked document (some points have more detail than the others) and reflects the views of a few people who helped me in this effort. You are free to pick and choose topics from the below as your manifesto, or add new topics. Please share your feedback in the comments below so that I can update this post with more content.
Manifesto 2014
1. Manufacturing Sector
A lot has been written about Manufacturing and everyone seems to agree that manufacturing growth is essential for job creation; however, mere lip service, vision or dreams are insufficient. Revival of manufacturing requires several urgent steps, some which are detailed below:
a) Labour reforms - Recognize that unions create a labor aristocracy of insiders and hurt more people than they help. Also recognize that manufacturing investment will flow only where it is profitable - and that India is today much higher cost on a productivity adjusted basis than China, S.E. Asia, et al. Abolish all laws that give the government a role in determining employment terms (other than basic health and safety related laws). Allow employers to create non-union workplaces. Allow employers to adopt hire and fire policies if they so desire. Create a national unemployment insurance system funded by worker and employer contributions, which would guarantee a worker a wage equal to his last drawn wage for 20% of the period for which he was last employed, or 6 months, whichever is less. Allow employers to immediately dismiss any workmen for cause and prosecute violence in workplaces on a priority basis.
b) Land acquisition - Get the government out of land acquisition for industry, and restore the fundamental right to property. Allow land acquisition only for infrastructure projects that require contiguous land, such as airports, ports, highways and railway lines. Hand over mineral rights to land owners, so that they have an incentive to sell the rights to those who would exploit the same. Get rid of government restrictions on changes in land use patterns. In short, instead of allowing politically connected folks to acquire agricultural land and reap the benefits of converting it to industrial or urban land, throw it open to the market. There is nothing wrong with industry paying market prices for land. In cities, set uniform and high FSI limits (eg. 10 in Bombay) with clear offset rules - viz. allowing only 50-60% of plot areas to be built on. Allow automatic conversion of industrial land into commercial or residential land to enable urban regeneration. 65 years of socialist planning have not created beautiful cities - hence abandon urban planning and throw it open to the market.
c) Power availability & pricing - Make power available to those who need it, at fair prices. Stop any form of electricity subsidies. Introduce competition (Open Access) at the distribution level (many of the principles of Electricity Act of 2003 remain un-implemented even today).
d) Skill development - See more under Education
2. Foreign Investments
Recognize that India is a capital scarce economy, and that India needs FDI in all sectors. Allow 100% FDI under the automatic route in all sectors, and give national treatment to foreign owned companies. Requiring an Indian JV partner often opens up opportunistic rent-seeking behavior (see examples from telecom sector where Indian "entrepreneurs" minted money as the FDI norms opened up subsequently). There is enough evidence that strategic, long-term investors will partner with Indian companies that provide local capabilities, even when there are no FDI restrictions. Have a small negative list of countries or sectors where 100% FDI is not permitted in strategic sectors with national security implications.
A few key sectors are discussed below:
a) Multi-brand Retail: 100% FDI without any state-wise restrictions. In order to boost employment and infrastructure in semi-urban, it could be specified that stores are not permitted within municipal limits of the eight metros. Rapid expansion of supply chain by leveraging existing FCI infrasturcture. Reasonable minimum local sourcing norms may be applied but not just restricted to small-scale producers.
b) Defence: 100% FDI in local manufacturing of defence equipment. All defence procurement, even from an overseas supplier, should require indigenous manufacturing (not just assembly of kits) within X-years of being awarded a contract.
c) Banking: Give national treatment to foreign banks. Allow banks to be licensed as either wholesale banks (which are not subject to priority sector or rural coverage norms, but can open only limited branches and can't accept retail deposits, other than salary accounts for corporate clients) or retail banks (subject to the whole gamut of regulations).
d) News Media: If India suffers from crony capitalism, the news media sector is an equal participant. While there is a lot of competition in Indian media, unfortunately a lot of it is owned by those that are part of the "establishment". There is a need for real competition in this sector. The web has anyway opened up international media to those that have Internet access; there is no reason to prevent the "un-connected" from having a similar choice.
3. Education
Amend the Constitution, if necessary, to permit "for profit" educational institutions. Allow private sector to participate in the education sector, both at school and college levels. 100% FDI should be permitted at post-graduation and above level. A national regulatory body should be created to protect students’ and parents’ interests. Right to Education (RTE) Act should be immediately repealed and fresh legislation brought in its place. Unaided educational institutions should not be subject to interference from government bodies such as the AICTE,and should not be obliged to comply with reservations and other Government policies. For school education, gradually phase out Government schools and grant school vouchers to families, that can be used in any school of their choice, irrespective of the medium of education.
4. Public Sector Undertakings
The Government has no business to be in business. All existing public sector undertakings must follow the below path towards exiting government control:
a) In sectors where PSUs collectively have greater than 50% share of market (e.g. oil & gas, power generation, ordnance factories/defence manufacturing etc.), GoI can continue to retain strategic stake in those PSUs. Professional management and Boards, independent of Government control to be put in place. Government should sell its stake to the public, progressively down to 26% within 5 years. There should be a cap of 49% on all forms of Government ownership, including other PSUs and government-owned funds (LIC, GIC, etc.).
b) In sectors where private sector has majority market share (e.g. telecom, airlines, scooters, etc.), the Government has no reason to continue being in business. GoI should divest its stake in such companies over the next 5 years; in case some of them are currently loss-making, a 3-year turn-around plan should be implemented prior to sale. If such a company doesn’t turn profitable within 3-years and remains unsold subsequently, then it should be shut down.
c) Ensure that the government is subject to the same corporate governance norms as other shareholders. Ensure that government nominees on the board of PSUs (or former PSUs) are subject to the same fiduciary duties as directors of private companies. Prosecute and jail PSU managers who respond to informal directives from the GOI on pricing, spending etc.
5. Taxation
Simplification and rationalization of tax code is a must. The objective should be to widen the tax net to as many people as possible while making it extremely simple for payees to pay and the Government to collect. Two possible options to be considered (more debate needed before a final decision is taken):
Modification of existing system:
a) Extreme simplification of Income Tax: 0% upto Rs 300K, 10% for 300K-1000K, 20% for 1000K-2500K and 25% for >2500K. No exemptions of any kind. Announce in 2014; effective April 1, 2015
b) Introduction of GST by April 1, 2015.
c) Reduce the corporate tax rate to 20% and apply it on consolidated GAAP profits from Indian operations
d) Tax dividend income and capital gains at marginal tax rate
Radical new system (as proposed by Arthakranti):
Abolish all taxes. Introduce a Banking Transaction Tax (say, 2%). Eliminate Rs 500 and Rs 1000 currency notes, and legal sanctity of any cash transaction greater than Rs 5000. Publish a white paper by October 2014 and implement effective April 1, 2015.
(Read this article and more by Rightwingindian on the topic of BTT)
6. Government Expenditure and Subsidies
- Prohibit uncapped spending on any account.
- Force the government to establish a priority order for expenses in the budget
- Prohibit fraudulent accounting by the government and force it to adhere to GAAP
- Ensure that government servant's salaries are costed correctly, including the full cost of pensions, accommodation and other perks.
- Ensure that no government servant earns more than the median wage in the private sector for a similar function on a total comp basis. Offer government servants all cash packages (with monetized perks).
7. Constitutional Amendments
- Remove “Socialist” from the Preamble.
- Repeal the First Amendment regarding restrictions to freedom of speech. The only restriction should be regarding any incitement to violence and threat to national security (which should get covered under normal criminal codes)
- Provide validity to same-gender relationships and marriages. (may not require Constitutional amendment and just a change in CPC)
- Introduce a Uniform Civil Code
- Treat all individuals equally before the law and not as members of groups
- Scrap the Directive Principles of State Policy
- Propose a realistic road-map (as envisaged by the founding fathers) towards ending of all reservations in Government education and jobs. No new reservations (particularly in private sector education or employment) to be introduced.