The full-fledged union budget of 2019-20 to be presented to Parliament and the public on July 5 by finance minister Nirmala Sitharaman, offers the new BJP/NDA government, which was returned to power at the Centre with an overwhelming majority in May, a great opportunity to inject new momentum into the stop-start liberalisation and deregulation initiative of 1991. The plain truth which the BJP’s long-forgotten parent political party, the Jan Sangh, had grasped — but the BJP leadership hasn’t — is that the country’s industry leaders, businessmen, traders and farmers are its greatest resources. They need to be freed from a plethora of government regulations and controls which continue to stifle the economy despite official claims of abolition of the licence-permit-quota regime of the socialist era.
Although the BJP takes great pride that India’s ranking in the World Bank’s Ease of Doing Business (EODB) index has improved dramatically, the ground-level reality is that the winds of liberalisation and deregulation have not blown through factor markets — land, labour and capital — and large parastatal monopolies (electricity, transport, banks, ports etc) where red tape and corruption is business as usual. Therefore starting and sustaining a business, especially labour-intensive and medium and small-scale enterprises, remains a high-risk and arduous process.
It is important to note that although India’s overall ranking on the EODB index has risen from 100 in 2017 to #77 in 2019, on the parameter of starting a business, it is ranked #156, #154 on registering property and #164 on enforceability of contracts. Moreover these rankings pertain to Mumbai, the country’s commercial capital which has developed a modicum of business culture. One shudders to assess ease of starting a business in other state capitals and particularly in tier II-III towns and cities, where the rule of law is paper thin and corruption of the neta-babu brotherhood unchecked and rife.
The fatal flaw of post-independence India’s industry and business regulation system is that prior permission is required at every stage before starting a new business. The objective of this system is to prevent anti-social outcomes. Moreover, licences and permissions have to be secured sequentially rather than parallely. The oft-debated single window licence clearance system has not become standard operating procedure in the Central and state governments.
Even though the BJP, the prime mover of the incumbent government at the Centre and in several states of the Indian Union, isn’t burdened with the self-serving, discredited socialist legacy of the Congress party, there’s little to distinguish their economic policies. Union finance minister Nirmala Sitharaman has a great opportunity to present an economy liberalisation and deregulation budget which will release the blocked energies of a nation of natural entrepreneurs. She shouldn’t miss it.