Uneven Reforms: Common Man Left Out?

The hype in the media, a rising bull runand the industrial scenario may not reflect the true picture of the economy. While the need for certain reforms in some sectors can’t be doubted, the big question is how to check inequality, which has risen specially during and after the Covid pandemic. Reforms undertaken are unfortunately formulated keeping in view upper echelons of society and middle income sections, while low income groups barely benefit.

On the one hand, number of billionaires in the country rose from 102 to 140, on the other 75 million retreated into poverty, accounting for 60% of the global increase in poverty, as per PewResearch. The net result of easy money regime has been that the rich have seen their wealth grow via higher asset prices even as the poor have seen a decline in their real incomes due to inflation.

Also in recent months, high-end cars have recorded the highest sales though millions are suffering due to poor health facilities. Besides, even as the stock market is booming, the daily earnings of 230 million people, as per a study by Azim Premji University, slipped below the national minimum wage threshold of Rs 320, other than spurt in unemployment rate to 23.5% at the peak of lockdown.

Statistics in the five months from April-August in the current fiscal reveal that when the economy was apparently roaring its way to recovery, 64 million families had at least one family member toil all day to earn a paltry Rs 200 or even less under MGNREGA programme. There is no economic recovery or otherwise for these millions of families. If this trend continues more people will be dependent on MGNREGA for their incomes this year than in the three months prior to Covid-19 combined, the highest in the programme’s history.

Though stock markets are booming to all-time high, due to big corporates amassing wealth through various means, it’s distressing that a record number of Indians are pleading penury. It’s thus futile to attribute foreign flows or stock market indicators as good sign of the economy. Latest CSO data shows manufacturing activity in June 2021 was at the same level as four years ago in 2017, construction activity as in 2016 and trade and transport services activity as in six years ago in 2015 (at constant prices). Thus, real economic activities that provide jobs, income and livelihood are missing and it’s no surprise that millions are pleading for work under MGNREGA.

The other word for reforms is privatisation which, no doubt, increases efficiency but at the cost of labour reduction. There are only few examples where private sector has brought in latest technology to modernise the unit and achieve economies of scale and higher productivity. Given high unemployment, there is need for introspection on how to utilise abundant labour force in next two years.

The proposals the government is adopting is to privatise some central public sector organisations. To start with, a sizeable portion of equity is being sold to the private sector. However, the latter must be involved in the modernisation process to ensure efficiency and rise in productivity and government must seek commitment during disinvestment process. Likewise, privatisation of banks too must be done on same lines.

Regarding LIC, West Bengal’s Finance Minister Dr Amit Mitra, wrote to his counterpart at the CentreNirmala Sitharaman, urging a rethink on the plan to privatise public sector insurance companies, including the LIC. He underscored that the LIC’s volume of investments in the Indian economy stood at a “staggering Rs 36.76 lakh crore (in FY 2020-21) of which Rs 23.75 lakh crore is in government securities”. He warned: “Privatising LIC would lead to opening a Pandora’s box, throwing into insecurity 30 crore (300 million) policyholders”.

On the banking sector, the Insolvency& Bankruptcy Code(IBC) has at long last genuinely empowered creditors and begun to yield speedy resolution of large, complex cases of bankruptcy. Some poorly-run public sector banks remain a weak line in the process, resulting in low recoveries in many instances. Not more than one PSU bank should be privatised and before going for further privatisation, its performance needs to be monitored and decisions taken accordingly.

There is also need for simplification, rationalisation and an end to exemption raj applied to corporate profit tax system,which must be extended to personal income taxation. The focus should not be to extract maximum revenue from those who pay and let evaders get away. A broad base and moderate tax system should be the government’s aim and perhaps the super- richshould have been asked to pay something extra for the pandemic or development of health infrastructure through imposition of cess.

Former Finance Commission ChairmanN K Singhrecently noted: “If you go on raising exemption limit, as a populist measure, it results in people coming into the tax net but without any purpose. If 5.5 crore returns are filed, 40.5% have no taxes and it’s 6.3% who bear the burden of 79% of taxes”.

The most critical aspect of reforms is creation of demand in the economy. A Parliamentary panel on industry suggested the government put in place measures to generate demand and help improve the ‘grim situation’ of small enterprises due to the pandemic. It noted: “…the measures adopted were more of loan offering and long-term measures, instead of improving the cash flow to generate demand as immediate relief. In the process of economic recovery post first wave of the pandemic, the second wave even more vigorously ripped the economy, particularly the MSME sector. The committee, has therefore, recommended the government should immediately come out with a larger economic package aimed at bolstering demand, investment, exports and employment generation to help the economy, including MSMEs, to recover from the pandemic fall-out”.

Aspects of reform in sectors such as prisons, judiciary are not taken cognizance of and only labour reforms are focused as modern trend of Indian business is to bring down workers’ costs. The ‘inhuman’ conditions of prisons are not considered as broad parameters of reforms or the  need to expand judiciary so that expeditious disposal of cases help the common man. Why is there no talk of expanding secondary schools in rural areas, which can not only impart education to backward communities but also generate employment? There should be at least one quality school in every sub-division with specialised teachers, modern facilities and library and labs.

All focus on GDP growth is rather erroneous. Though the RBI expects the economy to grow at 9.5% in the current fiscal, even achieving 9% may not look very attractive as it would just compensate the loss suffered in 2020-21. Moreover, GDP growth can’t be considered a benchmark of improving incomes and quality of life of the masses. Good governance with effective decentralised operations can only ensure needs and aspirations of the common man. The onus is on Modi government to usher in reforms that meet common man’s aspirations, and before 2024 elections.


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Dhurjati Mukherjee

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