Reforms by Conviction and Incentives

Published By : Admin | June 22, 2021 | 14:46 IST
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The Covid-19 pandemic has come with whole new set of challenges to Governments across the world in terms of policy-making. India is no exception. Raising enough resources for public welfare while ensuring sustainability is proving to be one of the biggest challenges.

In this back-drop of financial crunch seen across the world, do you know that Indian states were able to borrow significantly more in 2020-21? It would perhaps pleasantly surprise you that states were able to raise an extra Rs 1.06 lakh crores in 2020-21. This significant increase in availability of resources was made possible by an approach of Centre-State bhagidari. 

When we formulated our economic response to the Covid-19 pandemic, we wanted to ensure that our solutions do not follow a ‘one size fits all’ model. For a federal country of continental dimensions, finding policy instruments at the national level to promote reforms by State Governments is indeed challenging. But, we had faith in the robustness of our federal polity and we moved ahead in the spirit of Centre-State bhagidari. 

In May 2020, as part of the Aatmanirbhar Bharat package, the Government of India announced that State Governments would be allowed enhanced borrowing for 2020-21. An extra 2% of GSDP was allowed, of which 1% was made conditional on the implementation of certain economic reforms. This nudge for reform is rare in Indian public finance. This was a nudge, incentivising the states to adopt progressive policies to avail additional funds. The results of this exercise are not only encouraging but also run contrary to the notion that there are limited takers for sound economic policies.

The four reforms to which additional borrowings were linked (with 0.25% of GDP tied to each one) had two characteristics. Firstly, each of the reforms was linked to improving the Ease of Living to the public and particularly the poor, the vulnerable, and the middle class. Secondly, they also promoted fiscal sustainability.

The first reform under the ‘One Nation One Ration Card’ policy required State Governments to ensure that all ration cards in the State under the National Food Security Act (NFSA) were seeded with the Aadhaar number of all family members and that all Fair Price Shops had Electronic Point of Sale devices. The main benefit from this is that migrant workers can draw their food ration from anywhere in the country. Apart from these benefits to citizens, there is the financial benefit from the elimination of bogus cards & duplicate members. 17 states completed this reform and were granted additional borrowings amounting to Rs. 37,600 crores. 

The second reform, aimed at improving ease of doing business, required states to ensure that renewal of business-related licences under 7 Acts is made automatic, online and non-discretionary on mere payment of fees. Another requirement was implementation of a computerized random inspection system and prior notice of inspection to reduce harassment and corruption under a further 12 Acts. This reform (covering 19 laws) is of particular help to micro and small enterprises, who suffer the most from the burden of the ‘inspector raj'. It also promotes an improved investment climate, greater investment and faster growth. 20 states completed this reform and were allowed additional borrowing of Rs. 39,521 crores. 

The 15th Finance Commission and several academics have emphasised the crucial importance of sound property taxation. The third reform required states to notify floor rates of property tax and of water & sewerage charges, in consonance with stamp duty guideline values for property transactions and current costs respectively, in urban areas. This would enable better quality of services to the urban poor and middle class, support better infrastructure and stimulate growth. Property tax is also progressive in its incidence and thus the poor in urban areas would benefit the most. This reform also benefits municipal staff who often face delay in payment of wages. 11 states completed these reforms and were granted additional borrowing of Rs. 15,957 crores. 

The fourth reform was introduction of Direct Benefit Transfer (DBT) in lieu of free electricity supply to farmers. The requirement was for formulation of a state-wide scheme with actual implementation in one district on a pilot basis by year end. Additional borrowing of 0.15% of GSDP was linked to this. A component was also provided for reduction in technical & commercial losses and another for reducing the gap between revenues and costs (0.05% of GSDP for each). This improves the finances of distribution companies, promotes conservation of water and energy and improves service quality through better financial and technical performance. 13 states implemented at least one component, while 6 states implemented the DBT component. As a result, Rs. 13,201 crore of additional borrowings was permitted. 

Overall, 23 states availed of additional borrowings of Rs. 1.06 lakh crores out of a potential of Rs. 2.14 lakh crores. As a result, the aggregate borrowing permission granted to states for 2020-21 (conditional and unconditional) was 4.5% of the initially estimated GSDP. 

For a large nation with complex challenges as ours, this was a unique experience. We have often seen that for various reasons, schemes and reforms remain un-operational often for years. This was a pleasant departure from the past where the Centre & States came together to roll out public friendly reforms in a short span of time amidst the pandemic. This was made possible due to our approach of Sabka Saath, Sabka Vikas and Sabka Vishwas. Officials who have been working on these reforms suggest that without this incentive of additional funds, enactment of these policies would have taken years. India has seen a model of ‘reforms by stealth and compulsion’. This is a new model of ‘reforms by conviction and incentives’. I am thankful to all the states who took the lead in ushering in these policies amidst tough times for the betterment of their citizens. We shall continue working together for the rapid progress of 130 crore Indians.

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India’s G-20 Presidency
December 01, 2022
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Today, India commences its G20 Presidency.

The previous 17 Presidencies of the G20 delivered significant results - for ensuring macro-economic stability, rationalising international taxation, relieving debt-burden on countries, among many other outcomes. We will benefit from these achievements, and build further upon them.


However, as India assumes this important mantle, I ask myself - can the G20 go further still? Can we catalyse a fundamental mindset shift, to benefit humanity as a whole?

I believe we can.

Our mindsets are shaped by our circumstances. Through all of history, humanity lived in scarcity. We fought for limited resources, because our survival depended on denying them to others. Confrontation and competition - between ideas, ideologies and identities - became the norm.

Unfortunately, we remain trapped in the same zero-sum mindset even today. We see it when countries fight over territory or resources. We see it when supplies of essential goods are weaponised. We see it when vaccines are hoarded by a few, even as billions remain vulnerable.

Some may argue that confrontation and greed are just human nature. I disagree. If humans were inherently selfish, what would explain the lasting appeal of so many spiritual traditions that advocate the fundamental one-ness of us all?

One such tradition, popular in India, sees all living beings, and even inanimate things, as composed of the same five basic elements – the panch tatva of earth, water, fire, air and space. Harmony among these elements - within us and between us - is essential for our physical, social and environmental well-being.


India's G20 Presidency will work to promote this universal sense of one-ness. Hence our theme - 'One Earth, One Family, One Future'.


This is not just a slogan. It takes into account recent changes in human circumstances, which we have collectively failed to appreciate.


Today, we have the means to produce enough to meet the basic needs of all people in the world.


Today, we do not need to fight for our survival - our era need not be one of war. Indeed, it must not be one!

 


Today, the greatest challenges we face - climate change, terrorism, and pandemics - can be solved not by fighting each other, but only by acting together.

Fortunately, today's technology also gives us the means to address problems on a humanity-wide scale. The massive virtual worlds that we inhabit today demonstrate the scalability of digital technologies.


Housing one-sixth of humanity, and with its immense diversity of languages, religions, customs and beliefs, India is a microcosm of the world.


With the oldest-known traditions of collective decision-making, India contributes to the foundational DNA of democracy. As the mother of democracy, India's national consensus is forged not by diktat, but by blending millions of free voices into one harmonious melody.

Today, India is the fastest growing large economy. Our citizen-centric governance model takes care of even our most marginalised citizens, while nurturing the creative genius of our talented youth.


We have tried to make national development not an exercise in top-down governance, but rather a citizen-led 'people's movement'.


We have leveraged technology to create digital public goods that are open, inclusive and inter-operable. These have delivered revolutionary progress in fields as varied as social protection, financial inclusion, and electronic payments.

For all these reasons, India's experiences can provide insights for possible global solutions.

During our G20 Presidency, we shall present India's experiences, learnings and models as possible templates for others, particularly the developing world.

Our G20 priorities will be shaped in consultation with not just our G20 partners, but also our fellow-travellers in the global South, whose voice often goes unheard.


Our priorities will focus on healing our 'One Earth', creating harmony within our 'One Family' and giving hope for our 'One Future'.

For healing our planet, we will encourage sustainable and environment-friendly lifestyles, based on India's tradition of trusteeship towards nature.

For promoting harmony within the human family, we will seek to depoliticise the global supply of food, fertilizers and medical products, so that geo-political tensions do not lead to humanitarian crises. As in our own families, those whose needs are the greatest must always be our first concern.

For imbuing hope in our future generations, we will encourage an honest conversation among the most powerful countries - on mitigating risks posed by weapons of mass destruction and enhancing global security.

 


India’s G20 agenda will be inclusive, ambitious, action-oriented, and decisive.

 


Let us join together to make India's G20 Presidency a Presidency of healing, harmony and hope.

Let us work together to shape a new paradigm - of human-centric globalisation.