A huge investment is required to improve infrastructure facilities in India

I.  Findings

1.         Reforms have already been undertaken in many sectors/areas and have benefited the economy in a big way.  The benefits that have accrued in the civil aviation, telecommunications and the industrial sector are notable. Prices of many electronic items like colour TVs, fridges, digital cameras, mobile phones, DVD players etc have either remained the same or fallen drastically. The price of computers has crashed from Rs. 1 lakh in the 1980s to Rs.10000 today, while the quality has unimaginably improved. Airfares and telecom rates have nose-dived due to cutthroat competition. Liberalization in the area of radio and T.V. broadcasting has led to coming up of several private channels. Productivity has gone up in leaps and bounds with the infusion of global technology and management techniques. Financial liberalization has brought down interest rates and easy availability of consumer finance. Many new job opportunities have been created in India due to outsourcing of many jobs to India by foreign countries.  Inflation has either come down or remained modest, even though international oil prices have been spiraling during the last few years, due to competition and rise in productivity. Even though there has been wide spread increase in prices of raw materials during the last 2 to 3 years, yet it has not produced a big burst of global inflation. Consumer has become the king in the liberalized era.

2.         The increase in Index of overall employment in the country as a whole during 1991-2001 has been much higher than the increases during the decades 1971-81 and 1981-91.  The same trend is observed with regard to urban employment and rural employment in the country as a whole.  This clearly shows that the economic reforms did not lead to “jobless growth”.

3.         The overall participation ratio as well as the urban and rural participation ratios, in the country as a whole, has been continuously increasing since 1971.  This once again proves the fallacy of the argument that economic reforms led to “jobless growth”.

4.         The scenario with regard to states depict that almost all the states experienced positive impact of reforms on overall employment.  The same     is observed with regard to urban employment and rural employment in various states.  Some of the smaller states have gained relatively more than the bigger states.

5.         Majority of the states and union territories registered increases in their overall as well as urban and rural participation ratios during 1991-2001, thereby disproving the claim of ‘jobless growth’ by opponents of economic reforms.

6.            Among the 143 selected towns, the Index of workers increased during 1991-2001 in all the towns except one (Thoothukkudi in Tamil Nadu).  Out of the 143 selected towns, the increase in Index of workers during 1991-2001 has been more than the increase during 1981-1991 in 108 towns, i.e. in about 75% of the 143 towns.  Since there has been higher increase in Index of workers during 1991-2001 in 75% of the towns and there has been increase in Index of workers in all the selected towns, except one, during 1991-2001, it can be safely concluded that there was positive impact on employment in urban areas of the country.

7.            The analysis of trends in participation ratios in the 143 selected towns indicates that the participation ratio increased during 1991-2001 in 124 towns, that is in about 87% of the 143 selected towns. In three towns, the ratio remained almost the same.   In case of the remaining 16 towns, where the participation ratio declined, the reason could be attributed to migration to other towns because of availability of better employment opportunities. The number of towns having participation ratio between 30 and 40 per cent increased from 27 in 1971 to 40 in 1981, 52 in 1991 and then made a big jump to 80 in 2001.   This once again shows that almost all the towns gained due to economic reforms, as far as employment is concerned.

 Recommendations

There is a feeling among many sections of the society that economic reforms help only the rich and not the poor.  The reality is actually the opposite. Reforms lead to competition, which in turn results in good quality of goods and services being made available at cheaper prices.  Protectionism protects the domestic producers at the cost of consumers.  In a democracy, it is the consumer who needs to be protected and not the producer.  When the domestic producers face global competition, they will be pressurized into producing good quality of         goods at lower prices.  India has been overactive in the field of industry for very long and, therefore, the opening up of the economy was a step in the right direction.

Economic reforms that have already been undertaken in some of the areas/ sectors like civic aviation, communications, power, industry, fiscal policy, etc. have pushed up growth and employment.  The reform process needs to be vigorously pursued and accelerated to take India into immeasurable heights in prosperity and put India in a highly respectable place in the hierarchy of developed nations. An economy performs at its peak efficiency and sustains it, if a competitive environment is created and sustained.  This calls were more vigorous reforms. The following recommendations are made in this connection.

1.  Free flow of Foreign Investment

            A huge investment is required to improve infrastructure facilities in India. The existing infrastructure facilities are neither adequate in quantity nor satisfactory in quality. The central and state governments are already facing severe financial crunch and cannot be expected to spend huge funds to provide infrastructure facilities in adequate quantity and quality of international standards. In fact, there are some states where the payment of monthly salaries to government teachers and doctors get delayed due to paucity of funds. Under such circumstances, opposing foreign investments does not seem to be justified. Foreign investments need to be welcomed in as many sectors as possible. Foreign investment brings better technology, helps in human capital formation, increases exports, and improves the productivity and efficiency of resource use. In fact, there should be free flow of foreign investment in all the areas to create competitive markets and improve efficiency.

Foreign investment in coal mining, insurance and retail trade need to be increased / allowed. Housing is a sector which requires huge investment and therefore, foreign investment definitely needed to be encouraged in a big way in this sector to eliminate housing shortage in India. Recently, the government has opened the construction sector to 100% FDI.  This will not only go a long way in speedier development of housing and commercial premises such as shopping malls, hotels, resorts, hospitals, educational institutions, recreational facilities and urban infrastructure, but the quality of real estate will also improve.

2.  Privatization of Power Sector

            The power sector needs to be completely privatized and greater competition has to be encouraged so that power becomes easily available in plenty to all and that too at cheaper rates.  Power is the basic input for all industries, and therefore industrial production will increase by leaps and bounds, if power becomes cheaper and its continuous availability both in terms of quality and quantity can be ensured. If domestic power becomes very cheap, even a common man will be able to install an air-conditioner in his house during summer and use heat convectors and geysers during winter. This will give a big boost to industries manufacturing such items. All obstacles that come in the way of private participation in generation, transmission and distribution of electricity have to be eliminated.

            Privatisation of power will help in eliminating theft and misuse of power. In Delhi, it was observed by the New Delhi Municipal Council (NDMC) in some of the slums located in its area, that slum dwellers who steal electricity not only use it for running electrical appliances like TV, fridge etc, but also for small scale industries. In fact, the agency has estimated that it is losing Rs.2 crore every month due to such pilferage. It seems stealing of electricity is also being done by affluent people and industries on a large scale. In many states, theft of electricity is as high as 50%. It has to be noted that theft of power not only results in loss of revenue to the supplying agency but also results in frequent power failures due to overloading, thereby causing inconvenience to the genuine consumers. Sometimes, the transformers get burnt because of overloading, forcing the supplying agency to resort to load shedding. Stealing of electricity can also cause grid failure resulting in a major break down of power over large areas.  Further, theft of power results in higher tariff for electricity, thereby putting the burden on honest consumers.

3.  Discontinuance of Free Power Supply

            Electricity is not like rain that drops from the heavens free of charge. Substantial costs are involved in producing, transmitting and distributing electricity.  Giving free power to farmers means less money with the state government.  That translates into fewer schools, medicines, roads and jobs. Free power is a cancer that spreads and has many other ill effects. It results in over consumption of power. Since power is free but intermittent, farmers do not bother to switch off their pump sets. Further, since power is free, many farmers who have obsolete, power-intensive pump sets; do not bother to replace them with energy efficient ones. Free power encourages farmers to grow water-intensive crops, like rice, sugarcane, even in low-rainfall areas, as they can draw any amount of ground water without paying penny, The over-pumping of ground water ultimately results in falling of water table. When the water table falls below 30 to 40 feet, it will not be possible to draw water by using centrifugal pumps, which are used by small and marginal farmers, and one has to use costly submersible pumps, used by rich farmers, to lift ground water. Free power also deprives the poor of drinking water and small farmers of irrigation. When the water table falls because of over-pumping, no water is left in shallow dry wells supplying drinking water and small-scale irrigation for small farms. In coastal areas, excessive use of ground water for irrigation leads to drying up of aquifers and infiltration of seawater in coastal area resulting in permanent ruining of aquifers. Hence, free power is not free. It is paid by depriving people of drinking water, and by rendering useless the centrifugal pumps of small farmers. It is paid for by the poor, the illiterate and the sick.  It is paid for by environmental destruction.         

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4.  Reducing Import Duties

                There is a general feeling that exports are a good thing and imports are a bad thing. In fact, this is not true, as a country exports what it has surplus of, and imports what it does not have. Hence, exports are more valuable than imports only because they provide the purchasing power to finance imports.  If a nation does not require to import anything, then there is no point in exporting also. However, in reality, such a situation does not exist.

                Since, it will not be possible to do away with imports, import duties should be kept to the minimum to benefit domestic consumers.  A point that is put forward frequently against reducing import duties is that it will bankrupt domestic producers and will render their employees jobless.  This may be true, but it has to be noted that the beneficiaries will vastly exceed the losers, and the gains will exceed the losses.  Further, the only way to keep improving productivity and living standards is to keep shifting investment and labour from less productive to more productive activities.  This may cause some displacement of labour.  However, the gains           accruing from an import duty cut to consumers will be so large that it can easily finance a safety net for the displaced, as such a safety net will cost only a small portion of the benefit. Import duties should not be more than 10% to eliminate smuggling and to force the domestic industries to compete with foreign companies and produce goods with high quality.

    5.  Reducing Subsidies

            Financial condition of state governments as well as the central government has to be very sound if they are required to play the role  effectively as facilitator, regulator, and watch-dog. This calls for giving up “populist measures” whatever their form may be. .  Reducing revenue expenditure,  subsidies, having proper user charges are the need of the day.   Subsidies should be brought down drastically by following a target-oriented approach (poor). Subsidies for crop support prices, fertilizers, irrigation and power to farmers be reduced so that funds can be released for public investment in rural infrastructure including irrigation, roads, agricultural extension and research. When government continues giving subsidies over a long period, it gives rise to having a feeling among people that they have a right to such subsidies and therefore, governments find it very difficult to withdraw them for political reasons. However, political will should not come in the way of reducing / withdrawing subsidies, keeping in view the need to achieve fiscal discipline so that governments can fulfill its responsibility in a better way in social sectors such as education and health. Subsidies not only result in shortage of funds with the government, but also lead to many ills  including environmental  hazards. The pricing policy of public agencies with regard to the services being provided by them should be cost-based and the user charges should be such that they cover the cost of services and their maintenance.                      

            It is not necessary that subsidies always help the poor. In fact, in case of certain susidies, the rich benefits more and the poorest may not benefit at all . A World Bank analysis of power subsidies in Andhra Pradesh showed that large farmers get an implicit subsidy of over Rs. 50,000/- per year, small farmers got around Rs. 8,000/- a year, and landless laborers got nothing at all.

6.  Service Tax

There is no doubt that the services sector has been growing rapidly over the past few years and the introduction of service tax to bring this sector under the tax net was a step in the right direction. Today, the services sector accounts for the largest share (52%) in country’s GDP. However, its contribution to the government/s exchequer has been far from commensurate. In 2003-04, revenue from service tax constituted only 3% of the union tax revenue and was expected to increase to 5% in 2004-05. The revenue from service tax can be increased if more and more services can be brought under the tax net. It has to be noted here that there can be large scale tax evasion as far as service tax is concerned, because services are intangible and are provided by large groups of organized as well as unorganized service providers including retailers who are scattered across the country. It may be easier to widen the scope but tax-evasion may increase further. It is felt that the rate of service tax can be brought down to reduce tax-evasion and also to give relief to the consumers, as the present rate of 10.2 % (as in 2005), seems to be on the much higher side.    

7.  Administrative Reforms

            Economic reforms are underway, but to make them fully successful, they need to be accompanied by drastic administrative reforms. It is said that if one buys a Mercedez, or plan a big wedding in Mumbai, the mafia will knock at the door demanding protection money.   One cannot get a completion certificate for his house without greasing the palms of the concerned officials in the local bodies/development authorities. A survey has revealed that four – fifths of the population is unaware of any economic reform at all.  This is because the face of the government seen by the ordinary villager is that of the patwari, the police “thana”, the SEB linesman, and this bunch of public servants remains totally unreformed. 

            The legal system, police system and the bureaucracy need to be completely overhauled.  A legal system that delivers verdicts within one or two years, that stops endless appeals and actually delivers justice, needs to be in place.  Criminals evade the law by using muscle power and/or political interference.  What is needed is an independent criminal investigation branch in every state with autonomy akin to that of the Election Commission, which can prosecute crooked politicians, bureaucrats and businessmen with impunity.

8.  Privatization

            A private company definitely performs better because of better management, supervision, non-political interference, adoption of latest technology, highly qualified, skilled and dedicated personnel, etc. The production and productivity in BALCO, which was a leading aluminium industry in the public sector, has gone up very high after privatization. There are today many public sector companies, which are sick, and these need to be privatized immediately. Even profit-making enterprises can be privatized to push up efficiency and thereby the growth of the economy.

            Government can raise huge revenues by privatizing public enterprises and the proceeds can be used to provide better services in social sectors, The loss-making public enterprises add to the tax burden of people and such units exist on budgetary support. Sometimes, privatization can help the government to increase infrastructure in the same area. For example, India needs about 500 airports today, but has only 80 at present. By privatizing bigger airports, the government can earn huge revenue, which can be used to develop new airports and improve the existing small airports. 

            In order to accelerate growth, it is indispensable to raise investment in a big way and this is attainable only through a massive private participation in all the sectors.  Over time, public sector should slowly vacate from all physical infrastructure and other commercial sectors and enter in a large scale into investment in human infrastructure.  Infrastructure plays a critical role in the growth of the country be it the agricultural, manufacturing or service sectors.  A greater degree of private participation in infrastructure should be ensured after creating a better regulatory environment.  This will help in increasing efficiency, investment, levying proper user charges, eliminate political interference and budgetary constraints.  Private projects in poorer and commercially unviable areas as well as in roads, sanitation and waste management where financing by user charges would not be feasible, could be publicly subsidized, with a procedure for minimum subsidy bidding to choose the service provider.

9.   Private Sector Participation in Drinking Water Supply

            Today, private sector is participating in the drinking water sector in terms of producing “packaged drinking water”. But, only the rich can afford to purchase “packaged drinking water” which costs between Rs. 10-15 a litre.  What is required is to invite private sector to participate in big water supply schemes to supply water to the people at reasonable price.  The private sector can play a big role in setting up big desalination plants in coastal areas where there is scarcity of drinking water.  The city of Chennai is a classic example in this case.  Water is a basic need of human being and no time should be lost in ensuring supply of drinking water is abundance and in good quality.  This can be possible if proper incentives are given to the private sector to enable them to come forward in a big way.

10.  Private Sector in Road Construction and Maintenance

            Good and broad roads everywhere go a long way in achieving balanced regional development because they facilitate easy accessibility to all settlements.  Unfortunately, roads require huge investment and therefore even after more than 50 years of independence, many of the urban and rural settlements do not have proper roads. The scope for involving the private sector in constructing and maintaining not only Highways but also urban and rural roads needs to be explored. 

11.  Reducing Fiscal Deficit

            The fiscal deficits in the Centre and States are very high.  The Fiscal Responsibility and Budget Management Act mandates the elimination of the revenue deficit by 2008-09.  The Act should be vigorously implemented to bring about fiscal consolidation so that funds can be found for public and private investments.  This calls for a drastic reduction in non-plan expenditure.  Downsizing of staff is already underway and this is a positive step.  However, while downsizing all those offices which are not engaged in “productive work” should be identified and such offices should either be closed down or the strength of personnel in these offices should be brought down to the minimum.  In fact, the government should encourage only “productive employment”.

12.  Economic Reforms will Eliminate Corruption

With government controls existing in almost every area of economic activity, corruption cannot be got rid of, without privatization and globalization.  As economic reforms progress further, the government’s role will come down in many areas. This will go a long way in eliminating corruption and freeing people from harassment, which may exist at various levels.  Hence, reforms need to be given greater push.

13.  Good Governance

The business of the government should not be to do business but to do the business of governing business. The only business of government should be “good governance”. Good governance can be easily ensured, if government concentrates only in a few areas and employ people of proven integrity with high efficiency in those areas, to manage the affairs.    Such areas can be education, health, defence, police, social security etc.

14.  Telecommunications

             The reforms carried out   in the telecom sector so   far, has enabled the country to achieve runaway success in this sector.  However,lot needs to be done to catch up with the rest  of the world.  More players should be allowed in this sector to increase competition and bring down prices further.  The broadband connectivity has to be expanded to cover the whole country and the price of broadband connectivity should be brought down. This will go a long way in spreading e-governance everywhere and providing many of the services to the consumers at their doorsteps.

15.  Labour Reforms

            In the present era of globalization, India cannot compete in the World market, if reforms are not carried out in the labour market. For example, in the textile sector, exporters are often forced to reject large-quantity supply orders because they are in no position to raise the strength of their work force.  These much-million-dollar orders then find their way to other competing countries, besides raising questions over India’s reliability as a source in the global supply chain.

            Labour laws have to be rationalized to increase labour mobility and establish a relation between productivity and remuneration. A large number of labour in informal sector is paid below the minimum wage provided in the Minimum Wages Act.  The Act is rarely implemented in most cases, whereas in the organized sector, through collective bargaining, the majority of the labour force gets remuneration above their productivity as there is no systematic mechanism to relate productivity to remuneration.  The labour laws need to be amended to take care of this.  However, this may lead to large retrenchment of labour force. In order to ensure that retrenched labour is not put into hardship, retrenchment schemes should have proper “safety net”.  Government should develop training programme and facilities for self-employment.

        Sometimes, changes in the labour laws arise out of demands being made by labour. For example, in Tiruppur (Tamil Nadu), women workers are demanding a minimum 12–hour work-a –day to raise their earnings.  Changes in labour laws are necessary to enable industries to “modernize”. Reforms in the labour market need to be done at the earliest to eliminate cumbersome entry-exit barriers and create a favourable environment for higher investment in the industrial sectors.    

16.  Removing Regional Imbalances

            There is no doubt that at the national level, both urban and rural areas have been greatly benefited due to reforms. Almost all the states have also gained. However, there are wide inter-state and inter-city variations. The reasons are imminent. A large chunk of foreign and domestic investments have gone into those areas which have big markets, qualified and skilled manpower, better infrastructure facilities, better law and order situation etc. The backward areas have been bypassed.  U.P and Bihar have not been able to attract much foreign investment because of poor state of physical infrastructure in these states.

        The states, which have poor infrastructure facilities, have to give top priority to improve the situation, if they want to attract foreign and domestic investments. Further, such states have to evolve incentive schemes to attract investment. Last, but not the least, law and order should also be given due attention, as only such states which are free from law and order problems and can maintain public order, will be found as a favourite destination for investors. There are some states where the law and order situation is far from satisfactory and if these states continue to be so, they will lose out in the race in attracting investment and will lag far behind in development. These states should wake up before it is too late.

17.  Stricter Laws for Checking Evasion of Tax

In a country with a population of more than one billion, only a few thousands are showing their income as Rs.10 lakhs and above.  This is totally unrealistic, more so where there is an open, blatant and vulgar display of luxury.  For the assessment year 1999-2000, the total number of people (individual status) filing income tax returns was only 1.42 crore ( Source : Central Statistical Organisation : “Statistical Abstract, India, 2003”), which works to only about 1.4% of country’s population of 102.86 crore as per the 2001 Census. The total tax payable by these individual assessees was only Rs.10376.73 crore. Tax exemptions are misused by unscrupulous elements.  Some of the private hospitals and nursing homes, which earn crores of rupees, misuse the exemptions provided for research.  Similarly, many charitable trusts, which are exempt from income tax, misuse the provision to their advantage.  Filing of income tax returns should be made mandatory even for such institutions, which enjoy income tax exemptions. Punishment for tax evasion has to be made more stringent. Raids by income tax department should be made periodic to unearth black money and detect tax evaders.

18.  Reduction in Stamp Duty

            In order to encourage housing activity as well as to make transfer of properties without undervaluing them, it would be desirable to keep the Stamp Duty as low as possible. It is desirable to keep the maximum rate of Stamp Duty at 5%.  Lower rate of Stamp Duty would help to eliminate transfer of properties on ‘Power of Attorney’, which is widely prevalent in Delhi.

19.  Reduction in Income Tax Rates

            Tax rates, both direct and indirect, should be such that citizens willingly and gladly come forward to pay taxes without any resentment. This can be easily achieved if tax rates are kept at low levels so that citizens will not consider’ taxes’ as a burden, but as an instrument of government to raise revenues to provide better service to its citizens. 

            Though Income Tax rates have been brought down over the past few years, yet it has not given the required relief to the common man. The maximum rate of Income Tax should not be more than 20% and the following income slabs can be followed. There should be no exemption of any kind, as such exemptions only complicate matter.

                                    Upto Rs. 2 lakhs                   Nil                                  

                                    Rs. 2 – 5 lakhs                      5%

                                    Rs. 5 – 10 lakhs                   10%

                                    Rs. 10 lakhs & above          20%

            The Income Tax rates can be fixed as shown above, but the “Income Slabs’ should be revised every year depending upon the inflation rate.

20.  Expenditure Tax in lieu of Income Tax

The possibility of introducing Expenditure Tax in lieu of Income Tax needs to be explored.  This tax can be in the form of tax on withdrawals/ payments made through cheques / withdrawal forms / mail transfers etc..  It seems the government can earn much more revenue than what it is earning through direct taxes (Corporate Income Tax + Personal Income Tax) at present. Further, since the tax will be on withdrawals/payments made through cheques/withdrawal forms etc., the tax cannot be evaded.  In addition, the tax gets collected instantly.  Fourthly, the cost that is incurred for collecting direct taxes can be drastically brought down.

As per the “Statistical Abstract-India-2003” published by the Central Statistical Organisation, the total amount of cheques cleared by the clearinghouses throughout India was about Rs.135 lakh crores during 2002-03(provisional). This amount excludes the cheques cleared by banks themselves and payments made through mail-transfers.  Even if just 5% (as against a minimum of 10% Income Tax prevailing at present) is levied on the amount mentioned above, the government can earn about Rs.6.75 lakh crores, which is more than eight times the revenue of 0.83 lakh crores earned during 2002-03(actuals) on account of direct taxes (Source: “Economic Survey-2004-05”, Ministry of Finance, Government of India). Of course, the amount of cheques cleared by clearing houses includes government cheques also and hence the expected revenue from Expenditure Tax may be working out very high.  However, the possibility of introducing Expenditure Tax in place of Income Tax needs to be examined.

The household statistics released by the Census of India 2001 indicate that about 7 crore households avail banking services in India. However, with the spread of banking facilities and ATM centers, it should not be difficult to increase this figure to at least 10 crore households.  If the average withdrawal of a household in a year is taken as Rs. 1 lakh and if 5 % tax is levied on this withdrawal, the government can easily earn a revenue of Rs. 50000 crore annually on account of Expenditure Tax, which is almost equivalent to the estimated revenue of Rs. 50929 crore for 2004-05 on account of personal income tax (Source: “Economic Survey-2004-05”, Ministry of Finance).  It has to be noted here that no big administrative machinery is required to collect Expenditure Tax, as it gets automatically collected, and hence the expenditure on collecting the tax will be negligible.

21.  Property Tax

            The basis of assessment of property tax should be such that it is easy to calculate and does not give any scope for the tax inspector to harass the property owners. All the states and union territories should emulate the model of Delhi to free the property owners from the clutches of property tax inspectors. In Delhi, the property tax is now assessed on the basis of the ‘plinth area’ following the unit area approach, and not on the rental / ratable value of the property. This has helped in eliminating corruption while assessing property tax. Now, the property owners themselves calculate the tax payable, as the method is very simple now. The era of harassment of property owners by tax inspectors is over in Delhi.

22.  Levying New Taxes / Fees

            There is a need to identify new taxes/ fees/ charges that will not cause any resentment among the people. In this connection, the following suggestions are made.

a.    A minimum of Rs.5 can be charged for each Railway Reservation Form. This will not only bring additional revenue for the Railways, but also check wastage of forms.

b.    A small fee can be levied annually on each of the vehicles in urban areas as “ Urban Space Occupation Fee’, as vehicles occupy a large space in urban areas. Land is very “costly’ in urban areas, especially in metropolitan cities.

23.  Identifying New Revenue Earning Areas

            At present, there are thousands of Cable Operators who are providing “Cable T.V.” service, but not much revenue is accruing to the government from this sector. The Central Government can completely take over “ Cable T.V.” and beam all channels through its own “DTH” system and recover charges from the consumers by levying an appropriate monthly fee.

24.  Converting   India into a Common Market - Goods & Services Tax

            Anyone who sells a product across Indian lives through the nightmare                       of state sales tax, central sales tax, entry tax, turnover tax, service tax, Octroi - all cascading to make India perhaps the highest indirect taxed nation in the world.  Octroi is the worst.  Today, a truck takes 40 hours to deliver goods from Delhi to Bombay.  Of this, only 24 hours are spent driving, the remaining 16 hours are spent at Octroi posts. The answer is to replace this nightmare of taxes by a single flat Goods and Services Tax that is IT intensive, offers transparent, frictionless interface between taxpayer and collector, and integrates the whole country into one market.  As a virtual national VAT, it would tax only the added value at each state and thus lower tax burden.  It would discourage cash transactions because no one in the value chain wants to lose credit for taxes already paid.  Thus, compliance would rise, taxpayers would swell, and government revenues would multiply.  By eliminating the entire plethora of indirect taxes, transaction costs and thereby reducing the scope for corruption, the nation’s competitiveness would climb.

25.  Level Playing Field

        Private sector has already entered many areas in a big way. In order to ensure that it continues to enter more and more areas and also in a large scale , there should not be discrimination against it and the rules of operations in a given area  should be the same for public and private sectors where both of them are allowed to operate. This is also necessary to ensure that the public sector also operates at its peak efficiency.

26.  Lending Rates in Banks

             A low rate of interest is indispensable to push up investment. Though rates of interest on loans have been falling over the past few years, there is scope for bringing them down further. Banks expenditure on establishment should be brought down drastically to reduce lending rates.  During the last five years deposit rates have fallen from 12% to 5%, but housing rates have fallen from about 15% to only 11% - except in case of home loans, which is around 8%.

27.  Making E-Governance Obligatory in Public Government Departments

            In the present high tech electronic world, it is shocking that e-governance is yet to take off in many of the state governments. With regard to local bodies, the scenario is very dismal. E-governance should be made obligatory in all government offices not only to provide quick and qualitative service to the citizens but also to reduce ‘’unproductive employment” in government offices. E-governance will also go a long way in eliminating corruption and bringing transparency in all areas. Saving in man-hours, lesser traffic on roads, lesser pollution, lesser accidents, saving in terms of money for the public, elimination of over-crowding and long queues in public dealing offices, saving in fuel, neat and clean offices due to less paper work, less dependence on postal services, instant communication between the service providers and seekers, instant service are some of the other advantages of E-governance. 

28.  Awareness to Latest Technolgy

            All government departments should be aware of the latest technology that is being adopted at the global level regarding the functions allotted to them and apply the same in India, if it can provide better service to the people at a lesser cost. Sometimes, latest technology may even help the departments to lesser their burden and enable the people to get the service themselves without depending on the government agency. A classic example in this regard is a household appliance/ machine that can convert air into water. This machine is already being marketed in Chennai and Delhi. The government needs to interact with the manufacturers of this machine to reduce its cost so that it becomes affordable to one and all. In a country, where there is acute shortage of potable drinking water, the machine should be considered as a boon. If the machine becomes affordable to each and everyone, then there may not be a need for big water supply schemes.

Conclusion

            The indispensability of speeding up the process of economic reforms does not mean that the government should not have any role to play in the economic system. Economic reforms do not mean diminishing the role of state but only redefining it – expanding it in some areas and reducing in some areas. In fact, the government should play a greater role by acting as watch dog, regulator and facilitator. If government involves itself in a lesser way in economic sectors, it will have more funds to play an active role in social sectors like education, health and social security.  In fact, in health and education sectors, the government has to play a dominant role as service provider, as these services will become inaccessible to poor, if these sectors are left to be managed by private sector alone.  Whatever may be the areas or sectors, an “optimal mix“ of public sector and private sector is required so that goods & services can become accessible to one and all. Poverty cannot be eliminated without economic reforms.  We need dynamic   markets, social investment and good governance to end poverty.  Economic reforms would fail to meet the aspirations of people if government fails to invest in education, health and safety nets.