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MAKING INDIAN INVESTMENT CLIMATE MORE BUSINESS-FRIENDLY

BUREAUCRATS HAVE TO CHANGE THEIR MINDSETS

 

By Subrata Majumder

 

Prime Minister Narendra Modi is committed to take India within top 50 in the World Bank‘s Ease of Doing Business in three years from the current rank of 130 out of 189 countries. Morgan Stanley Vice – Chairman Tom Nides reposed confidence in Modi’s leadership in fast-forwarding the economy. Arguing on Make in India, he said that Mr Modi was not for short term decision for instant gratification. Over the decades, Indian bureaucracy became the main tool to formulate the economic policies, no matter whether they were economists, scientists or statisticians or not.

 

Caught in the ambivalence of personal loyalty to ministers and Prevention of Corruption Act, passing the buck and shying away from decision making were the common practices of Indian bureaucrats. Clogged into huge paper works and multiple procedures, required by outdated regulations, it was easy for the bureaucrats to escape from making decision in time. Indian bureaucracy was ranked the worst among 12 Asian countries, according to a survey by Hong Kong-based Political and Economic Risk Consultancy firm.

 

To increase industry contribution from the present 18 percent to 25 percent in GDP by 2022, Prime Minister Narendra Modi has taken a vow to make India a manufacturing hub in the world. His government was swift to identify that red tape was the main factor to dampen the manufacturers’ spirit in the country. He committed to the Japanese, while visiting Japan last year, India would roll out red carpet, not red tape .

 

Modi government has set a three point formulae to decimate the present systems of bureaucracy and invoke a simplified and paperless procedures to prop up the ease of doing business in the country. One, it wades into cutting down the multiple level of human interfaces between the entrepreneurs and bureaucrats. Second, it geared-up the process of on-line procedures, replacing manual system. Third, it initiated convergence and integration of the processes of different ministries for quicker decision making.

The three point formulae yielded results. E-auction was introduced. Government installed a portal of Government eAuction System. The auctioneers can participate in the auction online through this portal.  On-line submission and processing of applications for environment clearances and on-line payment of Provident Funds and Employee’s State Insurance Contribution were introduced. Ministry of Environment and Forest launched On-line application system for environment clearance. Following the Centre, 19 states set up On-line application system for environment clearance. Majority of the projects are cleared at State level. In this perspective, it was a significant step for speedy clearance of the projects. Government set up e-Biz platform for one-stop shop for services relating to starting business or setting up a new unit.

 

Secretaries of each Department were asked to repeal at least 10 rules and procedures, which were redundant and affecting the efficiency. They were asked to reduce decision making processes into four layers. Forms were being simplified and the unnecessary ones were done away. For example, DGFT required 9 forms for exports and 11 forms for imports. They were reduced to three each for exports and imports. The factory rules were eased by reducing the mandatory requirements for filing multiple returns. A factory owner had to file 16 forms on regular basis. Now, after the simplification the factory rules, owners are required to file only one form. It will curb the powers of factory inspectors, which were haunting the factory owners, spending more time in paper works.

 

A number of Cabinet Committees were scrapped. They were overlapping in their mandates. They were unnecessarily delaying the major decision making process. The number of Cabinet Committees were reduced from 12 to 6. For instance, Cabinet Committees on Prices, WTO, matters relating to natural calamities were merged with Cabinet Committee of Economic Affairs.

 

Following this, all the committees of Group of Ministers (GoMs) and Empowered Group of Ministers (EGoMs) were scrapped. There were 9 GoMs and 21 EgoMs. These GoMs and EGoMs were the committees to discuss various issues on prominent policies such as corruption, inter-state disputes, telecom pricing, gas pricing before they were brought to Cabinet for a decision making.

 

The main hurdle hampering the progress of ease of doing business is the underlying mindsets which desisted bureaucrats from accepting the new system and taking a decision without passing the buck to others. Translating this new system into realities was not an easy task as the bureaucrats were not prepared with a new mindset to pay heed to it . But, the confident Modi government did not want to loose any time as the global competition was intensifying. To overcome this, Modi government plunged into a drastic overhaul of the bureaucracy at the Centre.

 

During the 18 months period, Mr Modi reshuffled three times the bureaucracy. As many as 450 officials at senior level of joint secretaries to secretaries were shifted in between different ministries and departments and to their respective State cadres. His government dismantled the system of choosing key officials by the ministers. A reshuffle in August 2015 demonstrated Modi’s government is bent on judicious bureaucracy, which should deliver governance. A mechanism was set up, where nepotism was eliminated and honest bureaucrats were inducted.

 

The reshuffling of bureaucrats yielded merits. The new team of bureaucrats were made amenable to the new system of governance. This was demonstrated in clearing of the projects and steering the economic parameters for a sustainable growth. During 2014-15, announcement of new projects announced and projects completed surged by 85 percent and 18 percent against 13 percent and a fall by 9 percent in 2013-14 respectively. Foreign investors flocked to invest in the country. FDI increased by 27 percent in 2014-15 against a slender growth by 8 percent in 2013-14.

 

During 2014-15, inflation (measured by consumer price index) dropped to 5.9 per cent from 10.0 per cent in 2013-14. Industrial Production, which was eclipsed by zero growth in 2013-14, made an upturn in the growth, veering around 4 per cent growth in April-August 2015. Current account deficit was brought into a comfortable zone with 1.3 per cent ratio to GDP in 2014-15 from 4.8 percent in 2012-13, leaving a larger room for increase in foreign exchange reserves. (IPA Service)