Column: Behave like a bania

May 27 2014, 04:24 IST
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SummaryKeep in mind the concept of opportunity costcan the private sector do that job cheaper, and better?

Given the enormity of the task of repairing the economy, Prime Minister Narendra Modi cant be blamed if he doesnt quite know where to begin. Should it be the plethora of tax casesR2.2 lakh crore of transfer pricing cases in just the last six yearsagainst leading MNCs investing in India or should it be fixing the leaky delivery system that eats up 2.5% of Indias GDP and 15-20% of government expenditure each year? Since state government clearances account for roughly half the delay in stuck projectsanother 25% are stuck because they have no gas/coalhow do you get them to act?

Or should he focus on the macro? After all, if government savings have collapsed from 5% in FY08 thats when overall investments were the highest at 38% of GDPto 1.2% in FY13, nothing can be fixed till government finances are ok. If India Inc continues to be as leveraged as it is, and banks as stressed out as they are, as the accompanying graphic shows, no meaningful capex can be seen till this is taken care of. That means allowing banks to force reluctant promoters to sell their companies, it means reducing government stake in banks so that they can finally raise the capital they need in order to raise lending levels to the 18-19% levels, and more, that the economy needs.

Not surprisingly, therefore, that when Modi was asked about his 100-day agenda, he was dismissive and said that governance was not a T-20 match, it was a long process.

In the short run, Modis biggest challenge of course, will be to get the bureaucracy to start functioning cohesively. Whether it is the fear of the CBI, the CAG or the CVCor it may just have been political indecisionthe bureaucracy has been the biggest hurdle to investment. While the TDSAT rapped the telecom bureaucracy for its misleading and seriously flawed arguments on 3G roaming last month, Justices Khehar and Radhakrishnan were constrained to say, in the Sahara case earlier this month, the State and its agencies litigate endlessly up to the highest Court, just because of the lack of responsibility, to take decisions... we have started to entertain the impression, that all administrative and executive decision making, are being left to Courts, just for that reason. In which case, Modis appointmentsboth bureaucratic and politicalto key ministries will be critical, as well as the role of the cabinet secretary and the

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