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13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
13 Economic Priorities For FY13-14 - MSLGROUP India
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13 Economic Priorities For FY13-14 - MSLGROUP India

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Put together over a period of two months, the report looks at how issues like internal security, the lack of security for women, our callous approach towards sports, etc, impact the economy. The …

Put together over a period of two months, the report looks at how issues like internal security, the lack of security for women, our callous approach towards sports, etc, impact the economy. The effort is to discuss the impact of issues that most people don't normally associate with the economy.

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  • 1. AreportbyMSLGROUPIndiaPartofthePublicisGroupe
  • 2. • Preface 4-5• Women’s empowerment 6-9• Internal security 10-13• Sports 14-17• E-governance 18-21• Corruption 22-25• Low-cost medicine 26-29• Affordable housing 30-33• Agriculture finance and food prices 34-37• A smoother road for FDI in retail 38-41• Aviation 42-45• Taxing the super-rich 46-49• Goods and services tax 50-51• Coalition politics 52-53MSLGROUPIndiaMSLGROUP India is the nation’slargest PR and Social Medianetwork. Made up of three topagencies, MSL India, 20:20 MSLand 2020Social, MSLGROUPIndia combined includes 16offices, 550 staff and anactivation network reaching anadditional 125 Indian cities. Witha proven track record ofservicing multinational andIndian corporations since 1989and 40 senior counselors with15 or more years ofcommunications experienceeach, clients, staff and businesspartners benefit from the depthand breadth of insight andexperience within its teams.MSLGROUPAsiaFor 24 years, MSLGROUP’s Asiateam has counseled global,regional and local clients,helping them establish, protectand expand their businesses andbrands across this fast-growingregion. Today, MSLGROUP hasthe largest PR, social media andevents teams in Greater China(16 offices and 1,000 colleagues)and India (16 offices and 550colleagues) and is activelyworking to lead the developmentof the industry with the regularpublication of whitepapers/reportsand innovative Learning & PeopleDevelopment programs tonurture talent. The MSLGROUPAsia team includes 38 ownedoffices and 1,675 colleagues inBeijing, Shanghai, Guangzhou,Chengdu, Hong Kong, Macau,Taipei, Tokyo, Seoul, Singapore,Kuala Lumpur, Mumbai, Delhi,Ahmedabad, Pune, Bangalore,Chennai, Hyderabad and Kolkata.An activation network ofcolleagues reaches an additional125 Indian and 100 Chinese citiesand a strong affiliate partnernetwork adds another 23 Asiancities to our reach. MSLGROUPAsia’s teams have beenrecognized as leaders bymultiple industry groups,including most recently MSLIndia (‘PR Agency of the Year2011’ by PRCAI), Luminous(‘Local Hero/Agency of the Year2010’ by Marketing Events Asia),Genedigi Group China(‘Innovative China SMEs’ byForbes China), ICL MSL Taiwan(‘Agency of the Year 2011’ byTaiwan Advertiser Associate), andhas won more than 50 awards inthe last two years. Learn moreabout us at: asia.mslgroup.com +Twitter + FacebookMSLGROUPMSLGROUP is Publicis Groupe’sstrategic communications andengagement group, advisors inall aspects of communicationstrategy: from consumer PR tofinancial communications, frompublic affairs to reputationmanagement and from crisiscommunications to experientialmarketing and events. With morethan 3,500 people across closeto 100 offices worldwide,MSLGROUP is also the largestPR network in fast-growingChina and India. The group offersstrategic planning and counsel,insight-guided thinking and big,compelling ideas – followed bythorough execution. Learn moreabout us at: www.mslgroup.com+ http://blog.mslgroup.com +Twitter+ YouTube.Publicis GroupePublicis Groupe [Euronext ParisFR0000130577, part of the CAC40 index] is the third largestcommunications group in theworld, offering a full range ofservices and skills: digital andtraditional advertising, publicaffairs and events, media buyingand specialized communication.Its major networks are LeoBurnett, MSLGROUP, PHCG(Publicis HealthcareCommunications Group),Publicis Worldwide, Rosetta andSaatchi & Saatchi. VivaKi, theGroupes media and digitalaccelerator, includes Digitas,Razorfish, Starcom MediaVestGroup and ZenithOptimedia.Present in 104 countries, theGroupe employs 53,000professionals.www.publicisgroupe.com |Twitter:@PublicisGroupe |Facebook:www.facebook.com/publicisgroupeTable ofcontents13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe
  • 3. Exactly 50 years after he was assassinated, Kennedy’s warning continues to ring true. Ever sinceIndia set off on the reforms path in 1991, the parameters for judging the progress of the economyhave been narrow. Growth rate, investment, expenditure and deficits are the terms frequentlyheard during discussions on ‘development’ and ‘progress’.But an economy is more than just that. It has as its constituents obscure moving parts that areforgotten – sometimes deliberately – or which remain hidden because of a lack of understanding.For instance, many would be shocked to know that sports are vital to the economy. Usually,discussions on sports are restricted to the number of medals or trophies won, or what sportingicons do for the national mood. But, did you know that the United Nations MillenniumDevelopment Goals view sports as an economic engine? Sports contribute to developmentthrough employment opportunities and demand for sports goods and services. An inclusivenational sports programme would also provide economic opportunities and social upliftment formarginalised sections such as women and the physically challenged.The positive economic impact of e-governance, too, is rarely discussed. Seen mainly as a tool forconvenience and greater reach, a well implemented e-governance programme could slashgovernment expenditure by reducing the cost of service delivery. These lower costs would helpshrink the fiscal deficit, which has reached worrying levels.The internal security situation – alarmingly precarious across large swathes of India – also has aprofound impact on citizens, industry and society. The economy is not immune to it. Naxalismalone affects 60,000 sq km of central and eastern India, depriving this area from the benefits ofreforms and the chance to contribute to national progress. This isolation has kept farmersbackward and made the establishment of industries virtually impossible. The delivery ofgovernment services is another casualty of this internal war.Yet, the link between such insurgencies and the lack of economic progress in the areas they affect– though understood by many – rarely finds a mention during debates on the Budget.MSLGROUP India, through this report, aims to bring into focus precisely such linkages betweenissues and our economy, the opportunities missed and the ones that are within reach. We havefocused on subjects rarely mentioned in the same breath as the economy, but there are also thosemore familiar to the economic debate – taxing the super-rich and the Goods and Services Tax arebut two examples. Together, we have chosen 13 that we think should be India’s economic prioritiesfor Fiscal year 2013-14.Yes, there are many others on India’s plate of concerns and our 13 choices leave us open toallegations of subjectivity. To that charge, we plead guilty.In our defence, we can only say that throughout our aim has been not to preach, but to foster anunderstanding of the issues and to suggest recommendations for the way forward.We hope you find this report interesting and useful.- Ashraf Engineer, Head – Content, MSL IndiaPreface13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis GroupeEconomicgrowthwithoutsocialprogressgrowthwithoutsocialprogressgrowthwithoutlets thegreatsocialprogresslets thegreatsocialprogressmajority oflets thegreatmajority oflets thegreatpeopleremaininmajority ofpeopleremaininmajority ofpoverty,whileapeopleremaininpoverty,whileapeopleremaininprivileged fewpoverty,whileaprivileged fewpoverty,whileareapthebenefitsprivileged fewreapthebenefitsprivileged fewofrisingreapthebenefitsofrisingreapthebenefitsabundance.ofrisingabundance.ofrising-JohnFKennedy, late USPresidentEconomicgrowthwithoutsocialprogressletsthegreatmajority ofpeopleremaininpoverty,whileaprivileged fewreapthebenefitsof risingabundance.-JohnFKennedy, late USPresident5Image:wikipedia
  • 4. A recent study by Booz & Company,which studied the economicempowerment of women in 128countries, ranked India a low 115.What’s more troubling is that thegovernment is stubbornly apathetictowards women’s issues. The distress isevident when you see how variouscorrective recommendations aregathering dust. Take the example of theDecember 2012 Delhi gangrape casethat shocked the nation. The delay in thefiling of the chargesheet was typical ofan uncaring system.Gender stereotypes, discrimination andcultural beliefs foster disempowerment.In India, a little more than 50%of girlsare enrolled in school, of which manydrop out by age 12. At least 40% of thosewho complete their primary educationare not allowed to pursue higher studiesby their conservative families. A surveyconducted by the non-profit Child Rightsand You (CRY) across lower-incomegroups of 480 households in five citiesshowed that 33% of households feltthat girls were abused in school, whilenearly 48% were abused en route toschool. About 57% of them wereignorant of the Right To Education Acttwo years after its implementation.This lack of education – and awarenessabout its essentiality – denies women theknowledge and skills needed to advancetheir economic status. At the communitylevel, social and economic developmentof women is negatively impacted bycorruption in developmental schemesand the absence of good governance.ImplicationsA strong society has as its foundation thesocial, economic and political well-beingof women. The participation of women indecision-making is absolutely necessarysince they will play a vital role in buildingsocial infrastructure and contributing toeconomic growth.Their inclusion in the national push forupskilling of 500 million workers by2022 is essential. Kiran MazumdarShaw, chairman and MD, BioconIndustries, told ‘The Times of India’:“Women have enormous opportunitiesto excel and succeed. All they need isto be willing to take on leadershipchallenges and to use their spirit ofenterprise and perseverance.”Research shows that women contributethree-fourths of the labour globally, butown only a quarter of the resources. It ispresumed that an increase in literacy andthe attainment of a higher level ofeducation and skills will lead to greateremployment of women at higher levels.Still, women’s work participation in Indiastood low at 25.6% as compared tomales’ at 51.7%, according to theprovisional 2011 census. This was blamedon gender discrimination.Discrimination limits women’s economicchoices and freedom. The male-femaleliteracy gap is a just indicator. Provisional2011 census data showed the femaleliteracy rate as 65.46% compared tomales’ 82.14%. There also exists arural-urban divide in education access forwomen, which indicates poor educationinfrastructure as well as the societalresponse to the need for female literacy.It was encouraging that Finance MinisterP Chidambaram allocated Rs 97,134crore to the gender budget for 2013-14.In 2009-10, the gross total allocationtowards gender budgeting wasRs 56,857.61 crore and Rs 78,251.01 crorein 2011-12 – a rise of 38%.Security is a major concern for womenworking in the business processoutsourcing (BPO) and informationtechnology-enable services (ITES) sector.Increasing crime against women in Delhihas deterred many from taking up jobs inthis industry. Incidents like the December2012 Delhi gangrape have a profoundimpact on productivity in cities likeMumbai, Hyderabad, Bangalore, Pune,Chennai, Ahmedabad, Lucknow andJaipur. In an Assocham survey, a majorityof the respondents working in firms inGurgaon, Noida, Delhi, Sonepat andFaridabad said they now insist on leavingoffices immediately after duty hours.Over the past two decades, India’s booming economy, strongmanufacturing capabilities, and respected universities havepositioned it as an emerging world leader. However, its genderdisparity remains among the highest in the world, impactingnot just economic growth but society as a wholeWomen’sempowermentWomen’sempowermentWomen’sempowerment13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe6 7Image:allsettodonothing.blogspot.inImage: lidovky.cz
  • 5. Recommendations• Follow up allocation of funds forwomen’s development with a suitabletax policy, that is, gender budgeting.Fiscal policies affect men and womendifferently; gender budgeting ensuresgreater opportunities for women, abetter standard of living and fairdistribution of income. Additionally, itensures better allocation of funds tohealthcare. Also, the tax code does notdiscriminate against work efforts orproducts that are the core expendituresof poor families disproportionatelyheaded by women.• As recommended in the 12th FiveYear Plan, ensure all ministries andgovernment departments tabulategender-specific managementinformation system (MIS) data forimproving the gender budgetingmechanism.• Monitor funds allocation and utilisationbetter. There is a delay betweenallocation and release of funds mainlydue to faulty design, apathy andbureaucratic bungling. This is why thesuccess enjoyed by governmentinitiatives is uneven.• The government raised the corpus ofthe Women’s Self Help Group (SHG)Development Fund from Rs 200 crore in2011-12 to Rs 300 crore in 2012-13. Theobjective was to empower such SHGs toaccess bank credit through interestsubvention. The effective interest rateunder this initiative works out to 4% forwomen who repay the loan on time.Establish more such SHGs to providewomen bank credit at modest interest rates.• India can learn from women-friendlytax policies of other countries. InSingapore, for instance, workingmothers get child relief if they earn lessthan SGD 4,000 (Rs 1.74 lakh) perannum. Likewise, give tax exemptions towomen who run their houses and havedependents. There could also be taxcredits for professional women whoreturn to work after a break owing tofamily responsibilities.• More stringent laws would helpreduce the number of crimes againstwomen. The Rs 1,000-crore NirbhayaFund as a tribute to the 23-year-oldDelhi gangrape victim can help if themoney is utilised well. The Ministry ofWomen and Child Development andother ministries were working out thedetails of the fund’s structure, scopeand application at the time of writing.• According to a World Bank study, just26% of women in India have an accountwith a formal financial institutioncompared to 46% of the men. Theproposal to set up India’s first women’spublic sector bank is welcome. It islikely to start operations through sixbranches from November 2013 and willlend to women and women-runbusinesses, and provide support towomen SHGs. Moreover, it will employmainly women while taking depositsfrom men and women.13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe8 9Image:addledbraindump.blogspot.inImage: newslivetv.comImage:posterwomen.orgImage:addledbraindump.blogspot.in
  • 6. India is home to diverse socio-economicgroups. Some have been assimilatedinto the mainstream, but many othersare still fighting for justice and identity.Three regions – the Naxalite belt inCentral India, Kashmir and theNorth-East – have felt the harsheconomic impact of internal conflict.NAXALISM: In 2004, Prime MinisterManmohan Singh described Naxalismas India’s biggest internal securitythreat. Almost a decade later, Naxal-hitareas – about 60,000 sq km in centraland east India – still comprise of someof the country’s least developed parts.Between 2005 and 2010, the conflictclaimed more than 10,000 lives, butthe root cause of the problemsremains unaddressed.India’s economic growth – uneven, witha tendency to create growing rich-poordisparity – led to a demand frombusiness houses for land and naturalresources. Orissa, Chhattisgarh, AndhraPradesh, Jharkhand, Maharashtra andBihar have huge mineral resources.Business houses want access to forestand tribal land for development, but thishas meant the loss of homes andlivelihoods for many tribals.Grinding poverty, endemic malnutritionand virtually no healthcare haveworsened tribals’ living conditions. Theoften-unrestrained exploitation ofnatural resources has also led torampant environmental degradation.Tribals claim they are not evenadequately compensated for their lands.They have no political voice to addresstheir grievances.Tribals see Maoists as their savioursbecause their ideology holds thegovernment, bureaucracy and businesshouses responsible for their plight.Over time, these ‘saviours’ themselveshave been accused of exploitation andviolent crimes against the villagers. Often,they have been charged with usingcivilians as human shields duringoperations against the police. Accordingto the UN secretary-general in his annualreport ‘Children and Armed Conflict’,Maoists have even recruited andindoctrinated children to form squadsdeployed in their war against the state. In2011, between January and August, 333people were killed – 241 civilians and 92security personnel. In 2010, 534 peoplewere killed in 1,103 attacks.Despite having an abundance of mineralresources, projects to set up refineries inthese areas have run into trouble asinvestors have not been assured ofprotection from Naxalites. The Naxalites,meanwhile, have abducted officials, blownup roads and disrupted development.KASHMIR: It is one of the longeststanding and deadliest conflicts in theworld, and it has the potential fornuclear war. The troubles date back toIndependence. On October 26, 1947, theruler of Kashmir signed the Instrumentof Accession, acceding to India inexchange for military assistance.Since then, India and Pakistan havebeen locked in a bitter standoff, bothsides staking claim over the province.Separatist leaders, meanwhile, demandcomplete independence from bothcountries. Three wars have been fought– 1947, 1965 and 1999 – over the issue.With the imposition of the Armed Forces(Special Powers) Act (AFSPA) in Kashmirin July 1990, the Indian Army andparamilitary forces have been accused ofbrutal oppression, extrajudicial killings,rapes, murders, and of arresting peopleon the mere suspicion of being terroristsor their informants. Many also accusethe army of displacing families andfiring on unarmed protestors. All thishas led to the radicalisation of largesections of Kashmiri society.Kashmir is primarily an agrarian economywith sericulture and horticulture beingmajor revenue earners. In 2005-06, thestate reported Rs 1,150 crore in exports.Several sectors were identified byAssocham, an industry association, to wooinvestors; the state and centralgovernments are also working to establishspecial economic zones.The economic potential is tremendousbecause of the availability of naturalresources, but efforts to harness it havenot paid off because of pooradministration, corruption andgovernment inefficiency. The scarcity ofration shops, drinking water and power,along with the security issues, has madethe creation of roads, infrastructure andoverall economic development difficult.Even tourism, which played a centralrole in the Kashmiri economy, all butdisappeared after the start of theinsurgency in 1989. It is seeing a revivalof sorts only now.The National Sample Survey (NSS)estimated the rate of unemployment as5.3% – much higher than the adjoiningstates’. There is an all-pervasive sense ofdisappointment amongst the youth, manyof whom fail to secure jobs despite beingqualified. The public sector, too, has beenaccused of discrimination alongcommunal lines when hiring people.While India grows at 6%, Kashmir’seconomy remains crippled.THE NORTH-EAST: ArunachalPradesh, Assam, Manipur, Meghalaya,Mizoram, Nagaland, Sikkim and Tripuraare connected to the rest of the countryonly by the 22-km wide Siliguri Corridor inWest Bengal. This ‘geographical isolation’from the rest of India has had far-reachingconsequences on development.The inclusion of north-eastern states inIndia’s ‘Look East’ policy in 2003ushered in new hope for the region’seconomy. The policy was meant tointegrate the region better with India’soverall economy as well as that of itsbrutal oppression, extrajudicial killings,brutal oppression, extrajudicial killings,Maoists have even recruited andbrutal oppression, extrajudicial killings,Maoists have even recruited andinsurgency in 1989. It is seeing a revivalinsurgency in 1989. It is seeing a revivalbrutal oppression, extrajudicial killings,brutal oppression, extrajudicial killings,on the mere suspicion of being terroristson the mere suspicion of being terroristson the mere suspicion of being terroristsor their informants. Many also accuseestimated the rate of unemployment as5.3% – much higher than the adjoiningthe army of displacing families andthe army of displacing families andthe army of displacing families and5.3% – much higher than the adjoiningsecurity personnel. In 2010, 534 peopleDespite having an abundance of mineralof whom fail to secure jobs despite beingof whom fail to secure jobs despite beingqualified. The public sector, too, has beenresources, projects to set up refineries inqualified. The public sector, too, has beenresources, projects to set up refineries inqualified. The public sector, too, has beenqualified. The public sector, too, has beenKashmir is primarily an agrarian economy accused of discrimination alonginvestors have not been assured ofprotection from Naxalites. The Naxalites,meanwhile, have abducted officials, blownmeanwhile, have abducted officials, blownup roads and disrupted development.up roads and disrupted development.KASHMIR:up roads and disrupted development.up roads and disrupted development.It is one of the longestKASHMIR: It is one of the longestnuclear war. The troubles date back tonuclear war. The troubles date back toIndependence. On October 26, 1947, theSince then, India and Pakistan havebeen locked in a bitter standoff, bothsides staking claim over the province.Separatist leaders, meanwhile, demandSeparatist leaders, meanwhile, demandthe root cause of the problemsthe root cause of the problemsworld, and it has the potential for– 1947, 1965 and 1999 – over the issue.– 1947, 1965 and 1999 – over the issue.– 1947, 1965 and 1999 – over the issue. overall economic devoverall economic dev– 1947, 1965 and 1999 – over the issue.With the imposition of the Armed Forces– 1947, 1965 and 1999 – over the issue.With the imposition of the Armed Forces(Special Powers) Act (AFSPA) in Kashmirin July 1990, the Indian Army androle in the Kashmiri economy, all butrole in the Kashmiri economy, all butrole in the Kashmiri economy, all butrole in the Kashmiri economy, all butdisappeared after the start of therole in the Kashmiri economy, all butto the UN secretary-general in his annualparamilitary forces have been accused ofparamilitary forces have been accused ofreport ‘Children and Armed Conflict’,insurgency in 1989. It is seeing a revivalof sorts only now.insurgency in 1989. It is seeing a revivalinsurgency in 1989. It is seeing a revivalof sorts only now.brutal oppression, extrajudicial killings,brutal oppression, extrajudicial killings,brutal oppression, extrajudicial killings,rapes, murders, and of arresting peopleon the mere suspicion of being terroristsor their informants. Many also accusethe army of displacing families andfiring on unarmed protestors. All thishas led to the radicalisation of largesections of Kashmiri society.brutal oppression, extrajudicial killings,rapes, murders, and of arresting peoplerapes, murders, and of arresting peopleon the mere suspicion of being terroristsor their informants. Many also accusethe army of displacing families andfiring on unarmed protestors. All thisfiring on unarmed protestors. All thissections of Kashmiri society.sections of Kashmiri society.has led to the radicalisation of largefiring on unarmed protestors. All thishas led to the radicalisation of largerapes, murders, and of arresting peopleon the mere suspicion of being terroristsor their informants. Many also accusethe army of displacing families andbrutal oppression, extrajudicial killings,the army of displacing families andrapes, murders, and of arresting peoplebrutal oppression, extrajudicial killings,brutal oppression, extrajudicial killings,brutal oppression, extrajudicial killings,rapes, murders, and of arresting peoplebrutal oppression, extrajudicial killings,rapes, murders, and of arresting peopleon the mere suspicion of being terroristsor their informants. Many also accuseor their informants. Many also accuseor their informants. Many also accusebrutal oppression, extrajudicial killings,rapes, murders, and of arresting peopleinsurgency in 1989. It is seeing a revivalinsurgency in 1989. It is seeing a revivalinsurgency in 1989. It is seeing a revivalrapes, murders, and of arresting peopleon the mere suspicion of being terroristsor their informants. Many also accusethe army of displacing families andrapes, murders, and of arresting peopleon the mere suspicion of being terroristson the mere suspicion of being terroristsindoctrinated children to form squadson the mere suspicion of being terroristsor their informants. Many also accusedeployed in their war against the state. Indeployed in their war against the state. InThe National Sample Survey (NSS)The National Sample Survey (NSS)states’. There is an all-pervasive sense ofdisappointment amongst the youth, many5.3% – much higher than the adjoiningstates’. There is an all-pervasive sense ofestimated the rate of unemployment asstates’. There is an all-pervasive sense ofestimated the rate of unemployment as5.3% – much higher than the adjoiningstates’. There is an all-pervasive sense ofdisappointment amongst the youth, manyof whom fail to secure jobs despite beingqualified. The public sector, too, has beenaccused of discrimination alongestimated the rate of unemployment as5.3% – much higher than the adjoining5.3% – much higher than the adjoining5.3% – much higher than the adjoining5.3% – much higher than the adjoiningdisappointment amongst the youth, manydisappointment amongst the youth, manyof whom fail to secure jobs despite beingqualified. The public sector, too, has beenqualified. The public sector, too, has beenqualified. The public sector, too, has beenaccused of discrimination alongaccused of discrimination alongof whom fail to secure jobs despite beingqualified. The public sector, too, has beenof whom fail to secure jobs despite beingqualified. The public sector, too, has beenstates’. There is an all-pervasive sense ofstates’. There is an all-pervasive sense ofestimated the rate of unemployment as5.3% – much higher than the adjoiningestimated the rate of unemployment asBetween 2005 and 2010, the conflictclaimed more than 10,000 lives, butthe root cause of the problemsup roads and disrupted development.KASHMIR: It is one of the longeststanding and deadliest conflicts in theworld, and it has the potential fornuclear war. The troubles date back to5.3% – much higher than the adjoiningsecurity personnel. In 2010, 534 peoplefiring on unarmed protestors. All thisthe army of displacing families andpeople were killed – 241 civilians and 925.3% – much higher than the adjoiningstates’. There is an all-pervasive sense of5.3% – much higher than the adjoiningstates’. There is an all-pervasive sense ofstates’. There is an all-pervasive sense ofsecurity personnel. In 2010, 534 peoplesecurity personnel. In 2010, 534 people5.3% – much higher than the adjoiningstates’. There is an all-pervasive sense offiring on unarmed protestors. All thissecurity personnel. In 2010, 534 peopledisappointment amongst the youth, manyhas led to the radicalisation of largehas led to the radicalisation of largehas led to the radicalisation of largeup roads and disrupted development.up roads and disrupted development.up roads and disrupted development.up roads and disrupted development.KASHMIR: It is one of the longestworld, and it has the potential fornuclear war. The troubles date back toBetween 2005 and 2010, the conflictBetween 2005 and 2010, the conflictclaimed more than 10,000 lives, butthe root cause of the problemsthe root cause of the problemsclaimed more than 10,000 lives, butBetween 2005 and 2010, the conflictDespite having an abundance of mineralDespite having an abundance of mineralDespite having an abundance of mineralresources, projects to set up refineries inthese areas have run into trouble asinvestors have not been assured ofprotection from Naxalites. The Naxalites,meanwhile, have abducted officials, blownup roads and disrupted development.Despite having an abundance of mineralmeanwhile, have abducted officials, blownmeanwhile, have abducted officials, blownmeanwhile, have abducted officials, blownup roads and disrupted development.protection from Naxalites. The Naxalites,protection from Naxalites. The Naxalites,these areas have run into trouble asresources, projects to set up refineries inresources, projects to set up refineries inresources, projects to set up refineries inDespite having an abundance of mineralresources, projects to set up refineries inDespite having an abundance of mineralDespite having an abundance of mineralof whom fail to secure jobs despite beingKashmir is primarily an agrarian economyKashmir is primarily an agrarian economyqualified. The public sector, too, has beenresources, projects to set up refineries inKashmir is primarily an agrarian economyKashmir is primarily an agrarian economythese areas have run into trouble asaccused of discrimination alongprotection from Naxalites. The Naxalites,resources, projects to set up refineries inthese areas have run into trouble asinvestors have not been assured ofprotection from Naxalites. The Naxalites,investors have not been assured ofaccused of discrimination alongprotection from Naxalites. The Naxalites,protection from Naxalites. The Naxalites,protection from Naxalites. The Naxalites,protection from Naxalites. The Naxalites,meanwhile, have abducted officials, blownmeanwhile, have abducted officials, blownmeanwhile, have abducted officials, blownup roads and disrupted development.up roads and disrupted development.It is one of the longestIt is one of the longeststanding and deadliest conflicts in thenuclear war. The troubles date back toIndependence. On October 26, 1947, theruler of Kashmir signed the Instrumentof Accession, acceding to India inSince then, India and Pakistan haveSince then, India and Pakistan haveexchange for military assistance.Since then, India and Pakistan haveSince then, India and Pakistan haveSince then, India and Pakistan havebeen locked in a bitter standoff, bothcountries. Three wars have been foughtbeen locked in a bitter standoff, bothbeen locked in a bitter standoff, bothcountries. Three wars have been foughtSeparatist leaders, meanwhile, demandGrinding poverty, endemic malnutritionGrinding poverty, endemic malnutritioncomplete independence from bothcomplete independence from bothSeparatist leaders, meanwhile, demandSeparatist leaders, meanwhile, demandSeparatist leaders, meanwhile, demandclaimed more than 10,000 lives, butcountries. Three wars have been foughtcountries. Three wars have been foughtthe root cause of the problemsthe root cause of the problemsthe root cause of the problemsthe root cause of the problemsthe root cause of the problemsand virtually no healthcare have– 1947, 1965 and 1999 – over the issue.– 1947, 1965 and 1999 – over the issue.– 1947, 1965 and 1999 – over the issue.(Special Powers) Act (AFSPA) in Kashmir role in the Kashmiri economy, all butdisappeared after the start of theto the UN secretary-general in his annualrole in the Kashmiri economy, all butparamilitary forces have been accused ofbrutal oppression, extrajudicial killings,rapes, murders, and of arresting peopleon the mere suspicion of being terrorists5.3% – much higher than the adjoiningthe army of displacing families and5.3% – much higher than the adjoiningfiring on unarmed protestors. All thishas led to the radicalisation of large5.3% – much higher than the adjoiningfiring on unarmed protestors. All thissecurity personnel. In 2010, 534 peoplehas led to the radicalisation of largehas led to the radicalisation of largeDespite having an abundance of mineralhas led to the radicalisation of largeDespite having an abundance of mineralqualified. The public sector, too, has beenKashmir is primarily an agrarian economy accused of discrimination alongthese areas have run into trouble asinvestors have not been assured ofmeanwhile, have abducted officials, blownthese areas have run into trouble asinvestors have not been assured ofprotection from Naxalites. The Naxalites,meanwhile, have abducted officials, blownup roads and disrupted development.protection from Naxalites. The Naxalites,meanwhile, have abducted officials, blownup roads and disrupted development.KASHMIR: It is one of the longeststanding and deadliest conflicts in theworld, and it has the potential fornuclear war. The troubles date back toexchange for military assistance.been locked in a bitter standoff, bothbeen locked in a bitter standoff, bothcomplete independence from bothGrinding poverty, endemic malnutritionGrinding poverty, endemic malnutritioncountries. Three wars have been foughtthe root cause of the problemsmeanwhile, have abducted officials, blown– 1947, 1965 and 1999 – over the issue.security personnel. In 2010, 534 peopledisappointment amongst the youth, manyof whom fail to secure jobs despite beingqualified. The public sector, too, has beenbeen locked in a bitter standoff, bothaccused of discrimination alongruler of Kashmir signed the InstrumentInternalSecurity13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe10 11Globalisation andreforms are turningIndia into an economicpowerhouse. Butgrowth is largelydependent on theinternal securityenvironment. Volatilepolitical and sociallandscapes oftendestabiliseadministrations,adversely impactingthe economyImage: viiphoto.ning.comImage: kashmirvoice.org
  • 7. neighbouring countries. Thesocio-economic conditions of thesestates, however, are a reflection of thepolicy’s failure.Violence is part of daily life, keeping therate of economic developmentabysmally low. AFSPA, imposed onSeptember 11, 1958, has empowered thearmy to control unrest to some extentbut has also led to accusations ofhuman rights violations, rape, murderand custodial deaths, leading to furthermilitarisation of the people. Civil societygroups are demanding the repeal ofAFSPA. Irom Sharmila Chanu, aManipuri political activist, has been on ahunger strike since November 2002 tosupport this demand.Ironically, the North-East is rich inmineral resources, which should havecreated a thriving economy. Instead,there is a secessionist movement thatcharges the central government withexploitation of resources, especially oil,while neglecting the development of theregion and interests of the locals.Meghalaya, for instance, has coal anduranium deposits and the governor hasadvocated their judicious mining toboost the economy. The tribals, however,are opposed to it. The Khasi Student’sUnion in Shillong called for a 36-hourgeneral strike on June 11, 2007, toprotest a public hearing on mining bythe Uranium Corporation of India Ltd,which wanted to invest Rs 1,000 crore ina mine and ore processing plant in WestKhasi Hill District.In Assam, insurgents often blow up oilpipelines and trains that transport coaland petroleum for industrial use.Nagaland’s oil reserves are estimated tobe worth billions, but locals fear forcefuldisplacement by the government andthe oil companies. They also fearenvironmental degradation and wantprotection for their rivers and paddyfields. In 1981, when the Oil and NaturalGas Corporation, found huge oilreserves in Wokha region, Nagainsurgents stopped it from furtherexploratory works.Guerrilla outfits like The NationalSocialist Council of Nagaland-Khaplanghave threatened oil and gas companieswith violence if they try to extract oil.The central government, meanwhile,has not adequately invested ininfrastructure like roads and easy accessto markets. This has led to slowindustrialisation. The region’s agrarianeconomy, supported by primitive farmpractices, can’t produce enough to feedthe population. As a result, almost allstates in the region are forced to buyfood from other parts of India.While the government claims that thereis no dearth of investments in the region,there is a lack of accountability indevelopment efforts. Corruption, socialunrest and lack of a skilled workforcehave made development difficult, andthe unrest has kept investors away.Mani Shankar Iyer, the erstwhile ministerof development for the North-East, hadsaid that the region’s gross domesticproduct (GDP) must grow at 16.37% bythe 13th Five Year Plan for it to catch upwith the rest of India.There is renewed private sector interestin the region – it proposed investmentsworth Rs 700 crore in 2007-08 after theNorth-East Industrial InvestmentPromotion Policy was unveiled – but theopportunity will slip away unless law andorder improves.Implications“Those who are in power are responsiblefor the issue of Naxalism. It cannot besolved by force deployment, but bysocial reform and change in policies,”former army chief VK Singh wasreported as saying.This is a telling statement. The internalsecurity crisis has landed a major blowto India’s image as an investor-friendlynation. Internal tensions have oftendestroyed pre-militancy infrastructure,making even investments from withinthe country impossible.Political stability and a peacefulenvironment are prerequisites foreconomic growth, but the insurgencieshave excluded several parts of Indiafrom the growth story.Recommendations• Allocate more funds for theupliftment of troubled regions. Focuson social welfare, rural development,roads, bridges, power, drinking water,healthcare, industrial infrastructureand government services. Ensurestatutory minimum wages for locals.• Military operations are often not thesolution for internal security problems.Invest in modernising state police forcesand strengthen state security networks.• These regions need both public andprivate investment. Assureinfrastructure and security to investors.At the same time, address tribals’grievances to ensure that developmentdoesn’t impact their lives and livelihood.• Tourism could be a cash cow. Focus on it.• The onus can’t be only on thegovernment; it’s also up to businesshouses to invest in these areas, toassuage locals’ fears. The private sectorneeds to interact regularly with allpotential stakeholders of their projects.13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe12 13Image:de.flash-screen.comImage:indiatravelpal.comImage:faujindia.blogspot.com
  • 8. The United Nations Millennium Development Goals(MDGs) urge that sports be viewed as an engine ofdevelopment. They contribute to economic progress assports programmes provide employment opportunitiesand stimulate demand for goods and services. The MDGsalso stress the need for sports programmes to be based onthe ‘sport for all’ model, ensuring that all groups are giventhe opportunity to participate, particularly those who gainadditional benefits, such as women, the physicallychallenged and the young.This is not a message India has taken to heartIndia trails nations poorer than it,despite the huge pool of talentedsportspersons. The usual story is one offailure at the international level – barringa few exceptions like cricket, cue sportsand the few recent Olympics medals inshooting, boxing and wrestling.The problem lies in improper training,poor organisation at the grassrootslevel and a woeful lack ofinfrastructure. No wonder, then, thatIndia is a sporting disaster as per theWeighted Ranking system of theOlympics – 0.1 weight medal points permillion; 48th position overall.The underlying economic story here liesin the state-centre dichotomy acting asa barrier and the manner in which fundsare allocated – through sportsfederations and authority centres. Muchlike with India’s social welfare schemes,much of this money never reaches thesportsperson in the form of trainingfacilities or infrastructure.Take the case of the Indian AmateurBoxing Federation. It claims that muchof its Rs 12 crore budget for 2011-2012was met through sponsors even thoughthe sports ministry gave it Rs 3 crore foradministrative expenses. It was allegedthat the federation spends money onadministration and junkets for officials.A group of former officials and athletestook the Wrestling Federation of India tocourt, charging that its funds were spenton foreign travel for its president andsecretary rather than on athletes.The story is one of political interference.Politicians with little knowledge of orinterest in developing sports occupy toppositions in associations and selectioncommittees. Fifteen of the 39 IndianOlympic Association (IOA) constituentfederations and 23 of 33 state Olympicassociation presidents are politicians.Veteran sportspersons or experts rarelyget a chance to run these bodies.Rahul Mehra, sports activist and lawyer,told ‘Tehelka’ magazine: “The IOA,which is supposed to promote Olympicsports, has created federations fornon-Olympic sports because it is easierto manage these smaller bodies andsecure their votes. Since there are nostipulated criteria for becoming amember of a sporting body and the ‘beall and end all’ is to stay in power, younurture a vote bank by appointingpeople close to you. They also ensurethat even if they retire, the transition isjust on paper. Dynasties seem to ruleIndian sport.” Former hockey star AshokKumar told ‘The Sunday Guardian’ that“when politicians started heading thesebodies, initially sportsmen felt that thiswould be of use to them. We felt thatour grievances and voices would beheard by the authorities. Some bossesalso began to take up our issues at thehighest level. But once these peoplesettled in, they began to distancethemselves from the welfare of thesportspersons. They began to furthertheir own interests and distancedthemselves from the sportspersons.”13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe14 15Abhay SinghChautalaVijay KumarMalhotraAjay SinghChautalaPolitician Political background Sports AuthoritySuresh KalmadiMember of Indian National Congress President - Indian Olympic AssociationMember of Parliament, Pune Chairman of Organising Committee, Delhi Commonwealth GamesFormer Member of Rajya Sabha& Lok Sabha President, Table Tennis Federation of IndiaMLA Haryana Assembly Member of Organising Committee, Delhi Commonwealth GamesMLA Haryana Vidhan SabhaPresident, Indian Olympic AssociationMember of Organising Committee, Delhi Commonwealth GamesJagdish TytlerMember of Indian National Congress President - Judo Federation of IndiaFormer Member of ParliamentVidya Stokes Member of Indian National Congress President - Hockey IndiaSharad Pawar President - Nationalist Congress Party Past President of Board of Control for Cricket in IndiaLeader of Opposition - DelhiLegislative AssemblySOME OF THE POLITICIANS HEADING SPORTS BODIES, NOW AND IN THE PASTSVP - Indian Olympic AssociationPresident - Archery Association of IndiaSource -The Sunday Guardian & WikipediaImage:vwallpaperpassion.comImage:kootation.com
  • 9. The problem of misadministration iscompounded by the lack of goodcoaches and physical education (PE)teachers. There is practically no trainingfor PE teachers; they are mostly formerathletes who get their degrees after acorrespondence course. There is nosystem for renewal of coaching licenceseither, unlike in England where coachesmust renew their licences every threeyears. China has 3.5 lakh sportsinstructors, whereas the Sports Authorityof India (SAI) – which runs three PEcolleges – churned out only 1,577coaches in 2012.Hence, the Rs 250-crore allocation inthe Budget for the modern NationalInstitute of Sports Coaching at Patialawas welcome. This will facilitateinternational-level coaching for athletes.Sport in India has never been integratedwith formal education, always rankingwell below academics. There is virtuallyno effort to integrate sports science intotraining. In comparison, the West dividesPE into three phases – foundation, basicskills and pick-up – to lay the foundationfor sporting success.Abhinav Bindra, who won an Olympicgold in the 10-metre air rifle shootingevent, minced no words when he saidthat the training facilities provided by theauthorities are below par.Let’s look at what the US does. Theeffort begins at the grassroots levelwith scholarships given to those whoexcel. Schools are well equipped withcoaching and infrastructure andsports are treated on par withacademics. It’s no wonder that the USis a sporting superpower.ImplicationsThe Delhi Commonwealth Gamesscandal damaged India’s – and theregion’s – reputation immeasurably.Generally, such games serve as aspringboard to bigger events. Now,international bodies think twice beforethinking of India as a venue. In fact,the bid for hosting the 2018Commonwealth Games was won bythe Gold Coast in Australia as manynations privately expressed a wish to“stay away” from Asia. Hambantota inSri Lanka was the rival bidder.The Delhi games cost citizens Rs14,830 crore. What they got in returnwas broken roads, choked drains,traffic snarls and incompleteprojects. Azim Premji, founder ofWipro Technologies, called thegames a “drain on public funds”.In December 2012, the InternationalOlympic Committee (IOC) suspendedIOA, barring India’s participation in theOlympics. IOA conducted electionsunder the government’s Sports Code,defying the IOC rule to hold themunder the Olympic Charter. IOC hadrepeatedly warned IOA in the run-upto the elections. Now, IOA will stopreceiving IOC funding and its officialswill be banned from attendingOlympic events. More significantly,India’s athletes will be barred fromcompeting in Olympic events underthe national flag; they can, however,participate under the IOC banner.Technically, the suspension was notaimed at government interference butfor the character of those involved at thetop levels of Olympic and other sportsleadership in India.Within days of the suspension, theInternational Boxing Association (IBA)provisionally suspended the IndianAmateur Boxing Federation (IABF),alleging possible manipulation in itsrecent elections. The former is nowinvestigating the election and apotential political link with the IOApresident, as former chairman of theIABF. Outgoing president AbhaySingh Chautala, who was elected IOApresident despite the IOC suspension,was retained in the IABF asnominated chairman during theSeptember 2012 poll.Recommendations• Adopt the United Nations MDGsimmediately, not just in word but in deed.• Corruption is ubiquitous in Indiansports bodies. Focus on undoing theirpoliticisation. Focus on optimumutilisation of funds.• In a ‘Tehelka’ article dated December22, 2012, former hockey OlympianJagbir Singh suggested that Indiarevamp its youth centres. “Divide thecountry into five zones, identify ruraland urban sports based on differingtalents and popularity,” he said. “Createtwo centres of excellence in every zone,one urban and one rural. They shouldpick 30-40 children of both gendersunder the age of 14 every year. For threeyears, provide them state-of-the-artfacilities, top coaches and foreignexposure. At the end, you will see 700children mature into great athletes.”That could be one way of ensuring theright use of money.• Develop an effective mechanism fortracking funds released for sport.Track the movement of money and itsutilisation at all levels, includingdevelopment of infrastructure,training facilities, research anddevelopment. This would ensuregreater transparency.13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe16 17
  • 10. visited the CSC, the operator filled hisform online and gave him a uniqueapplication number imprinted on acomputer-generated receipt. Wellwithin 72 hours, Charandas had thecertified copy, digitally signed by theconcerned official.This story shared by the Nationale-Governance Plan is testimony to theemergence of e-governance in India.E-governance is defined by UNESCO as“the public sector’s use of informationand communication technologies withthe aim of improving information andservice delivery, encouraging citizenparticipation in the decision-makingprocess and making government moreaccountable, transparent and effective”.The origin of e-governance in Indiadates back more than three decadeswhen the government startedcomputerisation initiatives. Back then,the term e-governance was restrictedto development of in-housegovernment applications for defence,economic monitoring, planning andthe deployment of IT to managedata-intensive functions related toelections, census and taxadministration. The next significantstep was when the NationalInformatics Centre tried to connect alldistrict headquarters.The growth of the web and, morerecently, the evolution of digitalcommunities have fuelled thee-governance drive. There is aconstant need for information and it ishere that e-governance can play asignificant role. With the increase ininternet and mobile connections,citizens expect easy access toinformation and services online.In the last few years, state governmentsand central ministries have initiatedseveral projects.After getting a certified copy of theelectoral roll in just 72 hours from thenearby Common Services Centre (CSC),a smile appears on the wrinkled face of50-year-old Nitai Charandas. For theresident of Bhootpara gram panchayatin Sonitpur district of Assam, this wasunlike any of his past experiences withgovernment service delivery.This time, he did not have to commute35 km to the district headquarters orpay a penny to either a governmentofficial or an advocate. And, he did notrequire a bureaucrat’s signature orofficial stamp on the certificate.Three days [earlier], when CharandasRECENT PROJECTSState/UnionterritoryAndhraPradeshe-Seva, CARD, VOICE, MPHS, FAST, e-Cops, AP online - One-stop-shop on the Internet,Saukaryam, Online Transaction processingDelhiAutomatic Vehicle Tracking System, Computerisation of website of RCS office,Electronic Clearance System, Management Information System for EducationAutomatic Vehicle Tracking System, Computerisation of website of RCS office,Electronic Clearance System, Management Information System for EducationGujaratMahiti Shakti, request for Government documents online, Form book online, GR book online,census online, tender noticeBihar Sales Tax Administration Management InformationChhattisgarh Chhattisgarh Infotech Promotion Society, Treasury office, e-linking projectGoa Dharani ProjectHaryana Nai DishaKarnataka Bhoomi, Khajane, KaveriKerala e-Srinkhala, RDNet, Fast, Reliable, Instant, Efficient Network for the Disbursement of Services (FRIENDS)Maharashtra SETU, Online Complaint Management System – MumbaiRajasthan Jan Mitra, RajSWIFT, Lokmitra, RajNIDHITamil Nadu Rasi Maiyams - Kanchipuram; application forms related to public utilities, tender notices and displayHimachalPradeshMadhyaPradeshCommunity Information Centre. Forms available on the Meghalaya website under schemesrelated to social welfare, food civil supplies and consumer affairs, housing, transportArunachalPradesh,Manipur,Meghalaya,Mizoram,NagalandLok MitraInitiatives covering departmental automation, user charge collection,delivery of programme information, delivery of entitlementsSource: PC Quest13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe18 19Effectively implementede-governance can reduce thecost of public-governmentinteraction, raisegovernment and publicproductivity andsignificantly bringdown governancecosts.The fiscal deficitworry could bepartly addressed bylowering the cost ofservice deliverythrough e-governance
  • 11. ImplicationsOn May 18, 2006, the governmentapproved the National e-GovernancePlan (NeGP) to “make all governmentservices accessible to the common manin his locality, through common servicedelivery outlets, and ensure efficiency,transparency, and reliability of suchservices at affordable costs to realise thebasic needs of the common man”.NeGP aims to integrate e-governanceinitiatives into a single vision. As part ofthis, the government is evolving anenormous infrastructure network thatreaches the remotest corners of India.Services offered1. G2C or government-to-citizenservices (accessed by citizens):Information on agriculture services,change of address in records, billpayments, birth registrations.2. G2B or government-to-businessServices (accessed bybusinesses): E-filing, purchaseand sales invoices, issuance ofstatutory forms, informationservices, stamp duty calculations.3. G2G orgovernment-to-governmentservices (accessed by governmentdepartments): Collection of roadtax, open space bookings, issue ofdisability cards, online publication ofthe government gazette.Challenges• Resistance to change: Governmentofficials have felt indispensible for thelongest time. Processes that will easeservices for citizens are bound to faceresistance. There is a disconnect alsobetween departments’ needs and solutiondevelopers. E-governance projects requiregreat restructuring of administrativeprocesses – a sensitive matter thatrequires intervention at various levels,making it a long-drawn process.• Infrastructure and training: Not alldepartments have the necessaryinfrastructure, neither are they equipped tomaintain and retrieve governanceinformation electronically. There is nouniform policy that charts out ane-governance blueprint that can bereplicated. The biggest challenge is thelack of training. Often, computerisation andthe use of basic software programs aremistaken for e-governance. While severaldepartments have IT policies, not all ofthem have staff qualified to execute them.• Lack of awareness, low IT literacy:There is little awareness about theadvantages of e-governance. This iscompounded by a lack of trust, both inthe technology as well as in the process.There are low levels of IT literacy evenamong users.• Poverty: With close to 30% of thepopulation living below the poverty line,the digital divide is a serious roadblock.There are millions for whom even regularelectricity supply is a distant dream;computers with internet connectivity areunheard of. In such a scenario, there is onestrata of society that has access toe-governance while the other is stillhoping for basic education.Ravindra Datar, VP and global head ofmarketing, Cheers Interactive, said:“Some of the policies are really good.The minute you introduce proceduresthat facilitate easy accessibility, itreduces the role of middlemen andbrings in transparency. For instance,Aadhar [a unique identificationnumber that will facilitate access to allgovernment services] is a greatinitiative. However, the challenge liesin the last mile. Often, the ideas areexcellent but execution is a problem.There must be accountability.Awareness has to be created amongcitizens as well as governmentofficials. Policymakers will have tothink it through to ensure that thereare no loose ends.”Recommendations• Policymakers – politicians, seniorpublic servants, members of the IT taskforce – require hands-on training. Often,there is a disconnect between the policyand its implementation, making itimportant for all those involved in theimplementation and maintenance ofe-governance services to have IT skills.• Bring more beneficiaries into thedigitised beneficiaries net. This willmean more receive the benefits ofsocial welfare schemes directly intotheir bank accounts through the DirectBenefits Transfer Scheme, reducing thescope for embezzlement.• Measure pilot projects better.Engage an independent agency, whichwould also identify bottlenecks andcauses of delay.• Detailed documentation of successfule-governance projects is vital to build acentral resource that would be a readyreckoner for all agencies concerned.• Increase connectivity to make servicesaccessible to rural areas or providealternatives, such as e-governancekiosks in regional languages.• Ensure that security of sensitiveinformation is not compromised. Thiswill help win the confidence of citizens.13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe20 21Image:siasdeeconomica.blogspot.in
  • 12. Illegal allotments in Mumbai’sAdarsh Society, the CommonwealthGames scam, the Uttar Pradeshfoodgrain scam, irregularities in coalblock allocations, the Uttar PradeshNational Rural Health Missionscam… These were all merely the tipof the iceberg. The 2G spectrumscam – said to have caused a loss ofRs 176,645 crore ($32.15 billion) tothe exchequer – once again broughtinto focus corruption at the highestlevels as well as the nexus betweenmedia houses, the corporate sectorand politicians.In 2011, the 2G scam was ranked secondin ‘Time’ magazine’s list of ‘Top 10Abuses of Power’.Gone are the days when bribes used tocomprise of petty sums or ‘bakshish’.Now, corruption involves kickbacksworth tens of thousands of crores andthe siphoning away of public fundsmeant for social welfare.The Prevention of Corruption Act,introduced in 1988 and amended in2008, makes active and passivebribery, extortion, abuse of office, andmoney laundering criminal offences.The law even puts a strict restrictionon public servants’ involvement in theprivate sector. However, while the lawis in force, the rate of conviction underit is dismally low.13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe22 23India’s annushorribilis, 2010,was marked bya series ofcorruptionexposés. Thegovernmentcame underfire from theOpposition, themedia and thecommon man,as a series ofhigh-profilescams wereunearthedover the nexttwo yearsImage:commons.wikimedia.org
  • 13. major indicator of an economy’scompetitiveness. Corruption can alsoresult in a volatile political andeconomic environment that is notconducive to investment growth.Fair business competition is anothercasualty of corruption. The WorldBank’s Ease of Doing Business Indexreleased in 2011 ranked India 134 out of183 countries, significantly lower thanChina (79) and Brazil (127). Notsurprisingly, India’s FDI inflows in H12012 stood at a low $10.4 billion.Corruption has limited India’spoverty-reduction efforts as public fundsassigned for social spending – educationand healthcare, for instance – are oftenembezzled. India spends more than 2%of its GDP on uplifting the poor, but aWorld Bank Study said social welfareschemes for initiatives such as fooddistribution are so riddled with corruptionthat only about 40% of the foodgrainreaches the intended beneficiaries.Management guru CK Prahaladestimated that the investment,economic growth and employmentopportunities lost due to corruptionamount to more than Rs 2,50,000crore, or $50 billion, a year.Social discontent finally saw the angrymiddle-class, comprising mostly theyouth, taking to the streets, staginghunger strikes and anti-corruption streetprotests in 2011. This movement was ledby septuagenarian activist Anna Hazare,(pictured below) who proposed a revisedanti-corruption bill. The Jan Lokpal Billwould mean an anti-corruptionombudsman at the centre supported byLokayuktas in the states. It would alsomandate the appointment of judges andIndian Administrative Service officersthrough a transparent process, andnon-involvement of the centralgovernment in the creation ofLokayuktas. The opening up of FDI inretail and other reforms are set to givegrowth a major boost. If corruption iscontrolled, India can get back to the9% growth path. On the flipside, Indiacould suffer an economic debaclewith investment and growthopportunities eroding if corruptionremains unchecked.Recommendations• Transparent,speedyenforcementofexistinglawswillgoalongwayincurbingcorruption,evenintheabsenceofaLokpal.• Corporate India is not immune tocorruption. Article 21 of the UNConvention against Corruption calls forlegislative measures to ensure thatprivate sector corruption is criminalised.India is a signatory to it, so it is up to theMinistry of Home Affairs to introducethe necessary amendments to theIndian Penal Code. However, thegovernment should ensure that there isno harassment in the name of the law.• Introduce provisions to protectwhistleblowers. The WhistleblowersProtection Bill, yet to be approved, willencourage public participation inexposing corruption.• Industry bodies must adopta zero-tolerance approachtowards corruption.There have been other anti-corruptioninitiatives, such as the Right toInformation Act, Guidelines onCorporate Governance, the CentralVigilance Commission and the proposedNational Anti-Corruption Strategy, butnone has effectively curbed the malaise.Even the judiciary is not without its shareof problems. People are discouragedfrom using the legal recourse in cases ofcorruption because of politicalinterference, complex laws, ignorance ofthe legal framework and delay inimparting justice.The private sector, which was for so longa victim of corruption, is itself underscrutiny. A survey by Marketing andDevelopment Research Associatesreleased in January 2010 showed that 9out of 10 employees working in privatefirms felt that corporate India wasfraught with corrupt practices. Theprivate sector and politicians workhand-in-glove to perpetrate massivecorruption, felt respondents.Many projects hit roadblocks due to redtape, rigid laws and labour regulations,resulting in huge losses. The politicalclass steps up to provide relief in returnfor kickbacks. Often, the private sectorobliges. The unwritten rule is thatnothing happens without a bribe.Due to the complete lack oftransparency, national resources andpublic contracts are doled out to thosewilling to pay the decision makers.Rarely are public servants andbeneficiaries accountable.The economic impact of corruption wassummed up by Comptroller and AuditorGeneral (CAG) Vinod Rai at the 11th AllIndia Lokayuktas Conference 2012 inNew Delhi: “Economic growth cannot bemade sustainable, cannot be madeinclusive, unless it is based ontransparency and accountability.” TheWorld Bank too identified corruption as amajor obstacle to inclusive social andeconomic growth.ImplicationsBefore 2010, even double-digitgrowth seemed within grasp.At that time, inflation wasunder control. Economistspredicted that India wouldovertake China’s growth rateby 2013 and would remain thefastest growing nation for thenext 25 years.Cut to 2012-13. Chidambaramestimated the fiscal deficitat 5.2% for 2012-13; this putspressure on India’s foreignexchange reserves and therupee. There is no doubtthat corruption has resultedin a significant loss oftax revenues.The impact on growth cannot beescaped. Kaushik Basu, chief economist,World Bank, projected a growth rate ofjust around 6% for India in 2013.According to advance estimates by theCentral Statistical Organisation, growthfor 2012-13 would be less than 5%,compared to 6.2% in 2011-2012. Theheady days of 9% growth are behind usfor the foreseeable future at least.According to a KPMG report, theall-pervasive high-level corruption willdamage India’s credibility amongforeign investors and stymie economicdevelopment, turning the target of 9%growth into an impossible dream.Former Supreme Court Judge NSanthosh Hegde has held corporate andpolitical corruption responsible for thecountry’s economic woes. Corruptionwas also discussed at length at theWorld Economic Forum Annual Meeting2013 in Davos. The CorruptionPerceptions Index 2012, released byTransparency International, ranked India94 out of 176 countries surveyed, with ascore of 36 on a scale from 0 (0 = highlycorrupt) to 100 (100 = virtually nocorruption), warning that rampantcorruption could lead to social instabilityand dwindling investor confidence.According to the World EconomicForum’s Global Competitiveness Index2010, freedom from corruption is aIT GOES ON AND ON ...SCAMLOSS (IN RS CRORE)TO THE EXCHEQUERKarnataka Wakf Board land 200,000Coalgate (coal blocks allocation) 185,5912G spectrum 176,645Uttar Pradesh foodgrain 35,000Goa mining 35,000Commonwealth Games 95Sources: CAG, media reportsFDI(IN $ BILLION)Source: United Nations Conference onTrade & DevelopmentFDI INFLOWS (H1 2012)COUNTRYChina 59.1Brazil 29.7Russia 16.3India 10.413 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe24 25Image:thanthanpal.blogspot.in
  • 14. MEDICINEMEDICINEThe world over, life expectancy has increasedon the back of improved sanitation, medicalservices and access to foodFor India to achieve a robust healthcaremechanism, it has to overcome severalchallenges. Inadequate facilities anddiagnostics, insufficiently trainedpersonnel, and geographical andsocio-economic barriers are majorroadblocks. Geographically, for instance,transportation and infrastructure make itdifficult to build a network that makesdrugs accessible to people in theremotest corners. Lack ofculturally-sensitive services or ethnicunderstanding are also drawbacks.Gender discrimination means womenhave minimal access to healthcare,making them more susceptible todisease and higher mortality rates.However, the high cost of drugs isperhaps the biggest barrier. India hasthousands of generic drug makers.Some Indian multinational generic drugproducers supply most of the world’squality low-cost generics. A focus onimproving quality standards andensuring more stringent regulatoryoversight for domestic genericsmanufacturers would mean that millionsof needy people would benefit frombetter access to low-cost genericmedicines, greatly reducing theeconomic and social burden of disease.In India, the last decade has seen a shiftfrom communicable diseases to chronicailments such as diabetes,cardiovascular diseases and severalconditions that can be treated andmanaged by low-cost generics thathave a proven track record. If thecountry is serious about healthcarereform, it needs to prioritise access tothese medicines.For a developing country like India,meeting the healthcare needs of its vastpopulation is a massive challenge. Thisconcern is even more crucial in the caseof millions living below the poverty lineand who do not have access tohealthcare. It is here that genericmedicines can play a key role in breakingdown the burden of disease.In 2008, the government launched JanAushadhi, a chain of medical stores runby the Department of Pharmaceuticalsthat aims to make generic drugsaccessible to low-income groups.Unfortunately, the scheme was plaguedby irregular supplies, lack of properdistribution channels, insufficient genericprescriptions by physicians and, mostimportantly, lack of awareness amongconsumers. Currently, there are 112 JanAushadhi stores that sell 348 medicinesunder the National List of EssentialMedicines (NLEM). The departmenthopes to increase the number of storesto 3,000 under the 12th Five Year Plan. Atough ask, considering the original planwas to have 600 stores by 2012.AVAILABILITY OFCHEAP MEDICINESStates/UnionTerritoryJan AushadhiStoresRajasthan 53Punjab 21Orissa 14Himachal Pradesh 5Haryana 4Andhra Pradesh 3West Bengal 3Delhi 3Chandigarh 3Uttarakhand 2Jammu & Kashmir 1All India 112Source: http://janaushadhi.gov.in/13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe26 27Image:the-healthy-omnivore.com
  • 15. A report in ‘The Economist’ pointed outthat the law bars patents that are onlyminor variations of existing drugs, apractice known as ‘evergreening’.According to the report, “Drugreformulations are often used to extendpatents elsewhere; they get noprotection in India. The country also hasbroad criteria for ‘compulsory licensing’.A WTO agreement allows countries, insome instances, to force a firm tolicense a patented drug to a genericcompany. India’s rules give officialsbroad powers to do this.”Now, both provisions are under attack.In 2006, India denied Novartis a patentfor Glivec, calling it an unpatentablemodification of an existing substance,imatinib. Novartis insists this isnonsense. Only by making it in saltform, imatinib mesylate, did Novartishave a proper drug. The body absorbedthe medicine 30% more easily. Thegovernment stand was recently upheldby the Supreme Court.Paul Herrling, the chair of Novartis’sInstitute for Tropical Diseases, had saidearlier that the case was a test of what ispatentable in India. “We are beingaccused of evergreening,” he says.“Having that concept applied to Glivec,which was one of the majorbreakthroughs in cancer therapies, iscompletely ridiculous.” Michelle Childs ofMédecins Sans Frontières, a non-profit,counters that drug firms such as Novartisshould not win patents for minorimprovements. “This would keep genericsoff the market, driving up prices.”While the controversies continue, thegovernment is working on measures toprocure cheaper drugs. Plans to offerfree generics in public hospitals wouldboost sales of cheaper alternatives.On the other end of the spectrum, areport in the ‘The Economic Times’suggested that “the government isapprehensive that the Indian drugcompanies’ strategy of launchinggeneric versions of patented drugscould trigger retaliation from overseascountries that may hit the country’sambitious drug export plans”.Talking about the complexities involved,from licensing and patents toproduction of generics, DG Shah, of theIndian Pharmaceutical Alliance, whichrepresents major generic companies,told ‘The Economist’: “We realise thatthe industry will take a hit. We’re tryingto find a solution so that thegovernment’s concerns on access andaffordability are addressed withoutthreatening the long-term growth of thepharmaceutical industry.”For patients and health advocates, thecompetition between majorpharmaceutical producers and localgeneric drugmakers spells good news asmedicine costs are set to get cheaper.Recommendations• Ensure regular supplies and efficientdistribution so that low-cost generics areeasily available. Studies show that evengiving away medicines for free will notwork unless the supply chain is strong.• Sensitise physicians about the need toprescribe low-cost generics, especiallyto those who can’t afford medication.Physicians can turn advocates byconsistently prescribing generic drugsand driving home the point that theireffectiveness is parallel to that ofbranded drugs. Till that happens,generic drugs will continue to facecredibility issues.• Pricing policies alone cannot boostaccess to medication; put in place aunified approach that involves allstakeholders – doctors, diagnosticcentres, patient groups, healthcareservice providers, insurance firms, thepharmaceutical industry, non-profits,academia, central and stategovernments, and the media.• Awareness about generic drugs iscritical. Highlight the fact that India hasthousands of generic drug-makers andsome Indian multinational producerssupply most of the world’s qualitylow-cost generics.• A sustained effort is needed to makeavailable resources and infrastructureto each individual. Extend publicservices and encourage thepublic-private model.ImplicationsIndia’s pharmaceutical boom wasbound to create fierce competition.For international drugmakers battlinga stagnating market in the West, Indiais an exciting opportunity. This alsonecessitates a framework for theprotection of patents and intellectualproperty. With a thriving genericsindustry, cloned drugs make up for90% of the Indian market share. Drugpatent laws are nascent and thegovernment is supporting generics toensure that prices stay low.In a country where pharmaceuticalpatents were not even recognised formore than three decades, localmanufacturers imitated drugs toproduce cheaper versions. It’s only afterjoining the World Trade Organisation(WTO) in 1995 that India was compelledto change its patent policy. The policy, inplace since 2005, has many loose ends.The drugs available at Jan Aushadhi stores are anti-inflammatory, anti-bacterial,anti-infectives, anti-tuberculosis, anti-fungal, intravenous fluids, vitamins,gastro-intestinal, cardio-vascular, respiratory, anti-diabetic, cortico-steroids,anti-malarial and accines. Generic drugs are meant to be inexpensive but thedifference in prices from branded drugs is at times drastic. This makes theirproduction and sales even more important.CHEAP, BUT EFFECTIVEMedicine DosageAverage MRP ofBranded Medicines(In Rs)Price of GenericsSold at Jan AushadhiStores (In Rs)Ciprofloxacin 250 mg 55 11Ciprofloxacin 500 mg 97 21Diclofenac SR 100 mg 52 3Cetrizine 10mg 37 3Paracetamol 500 mg 14 2Nimesulide 100 mg 39 3Cough Syrup 110 ml 33 13Source: Press Information Bureau13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe28 29Image: marksolock.wordpress.comImage: marksolock.wordpress.com
  • 16. AffordablehousingThe housing sector contributes5%-6% of India’s GDP. Whilethe strengthening of policieswould fuel the real estate andinfrastructure segment, aspecial focus is required onaffordable housingAccording to the Confederation of RealEstate Developers’ Associations of India(CREDAI), there is a shortage of 1.81crore houses at present, and another 3crore would be needed by 2020. Thedemand is unlikely to contract for atleast two decades. One reason for this isthat India’s urban population isexpected to rise from the present 28%to 40% of overall population by 2020.Amod Kumar Singh, VP (low Incomeand rental housing), Tanaji MalusareCity, a large affordable housingproject close to Mumbai, said at apanel discussion hosted by the ‘DNA’newspaper that they received 66,000applications for their 3,000 homesin Karjat.As they urbanise rapidly, developingcountries face a severe challenge in theform of housing. India too is strugglingto provide housing to its middle- andlow-incomepopulation.Thegovernment’scontributionhas beenminuscule,with privateplayers beingthe majorproviders.One of theprimaryproblems isthe lack ofclarity onwhatconstitutesaffordable and low-cost housing. Atpresent, the middle and upper classesare being considered for the affordablehousing section when the need for suchhouses is largely for thelow- and middle-incomegroups.Also, there is a lack ofclarity on the pricebracket for affordablehomes. The standarddefinition in India is whena householdpays no morethan 30% of itsannual incometowardshousing.Homes in theRs 6 lakh-Rs15 lakh, Rs 20lakh and Rs 25lakh-Rs 40 lakh segment are allcategorised as ‘affordable’. Notsurprisingly, this has led to greatconfusion.Conversion of land useProject letter of intent and license / Intimationof disapproval (IOD)Pre-construction approvals from state level bodies*Pre-construction approvals from central bodies*Approvals for construction plan sanctionApprovals for commencement of constructionConstruction periodInspection and approval procedure for building completionOccupancy certificate receipt from dateof completion of above0 12 24 32 60MonthsROADBLOCKS GALOREApproval Process after Land Acquisition TillCommencement of Construction (24-32 months)8-12 (Months)4-65-75-72-32-32-36-824-30Source: CREDAI- Jones LangSaile Real Estate Transparency Survey 2011Note: The stage Pre-construction approvals from state level bodies and central bodies can happen simultaneouslyDoing Business 2011, World Bank and International Finance Corporationhouses is largelylow- and middle-incomegroups.Also, there is a lack ofclarity on the pricebracket for affordablehomes. The standarddefinition in India is when13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe30 31
  • 17. While real estate players are aware ofthe need for affordable houses, theysay they need governmentalassistance. Although the margins arelower than in luxury housing, the highdemand ensures that affordablehouses are easily sold. However,government policies, difficulty inacquiring land, lack of adequateinfrastructure and restrictive buildingnorms have kept many large playersaway. In the ‘Doing Business 2011’report, the World Bank and theInternational Finance Corporationranked India a low 177 out of 183countries on ease of getting permits.The time taken to obtain approvals couldstretch to two-and-a-half years.Another problem is that, while demandis high, many consumers are unable toraise money post the down payment.Even if the buyers borrow money, thereis no guarantee that they can furnish therepayment installments.Sometimes, the challenge is lack ofdocumentation. Often, buyers oflow-cost homes are not part of theorganised sector and hence do not havethe necessary income proof.ImplicationsA report by Jones Lang LaSalle (JLL)estimated that 88% of the housingshortage was suffered by theeconomically weaker sections and 11%by lower-income groups.Traditionally, developers have beeninterested only in high-end housing dueto the high margins. However, during the2008 slowdown, the affordable housingsector became popular for investmentas the demand for high-end homescontracted. Large players – DLF,Unitech, Tata Housing, MahindraLifespaces – and smaller onesannounced forays into this sector.However, DLF seems to have rethoughtits 2009 announcement that it wouldbuild 100,000 flats in the Rs 20-lakhrange in major cities. Rajeev Talwar,executive director of DLF, was quoted assaying that they no longer found thesegment profitable. Does that mean thatinvestments in this sector are losingtheir charm? According to AshutoshLimaye, head of research and real estateintelligence services at JLL India, thesector is bound to grow due to the highunmet demand which won’t reduce inthe near future.While affordable homes are available insmaller cities like Raipur, Kolhapur,Sangli and Satara, they are rare inmetros like Mumbai, Delhi andBangalore which account for 20%-50%of the need. Some real estatedevelopers feel that an increase in thenumber of rental homes could partiallysolve this problem.Satellite cities could provide a solution too.There are two major aspectsto this: cost of land wouldbe low, butinfrastructure –including transport –would have to beput in place for thedevelopment to besuccessful. As of now,satellite cities have enjoyedmixed success due to lack of planning.Sunil Mantri, MD of Mantri Realty andthe vice-president of the National RealEstate Development Council(NAREDCO), told Magicbricks.com thatclearances need to be issued within 48hours for affordable housing tobecome a reality.The success of China on this front isworth noting. In 2007, China’sgovernment allotted $1.2 billion tolow-income families’ housing. The aimwas to house 20% of urbanlow-income families by the end of2015. China managed to commenceconstruction with 7.2 million affordablehousing units, exceeding the annualtarget of 7 million.Recommendations• Develop infrastructure outside cities.If satellite cities are to work, amenitieslike electricity, water and high-speedtransport must be available.• Promote public-private partnerships.Although private players are already inthe affordable housing space, thegovernment must encourage more toinvest in this sector. For this, it needs tobe more cooperative on the permits andpolicy front. An article in ‘The EconomicTimes’ in July 2012 said that privateplayers were reluctant to enter thesector. According to Navin Raheja,president of NAREDCO, lawspertaining to this sector need to berevisited so that efforts are directed atthe right audience.• Promote efficient technology, specificdesign strategies, optimum utilisationof resources and lighting in order toreduce costs.• Provide incentives for builders.According to Mantri, builders pay up to40% of the final sales price in taxes.Incentives like exemptions of service taxor stamp duty, and waiving of customsand excise duty forimportedconstruction materials, would help.• Ensure greater transparency. TheHousing and Urban Poverty AlleviationDepartment (HUPA) has demanded‘infrastructure status’ for the housingsector, which would increase the flowof funds and encourage players to setup affordable housing projects. Anarticle in ‘The Financial Express’ inFebruary 2013 said that thegovernment would present the RealEstate (Regulation and Development)Bill 2013 in Parliament. The RealEstate Regulatory Authority,established through thebill, would safeguardbuyers’ rights.13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe32 33Image: homeloanguru.co.inImage: fuzzywaffle.comImage: architectada.com
  • 18. Agriculturefinanceandfood pricesAgriculture accounted for 14% of the GDP in FY2012 and nearly 52% ofthe employment in rural India. Sixty-six years after Independence, most ofour agriculture-related problems remain unresolved. Poor infrastructure;lack of irrigation, mechanisation and institutional credit; as well as thedominance of middlemen in the farm-to-plate chain plague the sectorA CREDIT CRISIS ON THE FARM FRONTStates Number of farmer house-holdsNumber of Indebtedfarmer house-holds% of indebtnessAndhra Pradesh 6033900 4949300 82Tamil Nadu 3888000 2895400 74.5Punjab 1844200 1206900 65.4Kerala 2194600 1412600 64.4Karnataka 4041300 2489700 61.6Maharashtra 6581700 3609800 54.8Haryana 1944500 1033000 53.1Rajasthan 5308000 2782800 52.4Uttaranchal 896200 64400 7.2Meghalaya 254300 10300 4.1Arunachal Pradesh 122700 7200 5.9Source: Press Information BureauThe irony of the world’s fourth largestagricultural producer – in terms ofproduction, the government hasdeclared India ‘self sufficient’ – beingranked 134 among 187 countries on theHuman Development Index isinescapable. Roughly 212 million peopleremain undernourished despite usablefarmland, manpower, largely favourableclimatic conditions and perennial rivers.The biggest problem is the lack offormal credit, which thrusts farmers intothe clutches of local moneylenders andeventually leads to the loss of their land.A large segment of small and marginalfarmers have no access to institutionalcredit. There is a stark difference incredit flow between underdevelopedregions and those that have betterinfrastructure or are closer to urbanareas. Lack of information has resultedin farmers not understanding thebenefits of formal credit. According toan article in ‘The Economic Times’ inApril 2012, only 50% of farmers avail ofagricultural credit, both formal andinformal. According to a NationalSample Survey Organisation (NSSO)report on indebtedness of farmerhouseholds, 43.42 million of the 89.35million households are in debt.The middleman is themain connectionbetween farmers andmarkets. A lot has beensaid about the benefitsof middlemen – theyare sources ofinformation for farmersand drivers oftechnology transfer,they are an effectivelink to exporters, etc.However, in practice,middlemen mainly playthe role of purchasingproduce at low ratesand selling it at higher rates in cities,pocketing the difference. The farmers’financial position remains unchanged.This system also ensures that foodprices remain high, leading to inflation,which has been the cause of greatdisquiet in India.Farmers in western Uttar Pradeshsupported the government’s move toallow FDI in retail as it would eliminatemiddlemen and help them get betterprices for their produce. Hari Om, afarmer from western UP told ‘IndiaToday’ magazine that they paid10%-15% commission to agents. Theywere paid Rs 2-Rs 3 for a kg of potato,which was sold at double the price towholesalers. The eventual consumerpaid Rs 8-Rs 10 at a local market andmuch higher in the cities.Farmers say the odds are stacked infavour of the middlemen. In thewholesale markets, middlemendecide the crop rates and get acommission. Farmers are not allowedto sell their produce directly to tradersand they bear all the incidental costs.One of the reasons farmers aredependent on middlemen is the lackof storage facilities; middlemenensure that the produce gets to theconsumer on time.13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe34 35Image:kalai-tzidis.gr
  • 19. ImplicationsA farmer’s main income is the price heprocures for his/her crop. However, theconstraints and debt burdens havedriven many farmers to suicide.According to the National CrimeRecords Bureau, 2,70,940 farmerscommitted suicide between 1995 and2011 with Maharashtra topping the list.Andhra Pradesh, Karnataka,Chhattisgarh, Madhya Pradesh, TamilNadu and West Bengal have alsoreported several farmer suicides.An article in the ‘Business Standard’said that some southern banks wereoffering interest rate arbitrage on loansby which farmers could take anagriculture loan at 4% and keep themoney as a fixed deposit in the samebank at 9%. This results in the farmerearning the interest rate difference andbanks maintaining liquidity. However, it’snot clear whether all banks areproviding this benefit.An article in ‘The Times of India’ inAugust 2012 detailed the strangleholdenjoyed by moneylenders. Forexample, private moneylenders inMaharashtra’s Bhandara district gavecrop loans of Rs 150 crore to 75,000farmers at a monthly interest rate of5%-10%, which is cumulative. Bankers,meanwhile, ignored the stategovernment order to disburse loans tosmall and marginal farmers. Farmers,whose average land holding is 2 acres,had no choice but to approachmoneylenders who then pre-fixed therate of the paddy before the harvest,causing the farmers huge losses.In this context, the Budget 2013-14proposals on agricultural credit wereencouraging. Agricultural credit wasincreased to Rs 700,000 crore from therevised estimate of Rs 575,000 crore for2012-13. Farm loans would be providedat 4% to farmers who make timelypayments. This discount scheme wouldbe available for loans by private sectorbanks apart from loans disbursed by thegovernment and cooperative banks.Timely availability of agricultural creditat reasonable rates, especially for smalland marginal farmers, is crucial.Additionally, the budget also providedRs 500 crore for crop diversification topromote technological innovation andto encourage farmers to choose cropalternatives. Rs 1,000 crore wasallocated for extending the GreenRevolution to eastern India, particularlyAssam, Bihar, Chhattisgarh and WestBengal. Finally, to improve productivityof land and water use, the allocation forintegrated watershed programmes wasincreased from Rs 3,050 crore in2012-13 to Rs 5,387 crore in 2013-14.The Indian agricultural system is highlydependent on the monsoon, always agamble since it can be irregular andinadequate. Irrigation facilities areneeded to provide for areas with scarcerainfall and in months when there is norain. Soil types vary across the country,which means that the quantity of waterrequired also varies. As a country withmore than a billion mouths to feed,India can’t afford to be so vulnerable.The lack of mechanisation is worrying.Most land holdings are fragmented,which makes it unviable for smallfarmers. Mechanisation would increaseproduction, productivity and profitability.China, India’s biggest competitor, hasbeen taking large strides on this front.According to an article in the ‘ChinaDaily’, the Chinese government isproviding machinery purchase subsidiesto farmers. In 2011, the country reacheda farm and harvest mechanisation levelof 54.8%, an increase of 22.5% from2002. This resulted in more foreigninvestors flocking to China.India, meanwhile, is struggling. Thelevel of progress across the country isuneven. The north – Punjab, Harayana,Uttar Pradesh – have shown progresswhile north-eastern states are laggingbehind due to their hilly terrain andsocio-economic conditions. Somewestern and southern states – Gujarat,Maharashtra, Rajasthan, parts of TamilNadu – have made some ground due tothe increase in irrigated land area andhigher awareness of modern farmingpractices amongst farmers.According to the National Bank ofAgriculture and Rural Development(NABARD), India will have to double itsfood production by 2020. For this,mechanisation will have to play aninstrumental role. The modern plough is200% to 300% more efficient than thetraditional one; efficient machineryincreases crop productivity by 30% andallows farmers to grow a second crop. At arecent conference on farm mechanisationin New Delhi, Union Agriculture and FoodProcessing Industries Minister SharadPawar emphasised the need for farmmechanisation to satisfy the projectedfoodgrain demand of 280 million tonsby 2020-2021.Recommendations• Increase access to institutional creditfor farmers. The Aadhaar project couldbe the key. Most farmers in rural areashave no proof of identity. This leavesthem out of the banking net. TheAadhaar card would allow them to availof formal credit.• Involve the private sector in developingagriculture infrastructure. Agriculturerequires huge investments. This wouldpay off with farmers getting betterprices for their crops and middlemenbeing left out of the loop. In England,the government promotes farmermarkets so that farmers have morecontrol over their earnings. There are nomiddlemen and farmers diversify theirskills as they gain experience inmarketing and business, and get anopportunity to network. The localeconomy benefits by promoting localbusinesses and employment.• Train farmers in the latest technologyand make provisions for them to accessit. Machinery rentals are one way ofachieving this. At the same time,counsel farmers against taking drasticsteps in times of financial stress.• The UK has come up with the SinglePayment Scheme through which fundsare provided to farmers to grow nuts,protein crops and those needed forenergy production. Farmers growingsuch crops receive a pre-fixed premium.There is a lesson here. Not all farmerscan avail of institutional credit, andprovisions need to be made to assistthose who have no collateral.• Encourage micro-credit. Microfinanceinstitutions assist farmers and smallenterprises, and promoteentrepreneurship. Due to their flexibility,knowledge of the local problems andpresence in remote areas, they enjoybetter acceptability.• Mobile banking could be lookedupon as way to reach people in remoteareas. The high cost keeps mostformal credit institutions away fromsuch regions; also, transaction valuesare very low. Mobile banking couldhelp the poor open accounts andtransact securely.• Agricultural scientists havesuggested a pilot project to establish‘nutri-farms’ that experiment with newcrop varieties rich in micronutrients. Aprovision of Rs 200 crore for this wasmade in Budget 2013-14.• Promote gender-sensitive farmequipment since the role of womenfarmers in agriculture is increasing.13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe36 37Image:blog.ennovent.comImage: gtresearchnews.gatech.edu
  • 20. India is struggling to come to terms withthe initiation of foreign direct investment(FDI) in the retail sector. While the debateon whether 51% FDI in multi-brand retailwill help resurrect the flagging growth ratehas not ended, five months after theproposal became law very few investmentbids have been received.Global retailers want more clarity onIndia’s stiff sourcing and investment rules,and are adopting a wait-and-watch policy.The political opposition to it hasunnerved many. The Bharatiya JanataParty (BJP), the largest Oppositionparty, has declared that it would scrapthe retail policies should it come topower in 2014. The BJP is not averse toFDI, only FDI in multi-brand retail. Italleges that there is no provision tosafeguard the interests of traders andfears that the entry of global retailerswould lead to more unemploymentand farmers being pressurised to selltheir produce at low prices.The political divide is wide. States andunion territories such as AndhraPradesh, Maharashtra, Assam, Delhi,Haryana, Jammu and Kashmir, Manipur,Rajasthan, Uttarakhand, Daman and Diu,and Dadra and Nagar Haveli haveokayed FDI in multi-brand retail. Butothers such as Karnataka, Tamil Naduand Kerala – home to major metrossuch as Chennai and Bangalore – havegiven it the thumbs down.The Opposition also believes that FDI inmulti-brand retail would snatch awaythe livelihoods of those engaged intraditional grocery retail, which accountsfor 10% of total employment in India.Most global retailers would have amodel that requires a nationwide rollout.Few would want to invest in a countrywhere several metro cities are out ofbounds to them.Also, there are problems related tonorms that mandate at least 30%sourcing from small-scale industriesand 50% of investment in back-endinfrastructure. Some formats, such asfashion and electronics, don’t requiresuch investments.All this has meant that India has beendeprived of huge investments, inaddition to the retail sector’s naturalevolution being stunted.Harminder Sahni, MD of retailconsultancy Wazir Advisors, told the‘Economic Times’ that big retailers arenot buying the India story. If they had, hefelt, they would have lobbied hard forthe easing of norms.ImplicationsAccording to an Assocham report, thesize of India’s overall retail sector wasRs 23,00,000 crore in 2011-2012 and isestimated to double to Rs 47,00,000crore in five years. Considering India’sRETAIL SECTORINDIA 7 1,210 51BRAZIL 36 205.7 100RUSSIA 33 143.1 100CHINA 20 1343 100INDONESIA 30 242.3 100SOURCE: RESEARCH REPORTSCOUNTRYORGANISEDRETAILSHARE (%)POPULATION(MN)FDI ALLOWED(IN %)SOURCE: RESEARCH REPORTS13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe3938While FDI inmulti-brandretail is now areality, theroad ahead isa rocky oneImage: ruralmarketing.org
  • 21. to 15% growth for the overall retailsector, attracting investments of Rs40,000 crore in multi-brand retail,while the organised market is likely togrow to Rs 4,80,000 crore.Recommendations• Take a firm stance on FDI, which hasalready cleared the parliamentaryhurdle, in multi-brand retail despite theopposition. This would make investorsconfident about India.• Fix problems in the regulatoryenvironment, bring more clarity toreforms. Multinationals are skepticaldue to the ever-changing guidelines,complex market scenario andpolitical unrest.• Make it mandatory for companies toprocure raw materials from India alone.A regulator could monitor whether thenorm is being followed and deal withfarmers’ and traders’ grievances.• Encourage traditional retail alongsideFDI. Promote modernisation, innovationand competitiveness among traditionalretailers. Take a cue from Singapore; itsapproach is to “cherish, but upgradeand modernise”.• Upgrade the traditional supply chain.The major difference between modernand traditional retail is the effectivenessof the supply chain. Retailers are able toprovide quality products at low cost dueto their strong supply chain. Strengtheninfrastructure and services at wholesalemarkets from which small shops sourcegoods. China and Mexico have adoptedthis policy for traditional retailers andreaped the benefits.• Amend state laws to allow directmarketing, contract farming andmarket yards in private andcooperative sectors. So far, only 17states and union territories have madesuch an amendment.population, the share of organisedretail is minuscule compared to othernations. This is mainly due to theheterogeneity of consumer tastes andpreferences, which makes it difficult tostandardise offerings.FDI in retail would bring about severalpositive changes. The much-neededcold chain and logistics system would bedeveloped and strengthened, whichwould reduce wastage and promoteoptimum utilisation of agriculturalproduce. Warehouses in India lack inoptimal size, layout, ventilation,inventory management and storage.This situation must be corrected if theagriculture chain’s efficiency is to beimproved. Foreign investments in coldstorage have been insignificant so far,even though 100% FDI in cold storagehas been permitted through theautomatic route. FDI in retail wouldencourage foreign investments in coldstorage facilities.Retailers would bring with them thenecessary agricultural technology forcreating critical physical andinstitutional infrastructure. In a recentinterview, Nancy Powell, Americanambassador to India, said that a bettersupply chain would drastically reducewastage, which currently stands at astaggering 40% in India.Experts pointed out that the entryof global retailers would ensurebetter prices for farmers as theywould directly engage and sourcefrom them, eliminatingintermediaries. This process wouldmake the entire agriculture valuechain effective and short,benefitting the final consumer ashe/she would pay less for theproduce. This would tame foodinflation, which has been a majorworry over the last two years.There would be greater employmentopportunities across the agroprocessing, sorting, marketing, logistics,back-end and front-end retail spaces.Studies show that one person is neededfor 350 sq ft to 400 sq ft of retail space,which translates to 15 lakh jobs infront-end retail by 2017. Additionalemployment would be generated on thesupply chain front to supplement thebusiness model.Umesh Patel, analyst at KR ChokseyShares and Securities, said that withthe advent of FDI, the retail sectorwould take massive strides andcatalyse GDP growth. The benefitswould take shape in five to sevenyears. Organised retail is expected togrow at 24% by 2016-17 as comparedSource: ForbesIndia.comHOW FDI IN RETAIL WILL AFFECT DIFFERENT SEGMENTSIMPACT LimitedWHYRetailers across the world like to work with a small group ofselect vendors for economies of scale. Nevertheless, thesupplier base will be larger in number and smaller inturnover than elsewhere, because of regional diversity inconsumption patterns.SMALL MANUFACTURERSINFRASTRUCTURE, COLD CHAINSIMPACT LimitedWHYEach retailer will invest only for what his own businessrequires.IMPACT Very littleWHYThey operate in small towns and rural India, and serve thelower social class customers as well. Modern retail willtarget the top income layers in urban areas. In bigger cities,many kirana shops will morph and specialise, offeringphone-in home delivery, e-commerce and the like.KIRANA STORESJOBSIMPACT LimitedWHYA new skill category called retail jobs will be created. Thebirth of modern retail could improve wage rates intraditional retail.13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe40 41Image:hidecibels.wordpress.com
  • 22. AviationThe aviation sector was supposed to be a symbolof the new India. Once touted as red-hot, theindustry has had a hard landing. Crippled by weakbalance sheets, insurmountable debt, high taxes,insufficient infrastructure, high costs and restrictiveinvestment policies, Indian aviation is struggling13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe42 43Image: wlppr.com
  • 23. Earlier, the government had permittedforeign investors only from outside theairline business to buy up to 49% indomestic airlines. In September 2012,spurred at least in part by theKingfisher debacle, the Cabinet allowedforeign airlines to buy up to 49% inlocal airlines. Investments made byforeign airlines would not be throughthe automatic route, but subject tovarious preconditions such as thechairman and two thirds of the directorsbeing Indians, and clearances from theForeign Investment Promotion Board(FIPB) and the Home Ministry.Additionally, substantial ownership andeffective control of the airline mustremain with Indians.High taxes are the biggest deterrent toaviation growth. The service tax of12.36% on tickets and other services,such as landing and air navigation, ismuch higher than global standards.Adding to the burden are high fuel costson account of the 8.24% excise duty andvariable state taxes, ranging from 4% to30%. Aviation turbine fuel (ATF) is adecontrolled product, its prices reviewedand fixed fortnightly by oil marketingcompanies on the basis of internationalcrude prices. Globally, fuel costsaccount for 20%-25% of airlines’ costs,but in India it is 45%.Even though the government approveddirect imports of ATF in 2012, no airlinehas successfully done it due to highinfrastructure costs – tankers, pipelines,refuelling capacity, storage.Airlines have also been complainingabout the high ground handling costsat the country’s two major airports, NewDelhi and Mumbai. In April 2012, theAirports Economic RegulatoryAuthority (AERA) approved a 346%hike in charges related to landing,parking and other tariffs at Delhiairport, making it the country’s mostexpensive airport for airlines. Incontrast, major aviation hubs acrossAsia – Bangkok, Dubai, Singapore,Beijing – have kept charges low toenhance connectivity and business.Regional connectivity is yet anotherchallenge. Anyone trying to fly betweensmall cities is forced to use multiplemodes of transport, thereby increasingtravel time. Take the case of Mysoreairport, which was renovated at a cost ofRs 80 crore in May 2010. It has acapacity of only 200 passengers, withonly Spicejet operating flights fromthere to Bangalore and Chennai. Also,tourist destination states such asHimachal Pradesh and Uttarakhandhave negligible air connectivity. Work onthe Navi Mumbai airport, which wasexpected to provide much relief to theovercrowded Mumbai airport, has noteven begun. Its first phase was to haveopened in 2014.ImplicationsEven though the government hasopeneduptheskiestoforeigninvestment,global carriers have been cautiousabout India. Of course, FDI is not apanacea. Unless the other issues listedabove are sorted out, FDI will not help.What can’t be denied is that the infusionof funds, knowledge and global bestpractices will help Indian carriers.Experts said that the 49% investmentcap is unattractive, unless sweetenedwith tax breaks and full freedom torun the airline. AirAsia Group CEOTony Fernandes had said earlier thatthe aviation environment and taxstructure need to be more conducivefor low-cost operations.The government needs to take decisiveaction so that the benefits of such asector are shared across the economy.Let’s not forget that India’s aviationsector supports 1.7 million jobs, handles90% of international tourists andcontributes 0.5% of the GDP.Recommendations• Introduce policy and infrastructurereforms to make India a global aviationhub. Don’t view equity infusion merelyas a means to bail out carriers, but toimprove their credit profiles throughstrategic and operational tie-ups.• Direct states to remove or reduceduties. If ATF duty is cut by 5%-10%,Indian aviation could be very different.• Speaking on the sidelines of theGeneral Assembly of InternationalFederation of Air Traffic SafetyElectronics Association’s meeting inSeptember 2012, Aviation Minister AjitSingh urged the petroleum ministry todeclare ATF a notified product so thatprices can be lowered. Piyush Gupta,partner, Kochhar & Co, said: “TheMinistry of Civil Aviation and Ministry ofPetroleum and Natural Gases arethinking of notifying jet fuel as ‘DeclaredGoods’ such that it can avail of the 4%sales tax levied on such goods. This is apractical and workable proposition sinceit will do away with variable state taxes.”• Promote regional connectivity byrestructuring of Route DispersalGuidelines. This could provide aframework to enhance connectivity toareas such as the North-East, Jammuand Kashmir, and the Andaman andNicobar Islands.• Allow FDI in non-core functions, suchas ground handling and training.Gupta said: “The maintenance, repairand overhaul (MRO) sector isunattractive because of the taxdifferential between domestic andforeign MROs. The government shouldrationalise customs duty on the importof spare parts and simplify theservice tax and thevalue-added tax (VAT)regime to ensure amoreinvestor-friendlytax environment.”• Review thearchaicrequirement for Indian carriers tooperate domestically for five yearsbefore they can get international routes.• Reduce service tax on air tickets. Allinternational and domestic tickets aresubject to 4.95% service tax on thegross fare. This has raised prices,impacting consumers.• Encourage more joint ventures withforeign firms. The recent one betweenTata Sons, Arun Bhatia of TelestraTradeplace and AirAsia to introduce alow-cost, no-frills model with an initialfleet of three to four Airbus A-320s iswelcome. Together, they plan to invest$30 million to $50 million.foreign MROs. The government shouldrationalise customs duty on the importof spare parts and simplify theservice tax and thevalue-added tax (VAT)regime to ensure atax environment.”13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe44 45Image: mouthshut.comImage: topnews.in
  • 24. The Indian economy finds itself in thepincer-like grip of soaring deficits andrising government expenditure.The fiscal deficit target for 2012-13 wasraised to 5.3% of the GDP, from 5.1%,mainly due to the increased subsidyoutgo. Budget 2013-14 contained it at5.2% of GDP. To bridge this gap and lowerit to 3% by FY17, the government needs toenhance revenue while loweringexpenditures through cost cuts.The Budget for 2013-14 estimated planexpenditure at Rs 555,322 crore, anincrease of 29.4% from the previousBudget. One way to improve revenues isthrough greater income-taxcollection, butauniformincrease ishardly thesolution.In recent times,the debate overwhether to imposeadditional taxes on highnet-worth individuals (HNIs)and to tax agricultural income, which iscurrently exempt, has intensified. InBudget 2013-14, Finance MinisterP Chidambaram took a decision ontaxing the super-rich, introducing aone-year 10% surcharge on those withan annual income of more than Rs 1crore. Predictably, it was chided andcheered in equal measure.The current tax rates have been inexistence since 1997, surviving fourgovernments and as many financeministers. Chidambaram, it is said, hadbeen toying with the idea of a higher taxon HNIs after the idea was raised duringa pre-Budget meeting with economists.During a recent interview in Singapore,Chidambaram said: “I believe in stabletax rates. However, I must concede thatthere is an argument that when theeconomy requires more resources, thevery rich willingly should pay a littlemore.” C Rangarajan, former ReserveBank of India (RBI) governor andcurrent advisor to the government, gavethe idea the thumbs up, saying thatmere expenditure cuts may not bridgethe current fiscal deficit.ImplicationsA higher tax rate for high-incomeindividuals is in force in many countries.TAXINGTHESUPER-RICHTAXINGTHESUPER-RICH13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe46 47TAXING THE RICHSweden 56.60% $85,451Denmark 55.38% $70,633Japan 50% $234,484Belgium 50% $45,037Australia 45% $180,000India 30% Rs 10,00,000 ($200,000)Source: Yahoo Finance, WikipediaCOUNTRIESHIGHESTINCOME-TAX RATEHIGHEST SLABThe Union Budget imposed anadditional tax on high net-worthindividuals (HNIs), spawning anintense debate. Which side ofthe divide are you on? Image: uleth.caImage:dexigner.com
  • 25. US and China, and 45 years for Europe.Normally, a rationalised tax structurewould induce more individuals tocomply, leading to higher collections.Kuldip Kumar, executive director (taxand regulatory service) atPricewaterhouseCoopers India, told‘Business Standard’: “Those earningcrores may not mind paying additionaltaxes, but the government needs arationale for it. Expanding the tax basecould lead to better collections.”• One alternative could be to not raisetaxes on income, but to tax thesuper-rich’s dividend income – beyonda threshold limit – at the same rate atwhich it is taxed in the hands of thecompany. Currently, domesticcompanies pay a dividend distributiontax of 15%; the surcharge on this hasbeen increased from 5% to 10% for aperiod of one year. The dividend incomeis exempt in the hands of theshareholders. This proposal wouldaffect promoter groups of largecompanies as well as individuals withsignificant shareholdings.• Tax rich farmers. Agriculturecontributes 18.2% of the GDP; thisincome is untaxed. The irony is that richfarmers, who earn crores, pay no tax.During a discussion on NDTV, tax expertSubhash Lakhotia said: “Agriculturalincome is kept untaxed due to politicalcompulsions. Small farmers comprise amajor portion of the vote bank forpolitical parties.” About 80 years ago, DrBabasaheb Ambedkar spoke of taxingagricultural income. A committeeformed in 1952 endorsed the view, as didthe KN Raj Committee formed in 1965.• Devendra Sharma, food and policyanalyst, stressed on a TV panel theneed to withdraw exemptions givento the corporate sector. Theprojected revenue foregone inrespect of corporate income-taxduring 2011-12 was Rs 51,292 crore,while the same for personalincome-tax was Rs 42,330 crore.The aggregate of exemptions inboth direct and indirect taxes worksout to Rs 529,442 crore (2011-2012),or 5.9% of the GDP. Even theparliamentary standing committeeon finance recommended raisingthe tax bar for companies andphasing out exemptions rather thanburdening the salaried class andsmaller tax payers.In fact, the focus of the Fiscal Cliff Billin the US was to increase the tax ratefrom 35% to 39.6% on individualsearning more than $400,000 annuallyand to reduce the budget deficit.Similarly, an increase in payroll taxfrom 4.2% to 6.2% for income up to$113,700, increase in tax on investmentincome from 15% to 23.8% for the topincome bracket and 3.8% surtax oninvestment income for those earningmore than $200,000 (couples earningmore than $250,000) were otherelements of the deal.In the UK, those with an annual incomeof £150, 000 or more pay tax at the rateof 50%. This rate was likely to bereduced to 45% from April 2013.The argument for higher taxes on HNIsis strong. Countries with high tax ratestend to have strong welfare systems.Tax money is allocated to supportschemes related to free education,social security, pensions, healthcare andunemployment. Taxpayers are assuredthat their money returns to themthrough these initiatives.India, however, does not guarantee anysuch return, not even in the form of betterinfrastructure, enhanced security or abetter living standard. This is why there istremendous opposition to higher taxes.Wipro chief Azim Premji supported highertaxes for the super rich, but doubted theability of the government to implementsuch a plan effectively.While it is clear that a higher tax onHNIs would lead to more revenue, noteveryone is convinced of its benefits.Mahendra Kamdar, proprietor, MDKamdar & Co, having spent 40 years inthe taxation field, said: “Taxing HNIs ismainly aimed at reducing the fiscaldeficit, which stands at 5.4% of GDP [atthe time of writing]. However, thisshould be viewed purely from aneconomic perspective. Peakincome-tax rates, which stood ataround 90% in 1973-74, are now at30%. HNIs should not be overburdenedwith exorbitant taxes again. A modestincrease would be acceptable. Thiswould have many implications. SomeHNIs would accept it with a view that itwould have a national benefit. Anotheraspect would be higher tax evasion, ifthe proposed increase is steep.”This would be counterproductive and islikely to dampen entrepreneurship byreducing the incentive to start, finance andgrow a business. HNIs would startinvesting abroad for higher returns. By nottaxing HNIs higher, you could facilitate jobcreation as they would then invest in India.Recommendations• HNIs comprise less than 1% oftaxpayers. As per the 2011-2012estimate of the Standing Committee’sreport on the Direct Tax Code (DTC) Bill,there were 17.84 lakh individuals earningmore than Rs 10 lakh or more out of the3.24 crore taxpayers; they contributed75% of the taxes collected. Rationalisethe tax structure by modifying tax slabsto accommodate more payers in the Rs10 lakh+ income bracket.• Bring more people into the tax net.Improving education and evolvingdemographics are creating a pool ofskilled resources with betteremployability and a higher standard ofliving. Research shows that the averageage of the workforce in India will be 29years by 2020, compared to 37 for the13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe48 49People earning more than `10 lakha year account for 5.6 per centof total tax payers ....... But they contribute75.1 per cent of the country’stotal tax collections5.6% 75.1%Image: blogs.reuters.comImage: www.addictinginfo.orgImage: instablogs.com
  • 26. Hailed as a game-changer after the economic reforms of 1991, theGoods and Services Tax (GST) is an attempt to integrate the economiesof the states and boost the national economy. One of the mostsignificant tax reforms introduced in India, GST is a value-added taxdesigned to replace all indirect taxes levied by the state and centralgovernment on goods and services. The tax system will be designed toensure a single tax across the economy for goods and services13 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe50 51Contrary to popular belief, the GST isnot an additional tax. The State GST willinclude VAT, stamp duty, taxes on goodsand passengers, vehicle tax, duties onpower, entry tax, luxury tax,entertainment tax, taxes on betting,gambling and lotteries, purchase tax,and all state cesses and surcharges. TheCentral GST will include central excise,service tax, additional excise,countervailing duty or additionalcustoms duty and all cesses andsurcharges, excluding educational cess.The central sales tax will be abolished.Exports will not be covered by GST.Direct taxes – income-tax, corporate tax,capital gains – will also be unaffected.GST was mentioned in the UnionBudget of 2006-2007. In 2009, whilepresenting the Budget, then financeminister Pranab Mukherjee said thatGST would be introduced from April2010 and the Empowered Committee ofState Finance Ministers was asked tocreate a roadmap for it.However, political interference ensuredthat the rollout did not meet the deadlineand missed several deadlines thereafter.GST has run into trouble because of theabsence of political consensus over it.Staunch objections fromOpposition-ruled states have stalled itsimplementation. The system has beenaccused of attempting to subvert states’rights to impose taxes. The GSTimplementation would mean thatexisting tax structures would be doneaway with, resulting in a revenue loss forstates. States fear that if the uniform taxrate is lower than the existing one theirrevenues would shrink. Economicallybackward states, especially, say theycan’t afford that.Tamil Nadu, Chhattisgarh and MadhyaPradesh objected because theadministrative infrastructure andtechnology systems were not in place byApril 2010.One of GST’s staunchest opponents isRaghavji, finance minister of MadhyaPradesh, who has accused the Centre ofintroducing it to favour manufacturers;he also questioned its timing.ImplicationsStates have demanded that theirinterests be protected and wantcompensation in case of a revenue loss;the central government has agreed.Chidambaram announced a budgetaryprovision of Rs 9,000 crore ascompensation for central sales tax lossto the states. He also said thegovernment would table the draftconstitution amendment bill and thedraft GST Bill in Parliament soon.Sushil Kumar Modi, finance minister ofBihar and chairman of the EmpoweredCommittee of State Finance Ministers,has demanded a legal assurance thatthe loss would be covered. Modi saidthe law should provide forcompensating states for at least fiveyears after the introduction of GST.In India, like other nations which haveimplemented GST, the rate of taxationwould be 16% to 20%, according toSumit Majumdar, chairman, CentralBoard of Excise and Customs. This ratewould eventually be lowered to about12%. The impact of taxation on goodsand services across India would dependon existing tax rates. Those with highexisting rates would see a reduction inrates while those with lower tax rateswould see the rate rise.Goods and services required forbasic needs will be taxed at areduced rate. The main benefit fromthis is that with multi-stage taxesremoved on goods and services,prices of various goods and serviceswould fall, benefiting consumers.Mahendra Kamdar, proprietor, MDKamdar & Co, said: “More and morepersons will be forced to transact withbills in order to get credit for input tax,leading to a larger chain of billings –interlocking like paver blocks – acrossthe country. The government will getmore revenue, the chances of leakagewould reduce and rates would beuniform across the country.”Recommendations• Address the unmitigated disaster that isour tax system, push for tax reforms tocreate a uniform market that integratesall state economies. Introducing GSTwould the first major step.• Introduce a phased rollout of GST inwhich states willing to come underthe framework can do so immediatelywhile others can observe the benefitsand then join.• Try to build political consensus. Therules allow states to opt out of GSTwhenever they want. States will nowenter and exit the GST system basedon their political affiliations. Thiswould lead to frequent and erraticchanges of rules and a complicatedinvoicing system. This would hampertrade activities.Image:usamail1.com
  • 27. With the largest coalition dependent onsmaller regional parties, the power thelatter wield is disproportionate to thenumber of seats they have. Often,smaller parties like the TrinamoolCongress are the kingmakers, whichgives them a veto on economic policyand urgently-required reforms.Since coalitions are likely to remain areality for the foreseeable future,economic growth will largely depend onthe stand regional parties take on reforms.Clearly, it’s time to put the economy atthe centre of the political debate. InIndia, few parties have been willing tofight elections purely on economicissues; it’s always caste,personality-based or regional issuesthat are central to the agenda. Unlesseconomic policy becomes the focalpoint of politics, India’s potential willremain unfulfilled.The early 1990s saw the riseof market-ledreforms,making therole of thecentralgovernment inthe economicaffairs of statesrelatively redundant.Private investors and foreignagencies pump money directlyinto states, boosting theireconomic sustainability. Some statesenjoy great investor confidence withmoney being poured in consistently.As a result, there is growing disparityand the poorer states – often led bycoalition parties supporting thecentral government – are demandinga larger stake for infrastructure andother expenditure.Take, for instance, the TrinamoolCongress. While its leader MamataBanerjee was railway minister, WestBengal, where her party is in power, gotthe choicest rail projects. When LaluPrasad Yadav, of the Bihar-centricRashtriya Janata Dal, was railwayminister, it was his home state thatreceived massive rail investment.ImplicationsLast year, ratings agency Standard &Poor warned that India could lose itsinvestment grade status. Lack ofreforms, stunted growth and aburgeoning fiscal deficit eroded thecountry’s image and investorsentiments. The warning was a jolt fora government battling corruptionscandals, poor governance andpolicy paralysis.With the 2014 election in sight, thegovernment swung into action. Byfurthering FDI in multi-brand retail,aviation and broadcast, it made apolitical gamble.Finance Minister P Chidambaram wentall out to win back investor confidence,wooing global investors with a series ofroadshows. He assured the taming ofthe fiscal and current account deficitsto help the economy return to the 8%growth path. Addressing a gathering of200 representatives of leadingEuropean companies, banks and otherfinancial institutions, Chidambaramsaid: “I am very optimistic that Indiacan grow at a [high] rate for the next20 or 30 years.”For the ruling United ProgressiveAlliance (UPA), the run-up to theelections will be a trial by fire. In manyways, the country is poised to witness aparadigm shift in governance, where theruling party will be placed precariouslybetween populism and growth policies.The pullout of the DMK has left thegovernmentdependent onunreliable allies likethe Samajwadi Partyand the BahujanSamaj Party. Thiscould also hit thepace of reforms.For coalitiongovernments,introducing economic reforms hasalways been a challenge. It’s not justthe opposition, but internally toothey’ve had to deal with resistance. Thisinsecurity has crippled growth, whichhas fallen close to 5%.Recommendations• Coalitions must commit to an economicagenda that makes clear the economicdirection of the country and reduces thescope for disagreements afterwards.• Ensure better coordination with allieson policy announcements. Take, forinstance, the fuel price hikes in 2012and 2013. Many allies claimed that thegovernment did not consult thembefore raising prices. Rising oil importsare inflating the deficit, so are oilsubsidies. While most experts said thehikes were necessary, many coalitionpartners disagreed.• Several key reforms have beenlanguishing because not all allies are finewith them. FDI in multi-brand retail wasjust one example. There are also FDIcaps in insurance and pension. Thegovernment must hold urgent talks withallies to resolve these issues.• While the abovementioned issues maybe sensitive, there are several which arenot political hot potatoes and can beacted upon. For instance, there is littleopposition to developing the corporatebond market for investments ininfrastructure or to developing themunicipal bond market for financingurban infrastructure.Coalitions are a politicalnecessity, often involvingpartners with conflictinginterests. No single partyhas secured a majority in theLok Sabha, the lower houseof Parliament, since 1984.In fact, the number of partiessharing power has grownmanifold, from 12 in 1996to 18 in 1998 and 24 in 199913 Economic Priorities For FY13-14A report by MSLGROUP India, part of the Publicis Groupe52 53
  • 28. mslgroup.comasia.mslgroup.comindia.mslgroup.commslindia.co.in2020msl.comContactjaideep.shergill@mslgroup.comCopyright: MSLGROUP IndiaDesigned & Printed by: MSLGROUP CREATIVE+pankaj.desai@mslgroup.comAuthorsAshraf Engineer, Head – Content, MSL IndiaAmrita Choudhary, Deputy Head of Content, MSL IndiaNirav Khatri, Manager, Research and Insights, MSL IndiaShreyasi Ghosh, Account Associate, MSL IndiaPelak Desai, Account Executive, MSL India

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