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Dr Arvind Virmani, an economist, says higher unemployment is a consequence of slowdown in GDP growth. He says decisive action must happen on:
1. Lowering of bank base rates and improvement in liquidity, to counter sky-high real interest rates.
2. Stricter RBI regulations and transparent credit ratings of non-banking financial companies (NBFCs)
3. Prompt payment of govt dues and front-loading of investments.
4. Simplification of GST to the extent possible.
5. Do what it takes to attract manufacturing that is leaving China, a one-time opportunity.
Longer-term
6. Skills development should happen at all levels on a much larger scale.
7. Quality of education must be improved in a significant way at primary and secondary levels.
8. Research and development spending should go up as a percentage of GDP (mine).
According to his working paper (Aug 2019), page 15-16
https://egrowfoundation.org/site/assets/files/1225/dr__virmani_gdp_egrow_working_paper_1_1.pdf
"Lowering of corporate tax rates to East & S.E. Asia levels (i.e. 20-22%) and a simplified Direct Tax Code will help eliminate Tax Terrorism (& improve EODB in paying taxes), and recoup tax revenues from improved compliance over time. In these circumstances, fiscal deficit slippage in one year will be acceptable to the markets. A drastically simplified 3-tier GST structure must be put in place. Rates can be worked out to keep GST revenues unchanged."
"Converting welfare subsidies into Direct Cash Transfer has already eliminated corruption, reduced handling costs and delivered expected benefits to the needy. Application of DBT to all subsidies will release funds for Govt' social agenda, eg. Drinking Water, Health, Housing and Job Skilling. Capital expenditure, particularly in defence sector has slipped. It can be enhanced by sale of loss-making Public Sector Units."
Out of the above, govt is likely to address points 1 to 5 but fall short on points 6 to 8. Govt's actions in stimulating economic demand and improving the financial situation of industry, can be seen in reduction of corporate tax rates and the commitment to reduce its dues to industry. It will also spur consumption though putting more money in the hands of farmers and through proposed, dramatic reduction in income tax rates. Beyond this, govt seems to be targeting reforms through these measures:
1) Ease of doing business - where the outstanding are:
-- paying taxes (ie simplified GST / lower personal taxes / lesser harassment / fair tax adjudication)
-- registration of property (comprehensive authentication, foolproof land records with state guarantees)
-- legal disputes (overhaul of courts, easier legal process, infrastructure, evidence gathering & policing)
-- state-level reforms (speedy & hassle-free logistics, lower transaction costs, simpler rules, efficient handling, transparency and accountability, new infrastructure and manpower for the same)
2) Do reforms of old Labour laws, such as formulating cogent and easier-to-implement labour rules; formalising employment in gig sector ensuring workers are paid minimum wages and other employee benefits; new social security provisions for the unorganised sector; and easing on retrenchment rules for large firms (?) so that larger firms will be established as a norm and production will be scaled up to more efficient levels.
3) Fix ineffective banking governance through public sector bank amalgamations, superior bank credit risk management, transparent & accurate risk assessment of NBFCs, etc
4) Reduce losses in PSEs via sale of Air India and restructuring of BSNL & MTNL
5) Realise foreign participation for FDIs, technology partnerships and debt financing, though country-to-country & heads-of-corporates level interactions.
6) Promote exports by various means incl. cheaper export credit, beneficial trade deals, etc
7) Domestic defence manufacturing will be boosted by higher indigenous R&D through encouragement of private sector efforts & collaborations of private sector with public sector R&D institutes. There is also a commitment towards higher private sector manufacturing, encouragement of start-ups (in niche products) through direct financing and procurements, easing of export controls, etc. MOD & services will lay out procurement needs in a transparent way, encourage suo moto proposals (eg HAL's HTT-40 platform accepted by IAF) & reduce delays in the acquisitions process. They will take on board industry ideas on ease of doing business, acquisition process, strategic partnerships, etc.
8) Make in India (general): lower corporation taxes doing away with MAT regime, CSR to be allowed in collaborative R&D, reliable power supply and lower power tariffs, good supply of water, lower freight haulage costs of road & railways and cheaper logistics via inland waterways development, further opening up of FDI through automatic route and personalised facilitation of large investments (over Rs 500cr), progress in laying down economic corridors infrastructure and availability of readymade industrial areas of various types across the country; improvements in EODB, etc
9) Make in India (specific):
-- Gas as there is massive potential in extraction (near-term) and coal gasification (in future)
-- Steel, coal mining and other heavy industries (eg power, railways)
-- Solar PVs due to high installation targets
-- Hydro & nuclear power projects, as bottlenecks are eased, transmission added & costs lowered
-- Electronics due to exponential growth in demand
-- Telecom equipment as firms commit to buy mainly Made-in India products
-- Knowledge industries (eg medical equipment, pharmaceuticals) due to industry strengths
-- Fuels such as ethanol from sugarcane, bio-CNG from waste, and industrial methanol due to potential
-- Bamboo (furniture, flooring, fuel) and other agricultural products (eg food processing) due to potential
-- Handlooms, tribal arts and forestry products due to financial and marketing support
10) Fix the troubled sectors like auto (eg vehicle scrappage policy) and construction (ousting defaulting developers and completing projects on risk-sharing basis)
11) Step up increase in infrastructure spending, to improve efficiency & capacities
12) Planned high growth in public health services and emphasis on quality education
13) Promote digital working and digital payments, improved digital payment platforms, payments infrastructure, national control of personal data and data security.
14) Reduction in economic losses caused by lack of water, sanitation, cleanliness & waste management; air pollution; malnutrition; deaths & injuries due to accidents; laxity in dealing with law & order, transnational crimes and border security; and disruptions caused by foreign and domestic players.
