The preface to reform

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The preface to reform

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• UK's story of collapse: It was a leading global power, whole textiles and manufactured products ruled the world. But then laws were brought in to protect some sections, and that was at the behest of vested interests. Status quoism ruled, and the great power UK declined. A new government dismantled the old laws! The winter of discontent was in 1979, when strikes happened. But in ten years, it was all over and growth arrived.
• Situation of farmers in India: An average farmer earns less than what an average worker in industry or services sector does. A potato farmer gets 28% of what consumers pay. Farmgate prices are 40-60 % less than what consumers pay, across the board.
• Challenge: The big question is - how to ensure growth, while protecting the poor? 

1. First - a social safety net is needed to provide direct income transfers to the vulnerable
2. Second - then the factor market reforms (agri, labour) should be done to enhance productivity and growth
3. Third - push employment creation in manufacturing (and services) and move millions into those jobs

• What India has today: Existing social security net includes -

1. Despite a narrow direct tax base, India has ensured food safety for all via the NFSA (National Food Security Act, 2013). The ration shops are using AEPS and E-POS machines to give cheap food to 67% Indians. 
2. The NSAP (National Social Assistance Programme) gives direct income support to 4 crore elderly landless agri workers, poor women households, and disabled-children families. 
3. More than 14 cr farmers get PM KISAN money also (Rs.75000 cr annually).
4. All these are driven through the JAM trinity.

• To maintain this: To run this, India needs a broader tax base, and rapid steady GDP growth. With growth, those who need help will go down as well. Agri and labour reforms 2020 may help push productivity and growth. 
• Farm laws story: The Green Revolution - driven by govt. irrigation, fertiliser subsidies, electricity support - expanded food production but since 40-60% of value is earned by intermediaries, farmers didn't truly get richer. 

1. Essential Commodities Act (ECA) forced large processors (of tur or moong or rice) to not store in bulk (so large processing units running all 12 months are hurt). Reformed law has changed this. A push is also given to contract farming that will enable creation of infrastructure.
2. APMC reforms will ensure that farmers may sell outside mandis also, that too without taxes. 

• Labour reforms story: India has a great advantage - the abundance of labour. But restrictive labour laws hurt employment generation. Why? Due to high compliance costs. India's employment elasticity with respect to GDP is 0.2 (China - 0.44, B'desh - 0.38). Now the govt. brought labour reforms, to ensure that existing employees do not hinder new jobs creation (through trade union action). B'desh uses fixed-term employment and has banned trade union action in FDI sectors. 
• Summary: Reforms are needed, but social safety nets must run in parallel. Proper communication with the unhappy segments will ensure how a better tomorrow can exist for everyone.

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