Opinion
Four action points for the new government’s first 100 days
Summary
- India’s post-poll administration should focus on apprenticeship and jobs, Minimum Support Price (MSP) backing, credit flows to farmers and small enterprises, and on a small 1% wealth tax to be levied on those with more than, say, ₹100 crore.
The first 100 days of any newly formed government hold special significance. The government can use the period to signal its priorities, possibly implementing some items from the manifesto. This helps build momentum and credibility, which is crucial to gain trust, not just of domestic stakeholders, but also investors from abroad. For a government formed with a decisive majority, precious political capital could erode over time.
So, its early use can help leverage the advantage of an electoral win. The first 100 days are also for bold decisions. This concept is most famously associated with the first term of US president Franklin D. Roosevelt who took office in January 1933 in the midst of a deep recession.
In the first 100 days, his administration kicked off the New Deal, which had measures to provide immediate relief to farmers, unemployed youth and industry, and stimulate economic recovery. There were radical decisions such as outlawing the private ownership of gold, a banking holiday that helped shut down unviable banks, the Glass-Steagall Act, which separated commercial and investment banking, and the introduction of Social Security. Its employment and relief works programmes were not unlike the employment guarantee scheme of today’s India.
Unlike the deep slump back then, the new government in India in 2024 will ride on excellent economic news. Growth for last fiscal year has surprised on the upside and inflation has been moderate. The banking sector is in excellent health, with public sector banks achieving record profits of ₹1.4 trillion. The stock market is riding high. Against sound macroeconomic data, what should the economic priorities be for a 100-day program? Here are four specific suggestions.
Employment and job creation are maor challenges. An International Labour Organization and Institute for Human Development report says that 83% of the unemployed are youth below the age of 29. At the same time, there is a severe shortage of workers for skilled and semi-skilled jobs. A big priority, thus, should be to launch a national apprenticeship programme with stronger legal teeth than what exists now.
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Much skill acquisition is via on-the-job learning. Employers do not want to be burdened with a labour law that mandates that any worker or apprentice who is employed for more than six months should be made permanent. An apprenticeship certificate should be nationally portable and have the authentication stamp of a central authority.
A national apprentice programme in campaign mode can combine all these features and help address youth unemployment, our skill-building deficit and employability gaps. A related measure could be to extend the Agniveer scheme to seven or eight years, closer in duration to the Short Service Commission available to officer cadre applicants. This will improve army intake and address worries of the exit year, which is the fourth year, coming too soon.
The second suggestion is to give the farm sector’s minimum support price mechanism a legal guarantee. An earlier column (of 20 February 2024) described its feasibility both from the cost and judicial angles. An MSP guarantee kicks in only if market prices fall below the floor, which is statistically only half the time.
Also read: Farm anxiety: An MSP law is neither unthinkable nor a magic bullet
And MSP intervention puts upward pressure on prices, reducing the net cost of ‘administering’ this guarantee. This step will fetch much political capital and farmer trust. Along with an MSP law, the government must consider sending a signal that it will abstain from frequent bans and un-banning of agricultural exports, measures that hurt farmer interests.
The third suggestion is regarding credit flow to tenant farmers and small entrepreneurs. Nearly 40% of agricultural output is produced by tenant farmers who have informal contract deals with landowners. But when it comes to access to formal credit, they are handicapped by a lack of collateral (i.e. land records), since they are not owners.
Some states have found innovative ways to circumvent this lack of collateral and enable bank credit flow to tenant farmers. It is high time this is made into a national policy, with adequate safeguards. A crop loan is needed typically for at least four to six months. Since this cycle does not suit the usual non-performing asset definition, a special design is needed.
Similarly, small and micro entrepreneurs lack access to formal credit. Recent innovations such as account aggregators can arrange loans based on cash flows, not just collateral. But most small entrepreneurs are unaware or financially illiterate. This needs a big push via promotion efforts and targets.
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Additionally, working capital for small businesses can be unlocked by strictly implementing the 45-day rule as per the 2006 MSME Act. This Act is followed more in the breach. On-time payments can be enabled by linking Udyam (the registration portal for MSMEs) with the GST Network. No political capital need be spent, but payment discipline will automatically get enforced on delinquent large businesses that squeeze their small vendors.
The fourth suggestion is to impose a small 1% tax on financial wealth (as held in mutual funds, stock and bonds, all linked by a PAN number) in excess of, say, ₹100 crore. This is to address widening wealth inequality. The money collected should be earmarked for rural schools and primary education, with these funds flowing directly to panchayats, village councils or municipalities, bypassing the state-level machinery, in a manner pioneered by Finance Commissions.
