A look at the health of India’s economy


-Editorial

WEB DESK: The BJP government in India was elected on the promise that it would free the country’s economy from unnecessary regulations to encourage trade and investment and boost growth but had remained, more or less, silent on the subject since assuming power. On 16th January, 2016, however, Prime Minister Narendra Modi outlined a slew of measures under the initiative of ‘Startup India’ at a gathering of 2,000 entrepreneurs assembled from all over the country. According to the Prime Minister, Indian entrepreneurs will receive generous tax breaks and face dramatically reduced bureaucratic challenges when starting and closing a business.

“We have a million problems but at the same time we have over a billion minds. We want to start a system of hand holding for startups. The government will be like a friend and a mentor,” Modi said. Under the measures outlined, startups will be exempt from tax on capital gains; will not face inspections for labour or environmental law compliance for three years and patent application fees will be slashed by 80 percent. Entrepreneurs will also be able to register their businesses in a day via a mobile app – in sharp contrast to the current bureaucratic process – and will be able to wind down failures in 90 days. The Prime Minister stressed the point that “no matter what Narendra Modi can or cannot do, the youth of the country can”.

Earlier on the same day, Finance Minister Arun Jaitley had stated that simpler tax rules for startups would be introduced in the upcoming budget in February to unshackle them from the complex regime faced by large companies. “The more the sector becomes unregulated the better it will be,” Arun Jaitley added.

The new regime stipulated by BJP government in India for startups is indeed a sea change from the old system that was characterised by “licence raj” – bureaucratic controls dating from British colonial rules mandating endless permits that had stalled big projects and small investors alike. It was also believed that foreign investors also sometimes tended to avoid India due to a haze of regulations waiting for them if they decided to invest in India. In this kind of milieu, entrepreneurship is suppressed and the economy suffers a great deal in the process despite the fact that potential of investment in India was huge due to substantial level of domestic savings in the economy.

The change visualized by the top authorities in India would of course unleash forces and promote entrepreneurship to a degree that small-scale industries and businesses could spring throughout the country, contributing to efforts towards reducing unemployment and poverty levels. Exemption from capital gains tax and the application of labour and environmental laws would be particularly helpful as the concerned regulatory bodies are thought to be quite corrupt and obscurantist in nature. Although aspirational young entrepreneurs in India would be delighted by Modi’s announcement, it would be the details of the coming budget to be announced next month which would really give the blueprint and motivate them to spring into action.

While the impact of Indian measures is yet to be seen, economic managers of Pakistan also need to study the details and learn a lesson or two from the Indian initiative because the culture of corruption and the strangulation of economy by various regulations is almost the same in both the countries. We know that the rate of domestic savings in Pakistan is very low, putting a brake on investment and entrepreneurial ability but if a conducive environment for investment is provided, households of the country could make a sacrifice of their current consumption for their future welfare.

Unfortunately, however, Pakistani government at present seems to be emphasising more on social safety programmes like BISP, Zakat, Bait-ul-Mal for poverty alleviation which reinforces dependence on the government rather than providing incentives for productive engagement which could promote self-employment and self-respect in society. This needs to change for overall betterment of society and economy.

Source: Business Recorder