Budget -21, Reform push and Time to Market!

There have been budgets in the past which have sort of quickly moved away from the headlines. And there have been budgets which remained in the headlines but for all wrong reasons. This year’s budget, incidentally the 8th one from the Modi Sarkar presented by Nirmala Sitharaman has managed to hog the limelight for all the “right” reasons. The pun here is well intended.

Talking of the reaction to this government’s previous budgets, it’s always been muted and for obvious reasons. Ever since Narendra Modi became the Prime Minister way back in 2014 that too with a clear majority, the expectation has been that he will bite the bullet on many of the much needed, long pending reforms. Honestly, the previous budgets of the Modi Sarkar were mostly incremental budgets with some increased allocations here, some improved programs there and so on. “What’s the Big Idea”? ‘Where are the Big bang reforms?” were some questions hurled by the commentariat post every budget. It has been my observation that under Modi, the budgets have just become an annual statement of allocations and outlays while Big Ideas whether it was the Swachh Bharat Abhiyan or the Ujjwala Yojana et al were launched outside of the budget. But in this year’s budget, there has been a welcome change to announcing some “Big Ideas”.

The positive vibes around this year’s budget can be attributed to the announcement of few big ideas which have been reformist in nature, while keeping the budget free of any “bad news”. One is the announcement of the setting up of an Asset Reconstruction Company (ARC) which is a euphemism for a “Bad Bank”. Second, is the statement of intent on “privatisation” of two Public Sector Undertaking Banks and one General Insurance company. So far, governments have been taking umbrage under the term – Disinvestment without putting out the word “Privatisation” so openly.

Not just the budget, but the announcement has been followed up by speeches in the parliament and other forums by those who matter in the government, on the seriousness of the intent. In fact, as per news reports, Niti Aayog has recommended to cut the number of state owned Public Sector Undertakings (PSUs) to just 24 from over 300 that exist today. If this programme takes off, it will make Modi a reformist of “Thatcherian” proportions. If you recall, Margaret Thatcher way back in 1979, on assuming power systematically embarked on a reform program to revive the British economy. She deregulated markets, cut tax rates, removed exchange controls and consigned militant trade unions to oblivion. But, it is the privatisation of State owned corporations like British Steel, British Petroleum, British Telecom and British Airways that stays as her enduring legacy till today. So, what Thatcher achieved in the early 80’s in the United Kingdom is what Modi is embarking to do in India after forty years. That brings to the next point of this post which is the important piece of “Time to Market”.

In business, Time to Market is nothing but the time taken by a company to launch a product or a service from the date of firming up on an idea.  For companies, this is an important issue in new product introductions.  In businesses that are highly competitive or for that matter any business, you cannot afford to have a long Time to Market.  That would run the risk of your competitor getting ahead or consumer preferences changing that makes the idea less relevant or even redundant.  I believe that even in the matter of reforms for a government, a short Time to Market is critical. And as a country, our track record on that front is unenviable so far.

In the context of reform push, I believe there are three stages namely – Idea, Intent and Implementation. First, the idea is just floated in a budget speech or on important occasion/forum. Then the Intent is demonstrated when the idea is given a proper shape, laws are formulated if there is a need and resources are allocated.  Implementation is when finally the reform becomes a reality and is rolled out. So, in India if you see the history of Time to Market on important reforms, it doesn’t pose a pretty picture.

For example, take the case of a reform like Aadhaar. The idea and need for a unique citizens identity card was floated way back in 2001 by an Empanelled Group Of Ministers (EGOM) chaired by the then Home Minister L.K. Advani during the Vajpayee led NDA regime. It was only in 2009, when the intent was demonstrated by the UPA government led by Manmohan Singh with the announcement in the budget and then following it up with the set up if UIDAI (Unique Identification Authority of India) under the leadership of Nandan Nilekani. And finally, the first Aadhaar card was issued to a citizen in September 2010. So, from the idea to the launch it took a good 9 years. In the case of GST, from the time of the floating of the idea way back in 2000 to showing the intent in the budget in year 2005 to finally launching GST in India in 2017, it took seventeen years.

In the case of the policy of allowing 100% Foreign Direct Investment in retail however, from the stage of the Idea to Intent to Implementation, the landscape of retail has changed. India doesn’t still allow 100% FDI in multi brand retail. This was seen as an important reform in attracting FDI and employment generation a decade ago. But now with the advent of E-Commerce where 100% FDI is allowed in the marketplace model, 100% FDI in Multi-brand retail is no longer seen as a constraint. In other developing countries like Thailand foreign direct investment in retail gave a huge boost to the economy. But India missed that boom because of the dogma around FDI in multi brand retail which stretched the Time to Market on that reform.

Ergo my point is, if the reforms which have been announced in this budget have to make an impact, short Time to Market is critical. Having floated the Idea of a Bad Bank, it is important to follow up quickly with the formation of the ARC and eventually roll it out within this year itself so that the PSU banks can be freed of the stressed loans and they can get back to lending with more ease. Similarly, in the case of privatisation of PSU Banks, the idea has been floating for a while now. But this is the first time, the government has expressed its formal intent via the budget speech. The road to privatisation is not going to be easy at all with trade unions already gearing to pick up the gauntlet with the government. I though believe just as the mass VRS issue in PSUs like MTNL and BSNL etc. went through in spite of stiff resistance from trade unions, this time, the government may be able to pull it off with a few hiccups. Or so I hope.  Also, while the stock markets are on a high this year, the government can manage to get better valuations.

In the run up to the 2014 Lok Sabha elections, Modi repeatedly talked of “Less Government, More Governance” and “Government has no business to be in business” – thoughts which signalled a clear Rightward tilt on the economic philosophy front. However, till this budget speech, we didn’t see much of action towards withdrawing the government from running many businesses. This budget from that sense is critical in signalling the government’s intent towards moving away from running inconsequential businesses, which is a good sign. And, if the intent is translated into action in a reasonably short Time to Market, then it will be Narendra Modi’s lasting legacy in changing the economic course of this country.

Post Script: If Aandolanjivis are those who make a living out of protests, what about taxing them? And what would be the Time to Market for this idea? 😁

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