Prime Minister's Office
PM shares a blog post on reforms and policy-making
Reforms by Conviction and Incentives
The Prime Minister, Shri Narendra Modi today shared his blog post on reforms, center-state bhagidari, innovative policy making during Covid times. The post was posted on LinkedIn platform.
In a tweet the Prime Minister said:
"Reforms by Conviction and Incentives...my @LinkedIn post on innovative policy making in the time of COVID-19, powered by the spirit of Centre-State Bhagidari."
Reforms by Conviction and
Incentives
The Covid-19 pandemic has come with whole new set of
challenges to Governments across the world in terms of policy-making. India is
no exception. Raising enough resources for public welfare while ensuring sustainability
is proving to be one of the biggest challenges.
In this back-drop of financial crunch seen across the
world, do you know that Indian states were able to borrow significantly more in
2020-21? It would perhaps
pleasantly surprise you that states were able to raise an extra Rs 1.06 lakh
crores in 2020-21. This
significant increase in availability of resources was made possible by an
approach of Centre-State bhagidari.
When we formulated our economic response to the Covid-19
pandemic, we wanted to ensure that our solutions do not follow a ‘one size fits
all’ model. For a federal country of
continental dimensions, finding policy instruments at the national level to
promote reforms by State Governments is indeed challenging. But, we had faith
in the robustness of our federal polity and we moved ahead in the spirit
of Centre-State bhagidari.
In May 2020, as part of the Aatmanirbhar Bharat package,
the Government of India announced that State Governments would be allowed
enhanced borrowing for 2020-21. An extra 2% of GSDP was allowed, of which 1%
was made conditional on the implementation of certain economic reforms. This
nudge for reform is rare in Indian public finance. This was a nudge,
incentivising the states to adopt progressive policies to avail additional
funds. The results of this exercise are not only encouraging but also run
contrary to the notion that there are limited takers for sound economic
policies.
The four reforms to which additional borrowings were linked
(with 0.25% of GDP tied to each one) had two characteristics. Firstly, each of the reforms was linked to improving the Ease of
Living to the public and particularly the poor, the vulnerable, and the middle
class. Secondly, they also promoted fiscal sustainability.
The first reform under the ‘One Nation One Ration Card’ policy
required State Governments to ensure that all ration cards in the State under
the National Food Security Act (NFSA) were seeded with the Aadhaar number of
all family members and that all Fair Price Shops had Electronic Point of Sale
devices. The main benefit
from this is that migrant workers can draw their food ration from anywhere in
the country. Apart from these benefits to citizens, there is the financial
benefit from the elimination of bogus cards & duplicate members. 17 states
completed this reform and were granted additional borrowings amounting to Rs.
37,600 crores.
The second reform, aimed at improving ease of doing business,
required states to ensure that renewal of business-related licences under 7
Acts is made automatic, online and non-discretionary on mere payment of
fees. Another
requirement was implementation of a computerized random inspection system and
prior notice of inspection to reduce harassment and corruption under a further
12 Acts. This reform (covering 19 laws) is of particular help to micro and
small enterprises, who suffer the most from the burden of the ‘inspector
raj'. It also promotes an improved investment climate, greater investment
and faster growth. 20 states completed this reform and were allowed additional
borrowing of Rs. 39,521 crores.
The 15th Finance Commission and several academics have
emphasised the crucial importance of sound property taxation. The third reform required states to notify floor rates of property
tax and of water & sewerage charges, in consonance with stamp duty
guideline values for property transactions and current costs respectively, in
urban areas. This would
enable better quality of services to the urban poor and middle class, support
better infrastructure and stimulate growth. Property tax is also progressive in
its incidence and thus the poor in urban areas would benefit the
most. This reform also benefits municipal staff who often face delay in
payment of wages. 11 states completed these reforms and were granted additional
borrowing of Rs. 15,957 crores.
The fourth reform was introduction of Direct Benefit Transfer
(DBT) in lieu of free electricity supply to farmers. The requirement was for formulation of a state-wide
scheme with actual implementation in one district on a pilot basis by year end.
Additional borrowing of 0.15% of GSDP was linked to this. A component was
also provided for reduction in technical & commercial losses and another
for reducing the gap between revenues and costs (0.05% of GSDP for
each). This improves the finances of distribution companies, promotes
conservation of water and energy and improves service quality through better
financial and technical performance. 13 states implemented at least one
component, while 6 states implemented the DBT component. As a result, Rs.
13,201 crore of additional borrowings was permitted.
Overall, 23 states availed of additional borrowings of Rs.
1.06 lakh crores out of a potential of Rs. 2.14 lakh crores. As a result,
the aggregate borrowing permission granted to states for 2020-21 (conditional
and unconditional) was 4.5% of the initially estimated GSDP.
For a large nation with complex challenges as ours, this
was a unique experience. We have often seen that for various reasons, schemes
and reforms remain un-operational often for years. This was a pleasant
departure from the past where the Centre & States came together to roll out
public friendly reforms in a short span of time amidst the pandemic. This was made possible due to our approach of Sabka Saath, Sabka Vikas and
Sabka Vishwas. Officials who have been
working on these reforms suggest that without this incentive of additional
funds, enactment of these policies would have taken years. India has seen a
model of ‘reforms by stealth and compulsion’. This is a new model of ‘reforms
by conviction and incentives’. I am thankful to all the states who took the lead in ushering in
these policies amidst tough times for the betterment of their citizens. We
shall continue working together for the rapid progress of 130 crore Indians.
https://www.linkedin.com/pulse/reforms-conviction-incentives-narendra-modi/?published=t
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