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The 5 things India’s new prime minister should do—but nobody will let him

May 18, 2014
May 18, 2014

1. Find better things for lots and lots of farmers to do.

Why he should: India has way too many farmers making too little money off smaller and smaller pieces of land. Average holding sizes are around a hectare (10,000 square meters). Average holdings in China are even lower, but productivity is much higher thanks to better equipment, fertilizer, irrigation, and research. Most farmers themselves, according to one recent study, would prefer to do something else. “A survey said 76 per cent of farmers would prefer to do other work, while 60 per cent wanted their children to migrate to and settle in a city. These are a grim reminder of the condition of the 120-million farmer households in India.” The truth is that many farmers would actually be better off flipping burgers or working in factories.

Why nobody will let him: Because there is a still a romantic notion that farmers are the fruit of the earth and the sons of the soil, the beating heart and pulse of the republic. And that agriculture is a noble calling that must be protected from foreign investment, innovation or any such disruption. The reality: Most farmers are just miserable and need better livelihoods.

2. Clean up the real estate market.

Why he should: The real estate market in India is partly sustained by a massive pipeline of black, or unaccounted, money. These illicit transactions are used to evade taxes, duties, bribe officials, and bypass the law. The net result is a sector in which there is laughably little price discovery, transparency, quality, or reliability. Much of this black money also circles itself through the parallel economy and ends up funding politicians and perhaps even terror organizations. The proliferation of illegal or semi-legal constructions also means that Indian urban spaces are slowly turning into dystopian nightmares. There is little hope of cleaning Indian cities and building good new ones without a real estate sector that actually functions within the law.

Why nobody will let him: The real estate lobby has powerful connection to political parties. Besides anything that will lead to a correction in real estate prices will spook everyone from banks to grandmothers who are heavily invested in the sector. The bubble must go on. Meanwhile, cities fall apart.

3. Pay government employees more.

Why he should: Outgoing prime minister Manmohan Singh’s tenure has become associated with numerous cases of eye-watering corruption. And many of these cases trace back to pliable bureaucrats. Instead of hoping that bureaucrats will function honestly, why not give them the incentive to do so? If you want a world-class civil service, pay world-class salaries and allow the establishment to hire laterally from the private sector. India’s civil service has often been called the steel frame that holds the nation up. That frame sorely needs some new trusses, and a fresh lick of paint. (Also better salaries for civil servants can avoid some embarrassing foreign relations gaffes.

Why nobody will let him: Government spending hawks abhor the impact better salaries will have on the exchequer. Besides in this environment, when corruption continues to be a hot topic, few will want to give pay hikes to the very functionaries seen facilitating corrupt deals.

4. Simplify income taxes and make everyone pay.

Why he should: Simple. Less than 3% of Indians actually pay income tax. And of that 3%, most don’t even pay as much as they should. Much has been done in the recent past to simplify tax payments and popularize electronic filings. But much more can be done to make the system less porous and more fair. Salaried employees are taxed at source while lawyers, doctors and traders get away by running cash-only transactions entirely off their books. And while they work on improving compliance, how about simplifying tax returns further? Throw out all those dubious deductions and rebates that just make fake-bill-submitting criminals out of good people.

Why nobody will let him: Nobody likes paying taxes. Oh, and there are lobbies that push for those deductibles.

5. Remove fuel subsidies. And while you are at it, drop all the other subsidies as well.

Why he should: Leakage leakage leakage. For instance, the subsidy on diesel prices is meant to help users in the agriculture sector. And every time there is talk of repealing the subsidy politicians scream that this will hit farmers. But a recent study showed that around 70% of all subsidized diesel is used by the transport sector. Only around 13% of the cheap diesel is used in agriculture. Little wonder that 49% of new cars sold in India run on diesel engines. What makes it all worse is the pollution generated by diesel engines.

There are similar cases to be made for many other subsidies.

Why nobody will let him: People like cheap things. Especially when they can say that it “helps farmers.” And by that, I mean “helps buy new SUV.”

Follow Sidin on Twitter @Sidin. We welcome your comments at ideas@qz.com.

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