Unlocking India’s economic potential with GST-like councils for land, energy, labour: With insights from CII president Sanjiv Bajaj - Loan Trivia


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Thursday 15 September 2022

Unlocking India’s economic potential with GST-like councils for land, energy, labour: With insights from CII president Sanjiv Bajaj

financial leaders in India

As a rapidly developing nation, India has immense potential to attract foreign investment and global players seeking to expand overseas. While India intelligently navigates its foreign diplomatic relations, it's the nation’s internal fabric that may hamper economic growth. Several policies pertaining to sectors like land, labour, and energy, for instance, can be better designed and implemented with clear strategies and standards being communicated between the Centre and states. After all, states look to the union for direction and fiscal backing – and better collaboration between the two is the need of the hour. 

Recently, the power crisis issue precipitated into a verbal battle with states claiming to have less than 1-2 days worth of coal reserves, while the Centre placed the responsibility for the same back on the states, flagging issues like non-payment of dues. Such conflicts amplify the distance between Centre and state and keep the industry uncertain territory. 

Weighing into the matter, CII president, 2022-23, Sanjiv Bajaj opined that India needs GST-like councils for issues like energy and labour. “A body like the GST Council is quite effective and plays a balanced role between the Centre and the state...in the same way, land, labour, and energy, which are state and central subjects, can be dealt with similar councils,” said the Chairman & Managing Director of Bajaj Finserv.

Here's why financial leaders in India think that such a solution can bring long-term benefits to India’s economy.

Centre-state issues can cripple foreign investment and industrial growth

Experts stress the need for an economic federalism, where Centre and states cooperate to realise industrial initiatives. Trust deficits and ambiguities in objectives lead to disputes, skirmishes over resources, and a drop in economic momentum. For instance, the Union’s asset monetization project of CPSEs is likely to meet with stiff resistance from states seeking compensation for land allocation. 

Similarly, the ongoing power crisis and heated debate over the Centre’s farm bills highlight the underlying need for cooperation given the nation’s federal system. Such issues spill over national boundaries, as can be seen from instances where labour-law changes issued by states put the nation on the wrong foot vis-à-vis its international covenants. The good news, however, is that foreign investors are looking forward to the rollout of India’s 4 new labour codes.

Current CII president Mr. Sanjiv Bajaj recently proposed a way forward with the formation of GST-like councils for reforms pertaining to issues such as land, labour, power, and agriculture. The GST council makes recommendations to the Centre and states on various facets of GST implementation, and its successes leads one to desire similar bodies for other disputes affecting the industry.

India remains a big opportunity for FDI with proper sectoral development 

Another important reason to iron out kinks in Centre-state relations is that India is emerging as a premier destination for foreign investment, as per data on FDI inflows. Friendly, reformed policies, ease of doing business, tax exemption, and a young workforce are reasons for a positive foreign investor sentiment.

Complimenting this is the positive GDP forecast of the CII. Speaking to the press, Mr. Sanjiv Bajaj said that the “CII expects the GDP growth in a range of 7.4-8.2% in 2022-23, with the outlook critically hinging on the trajectory of global crude oil prices.” The CII president list includes the likes of Mr. T V Narendran, Mr. Uday Kotak, and Mr. Vikram S. Kirloskar, and the body seeks to shape an environment favourable to the growth of the industry in India.

When discussing the energy sector, it is wise to think back to the early reforms and to consider the impact of the existing regulation in play – the Electricity Act 2003. Among the upside of mass empowerment, dedicated policies and enforcing bodies are undeniably fruitful. In under 2 decades, the act paved the way for reform and sustainable operation, while achieving growth of nearly 230%. Innovation here leapfrogged on the backs of these policies, and offers precedence for the efficacy of a council.

The land sector is equally influenced with the tenancy reforms and other such revolutionising pushes redefining its trajectory. Today, the common Indian is better served, but more can be done. There are commissions that outline obvious cracks in the existing system causing poor implementation of said reform, but a GST-esque council can step in and be the voice of the underserved. 

With geopolitical tensions severing relations between major economies, India should not miss out on an opportunity to fast-track its development because of want of a spirit of cooperative federalism. 

Unlocking economic potential is a common effort

Collaboration between the Centre and states is as urgent as it is all-embracing. A point of departure can be tackling inflation. Inflation is a worry to the industry and the common man, and the CII believes that the Centre and states should, as an immediate measure, collaborate to moderate taxes on fuel products. Mr Bajaj also noted that countering inflation can help “unlock the growth potential of the economy.” 

There’s no denying a gap exists, and it can be bridged by a council, armed with panels filled with titans of industry, capable of seeking the lasting betterment of the land, energy, and labour sectors. 

Knowing well that blame-games and stand-offs between Centre and states are often sterile, financial leaders in India are keen on promoting structural efforts that enable collaboration. In its short history, the GST council boasts of achievements such as the removal of cascading taxes, better accessibility to goods and services, a unified market, lower evasion, and employment creation. Not neglecting the hurdles, the council’s recommendations benefit both state and Centre, and the industry hopes for similar bodies for consensus building involving stakeholders of all involved. 

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