PM Modi shared his blog post titled “Reforms by conviction and incentives” on Tuesday. He wrote that despite the challenges brought by the COVID-19 pandemic, states in India were able to borrow significantly more in 2020-21 and were able to raise an extra Rs 1.06 lakh crores in the period 2020-21. This increase in the availability of resources was made possible by an approach of ‘Centre-State ‘bhagidari’.
“The Covid-19 pandemic has come with new challenges to Governments across the world in terms of policy-making, including India. Raising enough resources for public welfare while ensuring sustainability is one of the biggest challenges”, PM Modi stated.
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 percent of GSDP was allowed, of which 1 percent was made conditional on the implementation of certain economic reforms.
He further stated that “this nudge for reform is rare in Indian public finance, incentivizing 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”.
He also said that 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 for 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, stated PM Modi. 17 states completed this reform and were granted additional borrowings amounting to Rs 37,600 crores, PM Modi wrote.
The second reform that 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 the 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,” read the blog.
The third reform required states to notify floor rates of property tax and of water and sewerage charges, in consonance with stamp duty guideline values for property transactions and current costs respectively, in urban areas. This would enable a better quality of services to the urban poor and middle class, support better infrastructure and stimulate growth, wrote the PM, adding that property that 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, said PM Modi in his blog.
The fourth reform was the introduction of Direct Benefit Transfer (DBT) in lieu of free electricity supply to farmers, he said that the requirement was for the formulation of a state-wide scheme with actual implementation in one district on a pilot basis by year-end.
He said that additional borrowing of 0.15 percent of GSDP was linked to this. A component was also provided for a reduction in technical and commercial losses and another for reducing the gap between revenues and costs (0.05 percent 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.
“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 percent of the initially estimated GSDP, read PM Modi’s blog.
It further said, “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 and States came together to roll out public-friendly reforms in a short span of time amidst the pandemic.”
PM Modi emphasized that this was made possible due to the Centre’s approach of Sabka Saath, Sabka Vikas and Sabka Vishwas. He stated that officials who have been working on these reforms suggest that without this incentive of additional funds, the 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,” wrote PM Modi.