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02 Nov 2020

Realization of the True Vision of “Atmanirbhar Bharat” Requires Modernization of Laws

The government’s vision for an “Atmanirbhar Bharat” (self-reliant India) is laudable. This is not a new idea, though. Indeed, self-reliance was a key reason for a newly-independent India to lay emphasis on a public sector that, over time, was present in virtually every sector- from aviation to zinc. During the 1980s, the emergence and development of India’s private sector were powered by buzz phrases such as “Import-substitution” and “Be Indian, Buy Indian”.

Especially in the past three decades, as India has opened up its economy in a calibrated manner, its large domestic market attracted investments across sectors. While market size is undoubtedly an important criterion, other aspects that make it easy to do business are just as critical. As a nation, India competes with other countries. In an increasingly globalized world, when investors (foreign or domestic) commit risk capital to India, they are making a conscious choice. Other countries (e.g. Vietnam, Malaysia, Bangladesh etc.) may not have large domestic markets themselves but are attractive as hubs for manufacturing products that are then exported around the world, giving a boost to the local economy.

Through sector-specific “liberalization” and “reforms”, Indian governments have, since 1991, been taking steps to attract investments into the country. Modifying the legal framework governing such investments and operations is a key enabling action. The results are visible, as India has become self-reliant in many areas. Today, we export many products and services to countries around the world- including the world’s most developed nations. But there are still many gaps that need to be plugged. Electronics are embedded in almost every industry, but we as a nation are a long way off from being self-reliant in this strategic field. Vital ingredients for the pharmaceuticals sector too are imported, as are telecom and defense equipment that is vital to our nation’s security.

For decades, governments and entrepreneurs have mistrusted each other. High levels of mistrust have also existed between private sector management and the labour force. In the context of India’s cooperative federal structure, as regional political parties have emerged and been elected to power, the chasm of mistrust between state and central governments too has generally widened. That is why sectors such as agriculture and education, which are both fundamental building blocks of any economy, continue to be shackled by many regulatory restrictions. India’s labour law regime too continues to be viewed as lacking the level of flexibility that exists in many other countries.

That India has the potential to grow rapidly is well-known. But to realize this potential, we need to quickly bridge the widespread trust deficit and ensure that all stakeholders are aligned towards the overall purpose of India’s overall development. Given India’s large population, levels of illiteracy, weak healthcare infrastructure, wide income disparity and lack of a social security net, there is no silver bullet. That is why, what is needed is a holistic approach that enables balanced, all-round development of every component of India’s economy- agriculture, manufacturing and services.

To use an analogy from cricket, AB de Villiers is known as a destructive batsman (especially in the T20 format) because of his ability to play shots all around the field. Governments- both at the center and states- must develop a similar kind of “3600 perspective” to enable the development of all sectors and all segments of the population (children, women, LGBTQ, those affected by mental health disorders, rural and urban residents, entrepreneurs, workers, etc.). I believe that it is through this kind of lens that we must view the actual and proposed changes to laws in the past year or so, as their overall intention is to unshackle different segments/sectors of India so as to accelerate development.

This kind of mindset will inevitably create competition amongst states to attract investment- and thus infrastructure, jobs, and overall development. Such competition will force politicians, private enterprise owners, citizens and all other stakeholders to work towards a common purpose. We have started seeing this play out in bits and pieces in some parts of the country, but much more needs to be done by state governments, given that the onus for formulation and implementation of many policies that are critical to creating a welcoming investment climate lies with them.

Here are 10 examples that clearly signal the government’s intent to make it easier for companies to do business in India and thus contribute to an “Atmanirbhar Bharat”:

  • Introduction of the Production Linked Incentive (PLI) scheme to attract manufacturers of mobile phones, electronic components and micro electromechanical systems to make in India.
  • Changes to the Companies Act (e.g. decriminalization of offences other than fraud or where the larger public interest is involved, removing imprisonment as punishment for minor offences, etc.)
  • Changes to labour codes relating to Industrial Relations, Social Security, and Occupational Safety, Health and Working Conditions. It is expected that these changes will give companies with less than 300 workers greater flexibility in retrenchment without obtaining prior government approval. The changes also restrict workers’ rights to strike work without giving 60 days’ notice. 
  • Changes to the Insolvency and Bankruptcy Code.
  • Allowing farmers to sell agricultural produce outside the Agricultural Produce Market Committee (APMC) mandis, thereby reducing the role of middlemen and giving farmers the option to sell their produce at more remunerative prices.
  • Allowing companies to raise equity capital outside India by listing their shares in specified foreign jurisdictions (without requiring listing in India as well).
  • Allowing private sector participation in the space sector, including launching satellites, setting up control centers outside India, develop new systems and offer “Spacecom” services around remote sensing, navigation, space exploration etc. 
  • Simplifying the Environment Impact Assessment (EIA) process for certain projects.
  • Changes to the Food Safety and Standards Authority of India (FSSAI) regulations to make people more aware of the health risks of packaged foods and banning of e-cigarettes to ensure that our citizens can make better-informed choices around their health.
  • Reducing ownership of firearms by decreasing the number of firearms allowed and the validity of the license. 

Many of our country’s laws were originally formulated several decades ago when every aspect of society was very different. The intervening period has seen myriad changes driven by technology, greater awareness of the environment and the imperatives to protect it, progress in the field of medicine and health care, etc. Perhaps the most significant change has been ushered in by the COVID-19 pandemic, which has fundamentally changed the way millions of people live and work.

As our environment evolves, it is only natural that laws too will need to evolve in tandem to ensure that they remain relevant and effective. As our policy-makers formulate new policies and enact new laws, they would do well to be guided by the line “Where the clear stream of reason has not lost its way into the dreary desert sand of dead habit” from Gurudev Rabindranath Tagore’s famous poem “Where the mind is without fear”. While modifying laws and framing new ones, the objective should be to enable and not just control. Here are some additional areas that the government must urgently turn its attention to:

  1. Enact specific data protection laws that are appropriate to India in light of the growing wave of digitalization around us. Making tweaks is not enough; a comprehensive legal framework is needed.
  2. Eliminate the need for multiple regulatory filings by allowing companies to upload data to one location from where regulators can access what they need. This can go a long way in easing the compliance burden. A study by Teamlease has found that Indian businesses operate under the burden of more than 65,000 compliances, including 2,500 regulatory updates and 3000 filings in a year![1]
  3. Come out with a Direct Tax Code that reduces the need for frequent and large-scale changes and thus provides a higher degree of stability and predictability to companies and individuals.
  4. Rationalize the GST regime by reducing the number of rates and further simplifying the compliance process.
  5. The New Education Policy to encourage “critical thinking” in students and enable the creation of world-class institutions of higher education in India is an excellent step. In order to accelerate this transformation, I believe the government must enable reputed foreign universities to set up campuses in India. Perhaps this can start with online access to classes- a phenomenon the pandemic has already forced on educational institutions. In addition to creating domestic R&D capabilities in areas such as robotics, AI, healthcare, etc., such a move can also help India conserve valuable foreign exchange in the form of the money spent by Indian students studying abroad- resources that can be deployed elsewhere.

Of course, building political consensus around such policies will not be easy. But the emerging context has, in my view, created a conducive environment to push forward with bold structural reforms that will help transform India holistically, and not just facilitate lop-sided development.

[1]http://www.businessworld.in/article/Atmanirbhar-Bharat-Needs-To-Measure-Cost-Of-Doing-Business/29-08-2020-314315/


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