Developments in the last few weeks would suggest that the Union government has given up its lethargy on economic reforms. Some major steps have been initiated to remove bottlenecks that have been stalling economic activity, allow greater participation of private companies in sectors hitherto reserved for the public sector and usher in reforms in government expenditure on subsidies. The coal ministry, for instance, has moved ahead on allowing private companies to mine coal for commercial sale. The process of selecting mines to be auctioned for commercial mining will be completed by March. This will end the state sector monopoly over coal mining for commercial sale that lasted for over four decades (private sector mining of coal for captive use had been allowed some years ago). This would be a major change and should count as the Narendra Modi government's first serious denationalisation move, one which would also ramp up coal production to meet domestic demand and reduce imports.
As this newspaper has reported, the Union government is also working out ways to promote land leasing as a legal option to ensure that tenant farmers have access to institutional credit, insurance and disaster compensation without affecting the landowner's title. The proposed legislation, a model law giving states the option to adopt it, will be the first big land reform after the Narendra Modi government failed to build consensus on amendments to the Land Acquisition Act, 2013. A three-day meeting of state agriculture ministers to be held in Sikkim from January 17 should hopefully pave the way for making land leasing legal and remove adverse land possession clauses to address fears among owners. The proposed law will also help get around some of the obstacles in the current land acquisition law. Similarly, the necessary task of closing down loss-making public sector undertakings (PSU), which drain the Centre's resources, has received a fillip. The final steps to liquidate three sick, unviable PSUs have been taken; more such decisions may happen. The petroleum and natural gas ministry has also decided to roll out the direct benefits transfer scheme for kerosene supplied under the public distribution system in around 26 districts. This will kick off a process that will reduce diversion of subsidised kerosene and ensure better targeting of subsidies.
Some hope of cleaning up the stressed balance sheets of banks by the end of the next financial year has also arisen, with the Reserve Bank of India laying down a time-bound plan for banks to first recognise their non-performing assets and then pare them down to prudent levels. This will of course mean short-term pain for the affected banks. But the long-term gains of this exercise would be immense for banks and the wider economy. The government deserves to be complimented on this new momentum. But the list of the urgently needed reforms is long, and the government must maintain the pressure.
First and foremost, the government must continue with fiscal consolidation. Next month's Budget must send a clear message on this, and not pause its fiscal deficit reduction roadmap. Fiscal consolidation can eventually help interest rates to fall, which in turn should result in a pick-up in bank lending and an improvement in corporate performance. The government must also give a big push to its disinvestment programme, which lost steam in the current year. Strategic sale of government shares in PSUs or privatisation must be brought back on the government's agenda. Given the size of non-performing assets of public sector banks, the government may not have an alternative to pumping fresh equity into them. But the government must fund only the better-performing PSU banks and encourage the weaker banks to pare down their business.The airports sector also is in need of an infrastructure upgrade and a transparent mechanism for involving private companies to upgrade airports should be in place. Finally, the government must continue overtures to the Opposition to bring them on board on the legislative architecture for the proposed goods and services tax, without unduly compromising on the new taxation regime's essential character.