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What The Government Should Do
This government, with a mandate unprecedented in modern India, and having shown flashes of determination, needs to stand up now to deliver a robust world-leading stimulus – one which can only be delivered by using this black swan event to reform its bureaucracy to one that works for the people rather than one that ‘controls’ it.
The impact of Covid19 on the global economy is going to the worst of any events post WWII – and that is the optimistic assessment. Globally governments are rolling out business stimulus packages to keep the economy alive – and most of those packages are wide-ranging, deep-pocketed and focused on real impact. India on the other hand has been as usual hampered by its podgy bureaucracy, that filled with generalists who do not understand intricacies of business in the best of times, is rolling out mediocre and miserly packages while honestly believing that they are doing a favor to the public in general. This government, with a mandate unprecedented in modern India, and having shown flashes of determination, needs to stand up now to deliver a robust world-leading stimulus – one which can only be delivered by using this black swan event to reform its bureaucracy to one that works for the people rather than one that ‘controls’ it.
The world economy as it stands today stares at looming decimation. This can be seen in predictions such as that of up to negative 25 percent GDP growth rates in the April-June quarter for the United States that accounts for 20 percent of the world’s GDP. If the Finance Ministry’s package for the disadvantaged sectors along with the likely, and again, miserly sector-specific business stimulus package is anything to go by, the Indian economy is headed for unmitigated disaster. Every force majeure clause and every exception to fiscal management laws is in order.
The government needs to stop its piecemeal packaging and proffer a robust integrated package by combining all available taxation, welfare & cess funds along with a minimum exception of 2% of GDP to the FRBM act to serve up a rescue package worth a minimum of INR 5 lakh crore on top of stimulus offered by the RBI. Businesses must be provided with 12-18 months working capital in the form of 10-year soft loans by supporting banks with full interest support for 12 months to enable a repayment holiday of 12 months and a lowered interest rate of 6-8% per annum for the entire 10-year repayment term.
An immediate reform of the entire regulatory mechanism is in order in cooperation with states. This begins with making PAN the sole identity of each business and providing for a single quarterly return for businesses with revenues over INR 5 cr and a consolidated annual return for all others. This single return should be a full statement of Capital & Operational transactions that leverages the transaction matching feature developed for GSTIN. All calculations for Income Tax, GST and other taxes, as well as summary statements for ROC and other compliances must be auto-generated from this. We are the world’s leader in BPO/KPO & software development and this will be easily accomplished. It is also time to re-invent the complicated TDS & GST payment structures by having an integrated 2% TDS rate, and a simplified 3 rate GST structure with a 30% cess on sin/luxury goods with a blanket removal of all reverse payment mechanisms – whether in TDS or GST – anand all payments quarterly. Plus move all assessments to faceless/nameless processes like has been achieved with great success in the Income Tax domain. Simple, once per quarter compliance and easy rate structure will allow businesses to focus on business more than compliance. There is also a lot of work to be done – as started in the Companies Act reforms – in decriminalizing business actions and making them compoundable except exclusively where fraud, malfeasance or gross misconduct is proved by the government. This will not only ramp up government revenues, but also nearly eliminated litigation while serving as a permanent booster dose to India’s highly innovative – but currently chained up – entrepreneurial spirit.
The unimaginative bureaucracy will push back because they won’t understand, and the dishonest elements will fear loss of rent-seeking opportunities. To them the message must be – reform (and reform dramatically: no tokenism please) or perish.
While the government may indulge in niceties to keep the morale up for the bureaucracy, the bitter truth is that the elitist top echelons thereof are highly inefficient, widely corrupt and completely unimaginative. This then percolates downward in our daily lives where we see widespread corruption and inefficiency at street level – and in situations such as prevailing, it manifests itself in scenes such as policemen wantonly caning people without regard to human rights; no one disagrees with strict enforcement of control measures, but the fact that we feel that police behavior in India is normal, is merely one reflection of the abysmal standards of bureaucracy in the country.
The simplest way of kicking of reforms is to make admission to the bureaucracy in India based on specific technical knowledge & managerial aptitude for the verticals being served – especially for the civil services. They stop need to be generalist services. Recruitment should be for a five-year term only with only 50% being retained – and renewed for five years at a time. This would mean that only those who are really interested in serving come into the service, while at the same time ensuring they remain on their toes to remain in that top 50%. It would also offer a structured lateral entry program into all services. Top this with market linked salaries and withdraw all perks including housing, government vehicles and various other benefits – including offering existing bureaucrats the option of joining the new regime with new salaries or serve out their remaining tenure with low salaries. This would free up huge real estate to redevelop our cities (and revv up business) as well as remove massive wasteful expenditure from the exchequer. The collateral benefits are massive but the main one being the percolation of the perform or exit philosophy to the street level. The unprecedented events unfolding before us give the government this opportunity – and if the Prime Minister does not seize it now, India will never reform.
GROUNDS UP RESTRUCTURING
India produces probably the world’s best managerial, technological, medical, finance, legal & entrepreneurial talent. One only needs to look at the top of pretty much every field across the globe and the most visible ethnic group at the top is likely Indian. These are people who were nurtured & developed by India’s education system but are reaching the top echelons in countries which have provided them with a clean, reform-oriented & supportive business environment free of the overbearing bureaucratic shackles. It follows therefore that the talent pool available in India is of the same class, albeit shackled down by bureaucracy.
The government needs to reach out to this pool – and the Prime Minister needs to set up an office of reform, free from politics & bureaucracy. There is no doubt that the best talent & minds will volunteer to give two, maybe more, years of their lives to help redraft all the archaic laws & processes of the country and present a modern structure that goes with the times. We have great allies in the form of Singapore, Japan & the United States which have modern, intuitive & avant garde laws & processes who, no doubt will provide their expertise in addition to automatically serving as models for this restructuring. And we don’t need two years for this to happen – the results will be visible in weeks, with new benefits & reforms adding up each quarter. Every country that has reached where India aspires to be has done so by restructuring grounds up.
We had one such opportunity in 1991 where tottering at the edge of disaster the economy was able to see unprecedented reforms without a murmur of protest. We stand again at the doorstep of such an opportunity – even more potent – where we have a government that has a mandate not seen for the last three decades, and a leader that people are willing to listen to and give the long rope to.
EPILOGUE: WHAT THE OPPOSITION SHOULD DO
Those that live under the impression that the government of the day would be impacted by a section of the media and some unnaturally amplified protests are living in an echo chamber of their own making – and that too one of miniscule proportions. An overwhelming majority of people in the country listen to and trust the Prime Minister. One may disagree with their views, but the only way of getting them on board is to gain their trust, not to challenge it. The opposition – and one particular CM has realized the value of that and reaped handsome rewards – needs to accept the popularity of the Prime Minister and challenge him on reform, rather than agenda.
Providing a stimulus package without parallel, ending bureaucratic tokenism & terrorism, breaking the colonialist shackles and bringing in a people-serving corruption-free bureaucracy is the reform the Indian voter seeks. While it may mean bidding permanent goodbye to the older purpose of using corruption through the ranks to generate political funding, the long-term benefits of challenging this government on a structured set of reform-oriented actions through a shadow cabinet are priceless. Tracking their delivery is what will bring the opposition back into the reckoning – and India to greatness.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house