At a time when several global economies are floundering in their efforts to achieve major economic gains, India needs to chart out for itself a more solid course towards national development. The time has come for it to set aside ideological strictures and devise workable policies. It is pertinent to understand that pragmatism, not ideology, needs to shape solutions. The country will then be able to go ahead with sustainable reform. The key to all this is reallocation of resources from old to new.The flexibility of resource allocation would of course depend upon the changing trends in capital. As more and more efficient products are created at the cost of existing less efficient products, India shall usher in a more efficient economy. Over a period of time, this approach will lead to a huge economy. This paper attempts at analysing through `back-of-the-envelope' illustrations the impact of such an approach towards a few sectors of development. This is only a preliminary thought paper and needs to be builtand refined for its application to the larger universe.
An excise coup: Let us take the latest instance where the government is toying with the idea of giving incentives to those acquiring a brand new commercial vehicle after scrapping their 15-year-old vehicle. All of us are aware of the fact that both Telco and Ashok Leyland, the country's truck-makers, have cut production. While earlier they were producing about 15,000 units on a monthly basis, the numbers have touched 5,000 per month recently. This amounts to an annual impact of production cut worth 1.2 lakh units owing to poor market and economic conditions.
What does this mean for the Government? Simple, the Government is incurring a loss of excise duty on such "not manufactured" vehicles. If the average value of a truck is taken at Rs 7 lakh, excise duty being 30 per cent, the average loss per vehicle "not manufactured" is around Rs 2 lakh. The excise loss because of 1.2 lakh units not being manufactured is Rs 2,400 crore. Now suppose theGovernment were to introduce a scheme under which all vehicles greater than 15 years are exchanged by the respective vehicle manufacturers for new vehicles. On all such vehicles sold under the scheme, however, the government gives varying percentage of excise relief equivalent to the assessed re-sale value of the vehicle. For example, if a truck (basic value Rs 5 lakh, vehicle model 1613) which is assessed to have a value of Rs 1.5 lakh, the Government gives an excise relief of 100 per cent, the consumers are compensated to the extent of the assessed value of the old vehicle.
The advantages in such a scheme are several.
The consumer stands to gain for the new vehicle is now quite affordable.
The vehicle manufacturers get rebate in terms of excise relief.
The government does not lose because as it is it was getting no excise on vehicles not manufactured. It would now start getting some excise benefits equivalent to the extent of difference in excise duty on the new vehicle and theassessed re-sale value of the vehicle. Even if only 10 per cent of the excise loss is contained owing to this exercise, the net revenue gain to the government is Rs 240 crore.
The economy gets a major boost with the snowballing impact on transport, steel, banking (consumer finance) and related industries.
The environment gets a relief with the phasing out of old vehicles.This scheme can be applied on all vehicles like scooters, cars, and jeeps of a certain age and above, and the economy gets a boost.
Optimum realisation of resources: Going by the optimum realisation theory, the Government seems to be doing grave injustice by grossly underutilising the prime land it possesses. What needs to be done is to do some rationalisation in utilisation of land use for optimal productive use purposes.
Let us take the case of railway stations dotting every major city and town in India. It makes only brilliant economic sense to convert many of these stations in such places into multi-storeyedcommercial complexes with underground parking. This land development can take place and money realised by way of land development may be retained by the railways for modernisation.
The approximate land area in the New Delhi railway station is around 132 lakh square yards. The existing average rate in the busy Connaught Place area is Rs 1 lakh per square yard. At a depreciation of 50 per cent, the average rate of land area in the New Delhi railways station is Rs 50,000 per square yard. The total land value thus is around Rs 66,000 crore. Why does the Government not seriously consider utilising land for optimal productive purposes? On similar lines, the approach towards other sectors of infrastructure development can be taken up.
In the heart of Delhi city lies the populous Kidwai Nagar where at least there are 5,000 households. This equivalent piece of land has the potential of housing 40,000 households if 20-storeyed buildings are created instead of the existing one-storey houses. If private builders aregiven the task of developing this area, if could generate in one go a whopping Rs 2,300 crore as land value for the Government. This figure is calculated after one takes into consideration the average value of the land and the total land area. The direct benefit of such a move is that the Government is able to utilise the real estate more effectively in the heart of the city. From the heart of the city one could then move on to the cantonments which are currently occupying prime land. These must be given to private developers and the money generated may be used for defence-sector development.
Gold reserves: If real estate is one major factor on which the net worth of an individual is dependent, then gold cannot be ignored. The government too has a high net worth if it is sitting on large gold reserves and prime real estate. In a gold-crazy country like India, nobody knows for sure how much gold is there. Sketchy estimates put that at 15,000 tonnes. The official figure is close to 10,000 tonnes.Sadly, the RBI has only 400 tonnes of it. Thus, if the government were to popularise the offer of "gold bonds" to the public, the returns will be phenomenal. Suppose interest is given to the public at 6 per cent for giving gold to the Government for five years, it will not be wrong to assume that at least a small portion of that 10,000 tonnes will find its way into the Government reserves. Even if this scheme is successful to the extent of 5 per cent, 500 tonnes of gold can be brought into government reserves. Five hundred tonnes of gold will be valued at Rs 21,000 crore. It is, therefore, possible to pawn a bit of these compiled reserves in exchange of dollars or for more productive purposes.
(The author is chief of corporate strategy and organisation development, Apollo Tyres)
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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