Thursday, October 06, 2005
McKinsey makeover for Bharat
In its latest quarterly journal, McKinsey also identified three major steps to stimulate domestic demand, crucial for high growth -- to keep interest rates regionally competitive, introduction of VAT in all states and reducing burgeoning deficits of states.
Having picked the "low hanging fruits" since economic liberalisation started in 1991, the global consultant said it was time the government resolved to deregulate politically sensitive sectors like retailing, banking, the news media and defence.
Exposing the retailing sector to world-class scale, skills, technology and capital would not lead to greater unemployment as feared and instead it would lead to more jobs besides benefiting consumers from better quality, it said.
McKinsey said government was giving priority to attract investment in infrastructure to upgrade ports, telecommunications and highways, but several important areas like power, water and sewerage, railways, and airports remain troublesome partly because "intransigent" state governments often block progress. On labour reforms, it said that to increase exports of manufactured goods rapidly, the government must permit the free use of contract labour for all work and repeal a law forcing companies with more than 100 workers to obtain state approval before cutting jobs. On urban renewal, McKinsey said the centre has budgeted an initial one billion dollars to finance its national urban renewal mission, but states must also do their part. It suggested that states increase usage charges such as property taxes, water and sewerage fees, improve collection rates for fees and taxes, enhance efficiency of municipal corporations, and make better use of assets in and around cities. Pointing out at Mumbai where terrible flooding recently underscored the need for quick progress, the global consultant estimated that the state could immediately finance about 10 billion dollars in infrastructure improvements through measures such as reforming the property tax regime and improving collections from their current minimal levels. Public investments of this kind could attract an additional 40 billion dollars in private funding, it said adding these investments could greatly improve the quality of life for Mumbai’s population.
In the field of asset recovery, it said the government must continue to expedite the recovery of assets from bankrupt companies. To address the new market realities and to sustain the economy's long-term health, it should bolster recent measures that help lenders recover dishonoured checks and assets from indebted companies. In particular, the government should clarify the mandate of the asset reconstruction company of India, established recently by a consortium of banks, by giving the company a more active role in debt restructuring and recovery. Foreign institutions must also be allowed to invest in such ventures. Moreover, the government should encourage the sale of non performing loans by allowing foreign banks to purchase them and by making these transactions exempt from stamp duty, McKinsey said. The global consultant also called for enforcing measures to protect intellectual property. Observing that the evolution of knowledge sectors such as pharmaceuticals, biotech, and IT services has been phenomenal, it said the government should enforce IP protection measures effectively and expeditiously to sustain the country's cultural, scientific, and technological development.
To improve the protection of IP, India should also align its patent regime with global standards in order to prevent the sharing of proprietary information in areas such as data exclusivity and to improve the overall capacity and quality of the infrastructure and resources in the country's patent offices.
FYI: McKinsey's present CEO is Ian Davis, and previous CEO was Mr.Rajat Gupta, an alumnus of IIT-Kharagpur, and IIM-A. Rajat is now an active member of the Overseas Friends of BJP.