Prime Minister of India - Dr. Manmohan Singh

PM's speech at the Chief Minister's Conclave, Chandigarh

Ladies and Gentlemen,

I am delighted to be here at this gathering of Chief Ministers and leaders of business from the northern region. I compliment the PHDCCI for organizing this interaction. These conclaves serve an extremely useful purpose in forging a policy consensus across states for the common benefit of the entire region. After all, the fortunes of states are necessarily interlinked, just as fortunes of nation states are in a globalised world.

The Northern region which PHDCCI covers accounts for almost 40% of our population. It is also undeniably the breadbasket of the country. It has also been the cradle of ancient civilizations. Given this background, the potential of this region is immense. And if this potential is to be realized, it is necessary that the governments, academia and industry come together and collaborate on developing common policy goals for the entire region.

Ladies and Gentlemen,

The theme of this interaction is the removal of barriers to inter-state trade. The Constitution of India conceived of India as a unified, common market. Large economies have advantages of scale, scope and ease in conducting transactions. However, over the years, we have managed to fragment the national common market by erecting a large number of financial and physical barriers which choke inter-state commerce. This is done under the mistaken belief that beggar-thy-neighbour policies would promote the welfare of one's own residents. Tax systems have been put in place which act as hindrances to sales to other states. Tax breaks and shelters have been created to facilitate development of backward regions. Physical controls through permits and check-points increase transaction costs for commerce. When the whole world is moving towards dismantling barriers to trade and promoting trade facilitation, it is imperative that states too realise that these policies - which may be driven by revenue or development concerns - will not pay off in the long run. What will pay off are policies which strengthen the human and physical resource capabilities of states.

Ladies and Gentlemen,

The Northern Region has a lot of thinking to do on realizing its potential. Its share of national income is below potential. In human development indicators the region lags behind western and southern states. The time has come for the region to take a great leap forward. This requires both hard work and creativity. According to a report prepared for PHDCCI by Bibek Debroy, if present trends continue, by 2020 Punjab would be where Germany is today, while Uttar Pradesh would be where Punjab is today. We must correct these stark inter-regional imbalances in development. I hope this Conclave will inspire the political leadership in the region to take the necessary steps.

The Indian economy is at the cusp of a new phase of economic growth. We have sustained a growth rate of 8% over four years. This growth has been broad-based, cutting across sectors. Manufacturing and service sectors have been witnessing double digit growth. However, Northern states have been variable in their performance. Growth has been either volatile - because of dependency on rainfall - or lagging behind the national average. We cannot allow this to continue. I assure the Chief Ministers of the region that the Central Government will be your partner in progress. We are committed to helping the region remain in the forefront of development.

Ladies and Gentlemen,

As I had said earlier, the largest barriers to trade have been our tax systems. I am told that free flow of trade can add up to 2% to state growth rates across the region. The introduction of VAT has been the biggest success story in recent times in moving towards a simplified, friendly tax system. And VAT has proved its utility as state revenues have shown a healthy growth.

However, much more needs to be done in improving your tax systems. Tax rates, even if not unified for all products, vary widely across states. They need to be harmonised. In an ideal world, VAT should be the only tax on goods. We continue to have octroi, luxury taxes, mandi taxes and other levies. In the long run, as we move to a common Goods and Services Tax as announced by the Finance Minister, most of these taxes should disappear. I urge Chief Ministers to work towards harmonizing and rationalizing VAT within the region as a first step towards a GST.

The other related area is fiscal incentives and tax breaks which are provided for promoting industrial development. The jury is still out on whether these policies really promote industrial growth. But in the process, in the excitement to have headline grabbing MOUs, we offer incentives - both fiscal and financial - which our finances cannot sustain. I urge PHDCCI to work together with State governments in ensuring that there is no "race to the bottom" in fiscal terms through competitive populism. We have to enable a "common economy" and a "single market" to emerge.

Ladies and Gentlemen,

There are other barriers to trade as well. Free movement of goods, transport and people is hindered by border checks and taxes on vehicles. Trade in agricultural produce has additional hindrances. These are well known. We need to simplify procedures, reduce controls and promote greater coordination across states so as to facilitate rather than hinder movement of people and goods. Even if taxes have to be paid and regulations to be complied with, why cannot they be done in a customer friendly manner? Advances in technology along with coordinated efforts can make such movements seamless.

Ladies and Gentlemen,

The Northern region can cooperate in many areas to provide a superior resource and infrastructure base. The region is crisscrossed by rivers. States should establish cooperative mechanisms to manage water resources - both in quantity and efficiency. The region has a power shortage of over 10%. Here too, states can cooperate to promote better generation and utilization of power across the region. These two sectors have a direct bearing on agricultural performance and improving power and water management would ensure that this region continues to be a leader in agricultural development and remains as the granary of India.

Ladies and Gentlemen,

One reason for our optimism about sustaining India's current growth process is our demographic profile. India is increasingly a country of young people. We are home to 20% of the world's population below 24 years of age. This youthful population will provide the human resource and their savings, the financial resource, for sustaining growth in the next 20 years. However, we cannot simply assume that demographic trends will automatically translate into accelerated growth. People without capabilities, without education, without skills, without health care, without the required social and economic infrastructure, need not be productive agents. In fact they can be economic and social liabilities. However, people empowered by capabilities translate into a national asset.

I need not tell this audience that the Northern region needs to improve its human development indicators. You have to invest in your people. While we in Delhi are providing a supportive policy environment, you will have to do much more to capitalize on the emerging knowledge economy. You need to not just better primary schools. You need more colleges, technical institutions, vocational training programmes and R&D centres. This is true of all states. I learnt that there are exciting initiatives going on in some states. Chandigarh, for example, is moving towards competency tests and certification of graduated so that it can become an IT hub. We ned more such initiatives. I urge the Chief Ministers to pay special attention to the human development challenge in the region.

Human resource has to be backed by top class infrastructure. Unlike in the West and South, this region is dominated by one big urban centre, namely the National Capital Region of Delhi, Gurgaon and NOIDA. You must take advantage of the National Urban Renewal Mission to change your urban landscape and make your cities modern and attractive. You need new urban centres. The region must see a wave of city development. And there is a lot for each state to learn from the other. Cities in one state can serve the needs of people in neighbouring states. After all, Haryana and UP have benefited from the growth of Delhi.

Ladies and Gentlemen,

In the final analysis, what will differentiate one state from another is the quality of governance. States must pay special attention to the challenge of improving the quality of governance, both in local and state administration. They must make existing investment in the public sector more productive and make public services more effective and efficient. You will have to provide the necessary leadership and vision to ensure that government institutions perform better, attitudes change, and tax payers get their money's worth. You need to promote e-governance. Delhi and Chandigarh have some interesting initiatives in taking public services to the common man through the use of IT. Such initiatives improve efficiency, transparency and customer satisfaction. E-governance can make government more citizen friendly and business friendly. I urge you to work on improving the governance systems in your states.

Ladies and Gentlemen,

I don't think we have a shortage of ideas on for the northern region. You need to establish cooperative mechanisms so that inter-state barriers of all forms can get reduced; so that movement of people and goods is easy; so that the available resources of the region in water and power are best utilized; so that the region can once again lead in agricultural and industrial development. You can establish a forum for sharing inter-state experiences in development. After all, what is important is that the people of the region prosper. All of you must think big and think together.

The future of India is bright and beckons us to act to realise it. With your wisdom, experience and leadership, I am confident that you can make this future happen. For your states. For the region. And for the country. I sincerely hope PHDCCI will succeed in shaping a workable consensus around key policy issues so that all state governments, cutting across political parties, can take bold initiatives. I wish you all well.

Thank you.