indica News Bureau-
Offering solutions to improve India’s economic growth, former governor of Reserve Bank of India, Raghuram Rajan pointed out that a concentration of power around a small set of advisers and ministers in the Prime Minister’s Office (PMO) is leading to a ‘growth recession’. And to overcome the economic slowdown, India needs to sign free trade agreements with different countries.
“Unemployment, especially amongst youth, seems to be growing, as is the accompanying risk of youth unrest” he wrote in a column in India based publication [www.indiatoday.in] on December 6.
After pointing out various problems with the current and former governments that came to power, he wrote that India’s anomalies arose because of careless decisions on their parts. He added that demonetization and lack of clarity in implementation of GST (Goods and Service Tax) added to the economic woes of the country along with the problems passed down by the former government before the rise of NDA.
“The NDA government under Prime Minister Atal Behari Vajpayee was the last steady reformer, but it was voted out of office before it could turn to the most difficult reforms, on the business environment, labor, land and the role of the public sector. The UPA coalition that was elected in 2004-2009 did not have the internal consensus to pass growth-enhancing reforms, while the one that followed in 2009-2014 was paralyzed by scams and opposition non-cooperation”, wrote Rajan.
Rajan further wrote that the NDA government’s initial efforts to curb inflation were genuine.
“The Modi government initially continued this process, aiming to bring fiscal spending under control and halting the window-dressing that accompanied past budgets. It approved the RBI’s emphasis on arresting inflation”, he wrote, adding, “The important GST reform, aiming to unify the Indian market and improve tax compliance, as well as the Real Estate (Regulation) Act, aiming to clean up practices in the real estate sector, were also genuine attempts to improve India’s institutional structure.”
Rajan said that due to lack of proper implementation and clarity, the efforts made by the NDA government could not achieve the Herculean task.
“The Modi government’s record here is decidedly mixed. For example, while it showed substantial political acumen in navigating the GST legislation through Parliament, the executive thoroughly mishandled the roll-out. The government creditably understood the need for remedial action. However, frequent changes to procedures and rates have undercut compliance and added to confusion and uncertainty-for instance, the prospect that GST rates for autos might be brought down has dampened auto sales recently”, he wrote in India Today.
Rajan stressed on importance of investment, reforms in land and labor market, growth and liberalizing capital to improve the economy, citing lack of FDI as major factor in the economic slowdown.
“Make in India initiative — which presumably is also meant to draw foreign direct investment (FDI) and global supply chains to India — is undercut by constant fiddling with tariffs and taxes, as well as rule changes intended to favor domestic incumbents. A case in point is the RCEP trade pact, where India’s refusal to participate seemed a sudden decision. If India does not participate (though it still might), it risks becoming an even less attractive investment destination. Foreign investors have not exactly been surging to invest in India — FDI today is not much higher in dollar terms than in 2007-2008, even though the economy is much bigger”, he said.
To overcome the problem, he said it’s necessary to acknowledge it’s gravity.
“The starting point has to be to recognize the magnitude of the problem, to not brand every internal or external critic as politically motivated, and to stop believing that the problem is temporary and that suppressing bad news and inconvenient surveys will make it go away”, Rajan wrote, adding, ” A massive new reform thrust is needed, accompanied by a change in how the administration governs. Decentralization is critical for economic growth.”
The concrete steps
After pointing out a number of indicators that are showing how Indian economy is going off-track, Rajan suggested some basic but much needed changes at policy level. He wrote, “Demand is weak, which ordinarily means more stimulus to encourage private spending. With the stress in the financial sector, monetary policy has limited effectiveness. On the fiscal side, recent corporate tax cuts, which were a short-term boost to stock prices, may not deliver much-needed business investment when there are so many other impediments. Given scarce resources, India should not jump immediately to a permanent tax cut for the urban middle class to boost consumer demand. Instead, while growth-boosting reforms are being put in place, scarce fiscal resources are perhaps best targeted toward supporting the rural poor — for instance, by bolstering the NREGA program and by funding rural road construction. The broader point is that India needs a full accounting of its contingent liabilities, including on entitlements like food security and Ayushman Bharat, if it is to give a convincing picture of its fiscal health.”
Rajan also slammed the attitude of over spending on unnecessary things and wrote, “Instead of building statues to national or religious heroes, India should build more modern schools that will open its children’s minds, make them more tolerant and help them hold their own in the competitive globalized world of tomorrow.”
He further criticized government political and social agenda and mentioned the effects of majoritarianism across the world. He wrote, “Apart from fomenting social tension, which India can ill afford, Hindu nationalism will detract from economic growth — which will exacerbate social tension further. Instead of allowing the government’s political and social agenda to crowd out its economic agenda, would it not be better if economic well-being was the route to political and social regeneration?”