Reformation before Renaissance

CONTEXT: Despite India’s dismal Q1FY-2021 GDP figures, it is possible to achieve high growth in the coming decade, as found out by McKinsey Global Institute’s August 2020 Report ‘India’s Turning Point’.

Growth Potential

• Frontier business opportunities: 

• Contribution of $2.5 trillion in value
• 30% of non-farm jobs needed in 2030, example:
• Examples include:

• Global manufacturing hubs ($450 billion)
• Agriculture hubs ($150 billion)
• Efficient Power Distribution and Logistics Model ($80 billion)
• Modernised Retail Trade Ecosystems ($125 billion)

Government Steps to revive economy

• APMC reforms allowing farmers to sell more freely.
• Privatisation of Power distribution companies in UTs.
• Implementing pro-competition reforms.

Areas of reform:

• 6 areas of reform in the real sector: Simplifying and streamlining regulations can significantly reduce cost to companies.

1. Raising productivity:  through sector-specific policies.

• For E.g. In relation to Global Manufacturing Hubs:

• Removing inverted duty structures
• Time-bound and conditional incentives vis-à-vis emerging market peers
• Port-proximate manufacturing clusters

1. Land Availability: for real-estate and construction

• Bring down land costs by 20-25%

1. Labour Law Reforms: to have flexible labour markets
2. Reform Power distribution: reducing costs by 20-25%
3. Privatisation: has the potential of yielding over $500 billion.

• 30 out of 1900 State-owned enterprises generated 80% of the potential

• 3 reform pillars in financial sector: Since more investments are required to the tune of $2.4 trillion in 2030, triple the current amount. Deep financial sector are required like - 

1. Measures to channel more household savings to capital market instruments.
2. Reduce the cost of credit by 3.5% points.
3. Streamline public finances to generate 1.7% of GDP annually for growth-oriented investment

Way Ahead: 

• Role of the States: Around 60% of these reforms are in the hands of the state governments, whose role matters immensely.

• State chief ministers need to frame visions and blueprints too, which reflect local factors and priorities.
• For E.g. set up ‘demonstration clusters’, like special manufacturing zones, and use mechanisms such as a CEO-led Special Purpose Vehicle (SPV) for implementation.

• Institute a set of technocrat-led reform panels: that could frame policy blueprints within 3-6 months, followed by12-18 months of focused implementation.

• Monitoring: through PRAGATI style review mechanism.
• Such panels could frame time-bound reforms across areas like manufacturing, land and labour markets, the financial sector and public finances.

Conclusion: We need to put energy and momentum behind these reforms, even during the pandemic, to meet the aspirations of millions of job-seekers, and remain one of the world’s outperforming emerging economies.