Reformation before Renaissance

The Economic Times     4th September 2020     Save    

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.