The Next Economy

The Indian Express     13th November 2020     Save    
QEP Pocket Notes

Context: There are many steps to be taken apart from the recent labour and farm reforms for making India a self-reliant and competitive economy in the medium to long term.

Reasons for the economic slowdown in India:

  • Supply chain disruptions:  due to national and localized lockdowns.
  • Worsening poverty, inequality and standard of living.
  • Slowdown of aggregate demand: Private final consumption expenditure (PFCE) (the largest component of Gross Domestic Product (GDP)) had declined from 68% in 1990 to 56% in 2019.
  • Low-income growth: This, in turn, affected consumption demand; For E.g. consumption demand  suffered in agriculture, small-scale manufacturing and self-employed.
  • Investment slowdown:  Mostly due to a fall in household investment in the construction sector.
  • A slag in business climate: The business climate at central level had improved, but it is still difficult to do business in the ground at the state level.

Ways to achieve Atmanirbhar Bharat or self-reliance:

  • By improving the income and productivity: This can be achieved through two ways:
  • Shift from grain-based farming to cash crops, horticulture and livestock products:
    • The Chinese experience shows that reforms in agriculture in the late 1970s increased rural income, leading to demand labour-intensive industrial goods.
  • Shift the labour force from agriculture to manufacturing: India can only become self-reliant if it uses its 900 million working people and appropriates its demographic dividend as China did.
    • Most of these countries have moved out of low-end labour-intensive manufacturing, and that space is being taken by countries like Bangladesh, Vietnam and Mexico.
  • Indian firms should become a part of global value chains: which can be done through – 
    • Trade Reforms: Reducing both tariffs and non-tariff barriers on imports of inputs and intermediate products so that we create a competitive manufacturing sector for Make in India.
    • Factor market reforms: Such as rationalizing punitive land acquisition clauses and rationalizing labour laws, both at the Centre and state level.
    • Vocational Training: Go for large-scale vocational training from the secondary-school level, like China and other east and south-east Asian countries.

Conclusion: We should create a development model that leads to opportunities for the people at the bottom of the pyramid and make the economy open and competitive to ensure Atmanirbhar Bharat.

QEP Pocket Notes