Focus on reforms needed to ensure sustainable growth

This week marks the completion of three decades since the launch of economic reforms in India. During this period, information technology has transformed the lives of people, spawned innovation and increased all round productivity, and the world has got more integrated through technology and lower trade barriers.

In 1991, India faced a severe balance of payments crisis that required mortgaging gold with the Bank of England to raise funds to meet the immediate needs. The new prime minister, Narasimha Rao, brought in Manmohan Singh as the finance minister, who not only addressed the immediate issues by negotiating loans with the International Monetary Fund but also put in place necessary policies to remove the structural weaknesses. His basic strategy was to allow greater role for the private sector with independent regulators enforcing clearly laid down rules and to facilitate greater integration with the global economy. Successive governments continued this policy till the priorities were shifted in favour of inclusive growth in 2004. The productivity gains due to the reforms and the advent of internet and mobile phones helped the Indian economy post unprecedented growth during the period 2003-2010 but in the past ten years, the economy has lost the growth momentum somewhat due to various reasons. 

While India has made significant strides in economic growth and reduction of poverty after the launch of liberalisation and globalisation three decades ago, many other countries have done better. Most East European countries that were closed earlier have become more open economies that have integrated with the rest of the world. China has become a major manufacturing and technological power in the world. The per capita income of Bangladesh is now higher than that of India. Smaller countries in Asia, like Viet­nam, have performed better. India’s share in the global exports is still less than 2 per cent. However, our foreign exc­hange reserves have grown to over $600 billion due to an increase in foreign investment.

In recent years, we have witnessed important changes such as reduction of income tax rates for companies, introduction of goods and services tax, Insolvency and Bankruptcy Code, Real Estate Regulatory Act, production-linked incentive schemes, labour law reforms, and laws relating to sale of agricultural produce etc. The government has declared its intent to privatise many public sector companies and sell off many of its physical assets. The effects of these changes will be felt in the coming days.

Now, we have a large number of tech-savvy young people willing to innovate and compete. They have easier access to capital and loans driving their ambitions to become global players. But we also have a large number of unemployed and under employed young people struggling to make both ends meet. We have a reformed tax system that facilitates compliance but does not generate enough revenues. 

We have large world class companies and a number of smaller businesses that are eager to exploit global markets, but are also clamouring for more protection from imports. So, even as we celebrate the gains of liberalisation and globalisation, more reforms are due in various sectors such as trade policy, financial sector, taxation matters etc. to ensure sustainable growth that creates more jobs and leads to more equitable distribution of gains. Hope­fully, the focus of the governments will be on economic growth in this decade.

email:tncrajagopalan@gmail.com