For faster growth

PM's call should galvanise reformist energy

Speaking in the presence of many of India’s chief ministers at the NITI Aayog governing council meeting this weekend, Prime Minister Narendra Modi restated that India must seek to attain double-digit growth. Such ambition is praiseworthy. It is important to not be satisfied with the growth numbers that are currently being achieved, even if they represent a recovery from a slowdown that lasted several quarters. Without sustained double-digit growth, India has little or no hope of creating broad-based prosperity and rising to upper-middle-income status as an economy. Thus, an invocation at the highest level of government of double-digit growth as the ultimate aim of economic policy is vitally important. Hopefully, the prime minister's timely words will serve to reinvigorate his government's efforts on the reform front. 

Such reinvigoration is sorely needed. At the time that the current administration took office, in 2014, it was hoped that India would soon return to a high growth path. That expectation was underlined by the statements of several senior officials suggesting that double-digit growth was around the corner, and that achieving it was only a matter of time and sensible governance. Hopefully, those assumptions will now be revisited. In fact, sustained growth will require political courage on the part of the government. While the government's policy-making energy cannot be faulted, it is also true that many aspects of the reform agenda appear to have been forgotten. The insolvency and bankruptcy code has aided in the free flow of capital, as has the push towards financial inclusion. But other factor markets have not been given as much attention. 

Labour law reform has stalled. It is clear that the decision to leave it to the states has not created optimism or confidence among investors. Restrictive labour regulations, which disincentivise investment and hiring, are a problem created by the Centre and must be solved at the central level. Then there is the market for land, reform to which has largely been abandoned since the abortive attempt to amend the Land Acquisition Act early in the government's term. While land is clearly a state subject, it is also true that the current Union government has considerable influence over state governments of the same party. The focus should thus be on creating a uniform, flexible, and stable market for land. This is not to say that the state's role in the coordination of land use should be forgotten. If an acquisition is considered politically impossible, land pooling schemes such as those pioneered in Gujarat and which are currently showing some success in Andhra Pradesh should be spread across the country. 

Finally, state capacity enhancement and governance reform need to be taken up on priority. The previous Union government has sought to create an Administrative Reforms Commission and has then ignored its recommendations. This government has shown some willingness to introduce lateral entrants into decision-making positions. But the deeper reform of India's administrative backbone, the introduction of expertise and project management skill at the middle level in the governance structure, and other overdue improvements to the Indian state must not be forgotten. Sustained high growth needs a competent and skilled state. All levels of government must heed the prime minister's words and go back to the reforms drawing board.