Ahead of I-Day, optimism, but concerns abound

Independence Day is an occasion for celebration. It is also a time for reflection on how far we have come, where we are headed, and whether we are on the right path.

One of our major achievements is self sufficiency in food grain production, thanks to the green revolution of the early seventies. Now, we not only have enough to feed our 1.4 billion people but have enough surpluses to export. Still, our trade policy is not very stable. Every now and then, we have various restrictions on exports of food grains and other agricultural commodities mainly to ensure that we don’t have any shortages at home and the domestic prices remain range bound. That does not usually work in favour of the farmers.

Another significant achievement is the adoption of information technology (IT) to improve various processes in the government and businesses. All the benefits of the internet are widely available for education, entertainment, remote working, quick access to information, and so on.  Yet, the content in many regional languages is rather limited. Also, social media is rife with fake news and rubbish. However, the export of services, especially the IT-enabled services is growing, thereby relieving the pressure on current account deficit. So, it is surprising that the government tries to restrict import of computers, ignoring the fact that our strength is in using such devices to our advantage and not in making such hardware.

We have built a strong base in manufacturing but there are many sectors where our industries are not globally competitive. The government keeps raising duties or imposing non-tariff barriers in order to protect such uncompetitive industries from competition. That leads to inefficiencies, the burden of which falls on the consumers. Another issue is inverted duty rate structure where the producers of primary products get protected through higher duties, leaving the downstream industries struggling to compete with imports at lower duties. 

India is not a part of any meaningful global value chains and the government has walked out of the mega regional trading arrangement in Asia, after indulging in negotiations for years. The government is now struggling to negotiate bilateral trade deals with some developed countries in the hope of getting better market access for our exports even though many earlier bilateral trade deals have not given the desired or expected results. The government is yet to appreciate that East Asia is likely to post fastest economic growth in the coming decade.

The policy of encouraging investment in industries through subsidies was necessary in the sixties and seventies when capital and loans were scarce. However, the need for such a policy is open to question when the capital markets are sufficiently well developed to reward anyone with a record of good past performance and venture capitalists are ready to fund anyone who has a good business proposition and the banks are ready to finance creditworthy individuals and businesses.

The Indian economy has transited from a big role for the public sector to a bigger role for the private sector. India is poised to become the third largest economy in the next few years. Optimism about India’s growth prospects are, however, tinged with concerns about unemployment, unequal distribution of the benefits of growth, environmental degradation, etc. – issues that need attention as we go forward. 

Email : tncrajagopalan@gmail.com