- Some measures undertaken in recent years
- What does India need to do to drive a$5 trillion economy?
- Way Forward
India needs to be geared to a single-minded pursuit of growth
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- Taking Indian economy from lower-middle income status to upper-middle income, it needs to transition towards a $5 trillion economy.
- The path of this transition can only be paved with reforms.
Measures taken in recent years for transitioning in upper-middle income economy
- Introduction of goods and services tax (GST)
- The Insolvency and Bankruptcy Code (IBC)
- Real Estate (Regulation and Development) Act (Rera)
- The Monetary Policy Framework,
- Focus on ease of doing business
- Formalisation of the economy,
- Enhanced foreign direct investment (FDI) limits
- Recognition of the scale of the non-performing asset (NPA) problem
- Subsequent recapitalisation of public sector banks (PSBs)
What does India need to do to drive a$5 trillion economy?
- The focus of second-generation reforms should be a single-minded pursuit of growth that is investment and exported.
Reforms in finance sector:
- Sufficient credit flows are the need of the hour as banks and mutual funds are reluctant to lend to nonbanking financial companies (NBFCs), and bank lending growth is meagre.
- India needs to deepen the corporate bond markets to lessen the load on banks as drivers of credit in the financial system. Currently, the Indian financial sector is overly reliant on banks as source of funding.
- Innovative ideas such as asset monetisation and recycling need to be vigorously pursued to fund government capital expenditure.
- NITI Aayog has recommended strategic disinvestment of 46 central public sector enterprises (CPSEs). These need to be expeditiously taken forward for disinvestment.
- The RBI need to recognized that the real cost of borrowing in India is high compared to peer nations. The imperfect monetary transmission mechanism implies that successive and large rate cuts from RBI are needed to bring down the cost of capital.
- Liquidity needs to be infused into the system, increasing the pool of loanable funds available in the market.
- Eliminate the outdated laws such as the Essential Commodities Act, the Agricultural Produce Market Committee (APMC) Act, and replace them with modern regulations such as the Agricultural Produce and Livestock Marketing (APLM) Act, the Contract Farming Act etc.
- Investments in the value chain are needed to boost both exports and the domestic food processing industry. Dependence on agriculture as a source of livelihood also needs to be reduced.
- India must focus on making Indian cities smart, sustainable and innovative as they hold the key to growth and job creation.
- Export-led growth needs to be targeted in labour-intensive sectors and for that, Indian firms must be globally competitive.
Reforms in Automobile sector:
- Reviving demand in automobile sector is a critical and necessary short-term intervention.
- Lowering GST for automobiles and auto parts, an incentive-based vehicle-scrapping policy and a scheme like the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) for subsidising States to procure BS-VI buses needs to be taken.
Reforms in Railway and Power sector:
- Railway reforms can add 1% to India’s GDP.
- Reforms, including direct benefit transfer (DBT) for targeting subsidies, bringing in franchise and public-private partnership (PPP) modes in distribution, separating carriage and content, permitting open access and freeing renewable from licensing requirement for generation and supply is needed.
- There is need for rationalizing passenger fares, and projects like dedicated freight corridors needs to be completed.
Reforms in textiles sector:
- There is need to focus on man-made fibres, through removal of the inverted duty structure.
- Nearly 95% of fabric is produced in small-scale industries, leading to a loss in competitiveness in destination markets.
- Largescale textile parks, providing common infrastructure and plug-and-play facilities to entrepreneurs, would make this sector competitive.
Reforms in Mining:
- Opening up the coal sector for commercial mining, along with enhancing domestic oil and gas production and exploration, will reduce India’s dependence on imports of fossil fuels.
- India must continue its thrust towards renewable energy, especially in the area of storage and batteries. Breakthroughs are likely to aid India in driving size and scale in electric mobility.
Reforms in Tourism sector:
- India needs to bring down GST on hotel rooms from 28% and reduce visa fees, to offer attractive and competitive packages.
- Reforms in ease of doing business must continue and tax laws need to be simplified, the processes fully digitized, and the tax research unit needs to be manned by professional tax experts.
- For India to grow at 8-9% over the coming years, the structural reforms need to aim at boosting domestic investment and savings levels. Domestic infrastructure creation, funded through non-tax revenues, can ‘crowd-in’ private investment.
- Tax laws need to be simplified, the processes fully digitized, and the tax research unit needs to be manned by professional tax experts.
- Also, stability, predictability and consistency in policies can boost and maintain investor confidence.
- Finally, India need to do everything possible to encourage the private sector. Wealth creation on a sustained basis requires the private sector to play a key and significant role.
- However, with both fiscal deficit and inflation targets, the extent of monetary and fiscal expansion to stimulate aggregate demand is limited.