For India to tackle its economic slowdown, it must reverse its impulses for centralization, must be more open, and must create a strong infrastructure for digital communications. Economic Slowdown
The year 2019 has been a difficult one for India’s Economy wise. On the political and societal front, one has seen a centralization of political power, amid measures to homogenize Indian society in ways in which seem to be at odds with the country’s recent history and ideals. My view is that these efforts have also affected the economy, both by removing attention from core economic issues but also by shrinking the set of perspectives on a policy that is valued within the corridors of power.
The Indian economy has been within the grip of a worrying slowdown, one which policymakers are slow to acknowledge and to return to grips with. One can argue that the issues are short term ones, the results of a standard macroeconomic slowdown, global economic uncertainties, and maybe some specific structural reforms which are initially disruptive but will soon bear fruit. during this perspective, the slowdown may be a blip which will disappear. There are strong elements of truth in Mody’s analysis, but one shouldn’t underestimate the changes that were wrought within the last three decades, to the purpose where five percent growth is taken into account a barely acceptable floor, instead of an aspirational rate of growth.
First, the central government has got to reverse its impulses for the centralization of everything. The terms of reference of the 15th Finance Commission seem to me to reflect those impulses, trying to find ways to reverse the greater share of tax revenues, awarded to the states by the previous commission, alongside somewhat greater flexibility. Instead, the Centre must allow the states more room and skill to spend money, perhaps with nudges towards priorities like education and concrete infrastructure. If the center must discipline the states’ spending, it should invest in strengthening their fiscal management and accounting systems, all the way right down to cities and towns, instead of trying to punish or reward them supported meeting fiscal deficit targets.
Second, the Centre must be more open. There are many dimensions of openness. the sole one that seems to possess received attention measures to draw in foreign investment, by liberalizing restrictions. But, everything else the Centre has done has worked against openness. There has been hostility to trade measures which may support the mixing of Indian manufacturing into regional production networks. the shortage of progress on this front, precisely at a time when it had been both needed and possible, has been shocking. Second, opening up education to domestic and foreign entrants would go an extended thanks to addressing human capital gaps at the upper end of the tutorial spectrum. At a time when the worldwide education sector is in turmoil, and adaptability is becoming the norm, Indian education policy has lagged badly. An important component of the policy during this case would be creating an institutional and social environment where faculty from other countries (including those of Indian origin) want to spend substantial periods of your time in India. Instead, the government’s political and societal impulses have had the other impact. the 3rd dimension of openness is being willing to collect inputs on policy from a good range of individuals with appropriate expertise. Here, too, the present government appears to possess regressed.
A third area where concerted government action can have rapid payoffs is within the creation of a strong infrastructure for digital communications. this suggests tackling the continued deficiencies of the electrical power sector—perhaps the one place where pressure on the states is required for further reform. But, the approach to putting together and improving communication networks has got to change. Currently, there are two inefficient government-owned firms, and a dominant, almost predatory private sector behemoth. This is often not a recipe for long-run growth. India is large enough to support more competition in telecoms, and there’s enough potential for growth to form it attractive for brand spanking new entrants if the playing field is level. Public-private partnerships for investment within the needed infrastructure may go here. Policies will have to be carefully designed but can yield benefits to industry, education, finance, and almost every part of the economy.