India’s Economy: Turbocharging a Take...
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India’s Economy: Turbocharging a Take-off
Dr. Simrit Kaur

Dr. Simrit Kaur is a Professor of Public Policy at the Faculty of Management Studies, University of Delhi, India, where she has been teaching ‘The Economic Theory of a Firm’, ‘Macro Economics’ and ‘Public Policy Reforms’ for over two decades. Nominated by the Indian Council of Cultural Relations, Dr. Kaur has been a ‘Visiting Professor’ at the University of Social Sciences and Humanities, Ho Chi Minh City, Vietnam and a ‘Visiting Scholar’ at Kingston University, London. Dr. Kaur has undertaken several research projects and acted as an advisor to organizations such as the Ministry of Finance, Government of India; the Ministry of Heavy Industries and Public Enterprises, Government of India; the National Council of Applied Economic Research (NCAER), the Organization for Economic Cooperation and Development (OECD), International Fund for Agricultural Development (IFAD) and the Food and Agriculture Organization (FAO) of the United Nations. Her areas of interest include economic freedom, privatization, competition and productivity; agricultural policy; poverty and food security.

Amongst the five large emerging economies, India is the only economy for which the International Monetary Fund did not downgrade its GDP growth targets while providing an update on the World Economic Outlook. Amongst the BRICS nations, Brazil is mired in stagflation; Russia in recession; China in slowdown; and South Africa in structural impediments including inefficiency and corruption. India fortunately is in a cyclical recovery phase. However, the real challenge is in realizing sustainable boom to become a global leader.

India’s macroeconomic fundamentals have improved not just as reflected in cross-country comparisons, but also temporally. Since 2013, inflation has declined to manageable and acceptable levels; the current account deficit too has shriveled; road map to fiscal consolidation has been laid; and foreign portfolio inflows have stabilized the rupee. Resultantly, India’s overall macro-vulnerability index (MVI) that combines a country’s fiscal deficit, current account deficit, and inflation reduced from 22.4 in 2012 to below 15 in fiscal year 2015. While India is still more vulnerable than the mean of countries in its investor rating category (BBB), it is less so than many of its larger emerging market peers. Supplementing MVI with a Rational Investor Ratings Index (RIRI), India ranks amongst the most attractive investment destinations. Amongst BRICS only China ranks above India. The reality and prospect of high and rising growth, combined with macroeconomic stability, is the promise of India going forward.

However formidable challenges exist. Basic infrastructure (roads, railways, ports and power) remains poor; World Bank continues to rank India dismally low, at 142nd out of 189, on ease of doing business; employment elasticity has weakened due to technological advancement; poverty is widespread, and eradicating hunger remains a challenge. While several steps to throw off the shackles of bureaucracy and protectionism were initiated in 1991, and continued since then, still bolder moves are needed. Organized manufacturing needs to be given a boost. India’s labor regulations are among the most restrictive and complex in the world. With a focus on ‘Make in India’, labour law reforms have to gather momentum. Bridging the country’s massive infrastructure deficit is the need of the hour. Reaping the population dividend requires skill development on a massive scale. Education outcomes also need to be improved. As per the ASER (2014) report, basic reading continues to be disheartening as only 50% of Class V students are able to read a Class II textbook; even in class VIII 25% of the students are unable to read Class II textbook.

With respect to subsidies issues of targeting, corruption and leakages remain rampant. For instance, PDS leakages remain large across states. Leakages are significantly larger for wheat (54 percent) than for rice (15 percent). The fiscal cost of these leakages is also large, about INR 18,000 crores for the two food grains. Direct cash transfers, if targeted well, can help the poor and also augment the effectiveness of anti-poverty programs. Use of the JAM Number Trinity (Jan Dhan Yojana, Aadhaar and Mobile numbers) is a step in the right direction as it offers support to poor households in a targeted and less distortive manner.

Fuelled by economic reforms, India is projected to become the world`s fastest growing large economy by 2017, overtaking China as per the World Bank’s Global Economic Prospects Report (2015). Any slackening in the reform momentum could spell disaster in the roadmap for sustainable development and India becoming a global leader. Hopefully, this slowdown will not happen. After all, it is not without reason that IMF refers to India as a ‘Bright Spot’ in the global landscape.