Five Urgent Economic Reforms for India

Manu Sharma and I argue that the COVID-19 crisis presents an opportunity to adopt new policies that leverage India’s domestic markets for industrialization, employment and growth.

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US President Donald Trump had already taken a sledgehammer to the export-led growth model. With the COVID-19 pandemic rousing primal passions, hitherto unfashionable ideas are emerging like Dracula from their grave. Protecting infant industries to improve future competitive advantage or strategic players for national security reasons are policies many are embracing with gusto again. Some might argue protectionism never really went out of fashion, citing Boeing and Airbus as classic examples, but now many governments are treating masks and ventilators as national priorities. Clearly, a new zeitgeist is underway.

Why Did the Indian Elephant Move Slowly?

Like all economic systems, the post-World War II Bretton Woods order had winners and losers. Some benefited more than others. The US gave countries that opposed the Soviet Union and helped bring the demise of the Red Empire access to its capital, markets and even technology. As a Soviet ally, India benefited from the communist giant’s munificence but, even so, it remained trapped in the Hindu rate of growth and lagged behind Asian tigers allied to the US.

When the Soviet Union collapsed in 1991, India faced a balance of payments crisis. It had to fly out its gold reserves to London to secure dollars to keep the country going. With its Soviet godfather dead, New Delhi had no option but to liberalize its economy, releasing the stranglehold its infamous bureaucrats had maintained since independence in 1947. This stranglehold is popularly known as the Licence-Permit-Quota Raj, which replaced the British Raj under India’s first prime minister, Jawaharlal Nehru.

The Indian economy, long compared to a lumbering elephant, broke into a run once businesses did not have to propitiate bureaucrats to the same degree as before. In particular, the services sector boomed with jobs in IT outsourcing growing rapidly and bringing in valuable export earnings.

Unlike China, though, India did not build infrastructure, develop manufacturing, generate employment and deliver prosperity in its economy. Its growth spurt was good when compared to the pre-1991 era but paled in comparison to its East Asian peers, especially China. The fruits of growth in India were more unevenly distributed as well, which reflected in its poor performance on the human development index.

Analysts theorized profusely about India’s poor performance, blaming a range of factors from democracy to Hinduism. A few even criticized the British-created civil services, the holy cows of Indian society. While it is true that India’s colonial bureaucracy is inefficient and corrupt, its judiciary is equally detrimental to the economy.

Due to the glacial pace of hearings, it takes 1,445 days to enforce a contract, and India ranks a lowly 163 out of a total of 188 countries. Activist judges have further increased risk and uncertainty in the economy. Both domestic players and foreign companies dread the kiss of death by Indian courts.

Politicians in India do not escape blame. Most are poorly-educated and are prisoners of the Nehruvian mindset. Like politicians elsewhere, their focus is on the next election. In contrast to British or German politicians, they are not as focused on the economy. They lack policy chops and instead rely on bureaucrats who almost invariably do not have economic training or business experience. Rarely do India’s politicians seek impartial, honest advice.

Time for the Status Quo to Go

India’s economic policies have to change. The COVID-19 pandemic has caused the greatest crisis to the global economy since the Great Depression of 1929. With a population of more than 1.3 billion and still-widespread poverty, India has no choice but to act boldly and speedily. The authors propose that India adopts a five-prong policy to stimulate its economy.

You can read the full article here: https://www.fairobserver.com/region/central_south_asia/atul-singh-manu-sharma-indian-economy-coronavirus-covid-19-india-economic-reform-67834/

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