Now that the Modi government has completed three years of its national federal governance, one must look back to understand the policy trajectory and its outcomes, and also the way forward.
When the government was sworn in, in 2014, India was running the risk of a sovereign rating downgrade (to junk status), which could have led to isolation from the global capital markets. Today, however, the situation has turned around and there is speculation about the possibility of a ratings upgrade. India has successfully cemented its position as a Global Macro Hot Spot, a far cry from the label of Fragile Five which was assigned to our economy.
Cross-section of eco-reforms
Decisive policy actions by the government have been a cornerstone of this transformation. The policymakers have focused on the objective of economic plumbing and adopted the principle of festina lente – make haste slowly. The key element of these reforms spanning over three years has been a renewed idea for the future.
I for international collaboration: This has been the hallmark of the new government. The government has leveraged diplomatic channels and determined policy engagements to enhance India’s trade linkages, while also establishing an active role for India in the global geopolitical landscape.
D for domestic reforms with outcome orientation:
GST, Make in India, Skill India, fuel price deregulation, and re-contouring of the FRBM are the structural reform pillars which will enable boosting India’s potential GDP growth by at least 1.5 per cent in the medium term.
n Setting up of NITI Aayog, Monetary Policy Committee (within the RBI), codification of insolvency and bankruptcy procedures, and creation of MUDRA Bank and RERA are the institutional reform pillars which will help sustain 8+ per cent GDP growth in the future and positively 9-10 per cent beyond 2020.
The UDAY scheme, Direct Benefits Transfer, REITs, Smart Cities, crop insurance, are the micro reforms which are already working towards enhancing sectoral efficiencies.
Similarly, administrative reforms like e-biz portals, redrawing of the auction mechanism for natural resources and reforming APMCs have proved to be successful in addressing targeted objectives like curbing inflation in a meaningful manner.
Most importantly, the behavioural reforms undertaken by the government have stood out. The JAM Trinity has helped in leapfrogging financial inclusion. Additionally, the bold reform of demonetisation is expected to drive swachh vitteykaran. It is comforting to know that the country has added 9.1 million new taxpayers in 2016-17, representing an 80 per cent jump over the previous year. Going forward, this is likely to boost India’s relatively low Tax/GDP ratio of 11.3 per cent in 2016-17.
E for ease of doing biz: This was one of the first objectives of the new government and various policies and reforms outlined earlier like GST, FDI liberalisation and digitisation have been tailored around this objective. Additionally, the government has ensured that this impact trickles down at the state level through competitive fiscal federalism.
A for active consensus building: This happened in critical policies like the GST, bankruptcy Code and FDI and brought out the importance of political unison and the concept of Team India in a meaningful manner.
Preparing for India’s growth take-off, I firmly believe that the focus for the next few years will be on reviving private investments and boosting job creation. As programmes like Skill India take flight, we will see an impetus to employment, which will be key to reap the benefits of the demographic dividend that India is expected to enjoy until 2040.
Against the backdrop of the changing nature of jobs in a world which is currently at the cross roads of globalisation, industrial revolution 4.0, and protectionism, policy focus on boosting employment and nurturing MSMEs; as an extension of existing policies, will yield desired outcomes.
Labour reforms: The NDA government is now in power in 16 states and reforming labour laws should be accorded top priority. Rajasthan, Gujarat, and MP have already made a beginning with Labour Market Flexibility. These initiatives trickle down to other states in order to bring out the best practices. Further, I believe that states also need to amend archaic provisions in the Factories Amendment Bill, Industrial Relations Code, and Shops and Establishments Bill to synchronize them with the needs of a modern economy.
MSME reforms: The MSMEs generate close to 45 per cent of the total industrial employment and are critical for the ground level consummation of the Make in India dream. While GST will provide a shot in the arm, cluster based development will further help MSMEs reap economies of scale. Further, a specific focus financing for MSMEs through attractive corporate tax structures, building of a robust ratings and exchange trading culture, will go a long way in strengthening these enterprises.
Skill development: Vocational training under skill development is critical in a world where disruption and exponential change is the new paradigm. In addition, I believe that we will see the policy emphasis on DICE (Design Innovation Creativity led Entrepreneurship) getting further energised through Stand Up India and Start Up India programmes.
The IDEA of India
The economic energy in the existing team of policy architects is palpable and infectious. After renovating the house, I am confident that the government is now ready to take the next leap. India took 31-years to increase the size of its economy by 10x to $2.3 trillion currently. Now armed with the four tectonic changes, in the form of IDEA, I believe India’s next phase of 10x transformation to a $20 trillion economy will take less than half the time.
(The writer is MD & CEO, YES Bank)
