Global growth is slowing down. For the current calendar year estimates of global growth have been cut by 20 basis points to 3.3 per cent. This is a sharp dip from four per cent in 2017 to 3.6 in 2018, and now 3.3 per cent in 2019. Mercifully, GDP growth in India is not entirely export-dependent.
Yet, it too cannot escape the impact of a slowing world economy. The US economy, still by far the biggest, too is slowing down as is the Chinese. With the first we have an export surplus, with the second a huge trade deficit. But what should concern us most, is the estimate of slowdown from multiple agencies. The latest to join the chorus, as it were, is the International Monetary Fund.
It has lowered its estimates of growth for both 2019-20 and 2020-21 by 20 basis points. The IMF estimates that the GDP would grow by 7.3 per cent in the current financial year and 7.5 per cent in the next. Earlier, the World Bank and the Asian Development Bank had lowered growth estimates for India. Even the Reserve Bank of India had reduced by 20 basis points the growth estimate for 2019-20 to 7.2 per cent.
In February the Central Statistics Office too had lowered the growth figure for the current year to a mere seven per cent from 7.2 per cent earlier. In short, the growth trajectory in keeping with the global trends is on decline for the current year for India as well. However, there are some obvious ways a new government can reverse the trend by undertaking a few bold steps.
Deep structural reforms in the economic sphere were abandoned after the Modi Government courageously enacted the Insolvency and Banking Code, the Benami Property law, the GST, etc. The gauntlet now has to be picked up on labour and land reforms by the new government. Labour laws featured prominently on the agenda of the Rao-Singh team in the early 90s but opposition from vested interests forced these to be abandoned.
No government since has made a sincere effort. Both laws are a huge drag on growth. Labour laws framed in the early years after Independence in the heyday of socialism need to be updated thoroughly to bring them in tune with the current economic conditions. Contrary to the popular assumption, the existing laws act as a disincentive for employment.
Binding down employers hand and foot, once a bad hire, troublesome hire or a redundant employee is on board, encourages contract and/or informal work denying him all social benefits. Once the law is made more equitable it will open the labour market for easier entry and exit.
As for the land market, in the dying years of the UPA-II when it was under pressure from the anti-corruption activists, the ancient land acquisition law was replaced by a most stringent version. If the British era law gave the authorities a care blanche to acquire any and every private land without any questions asked, the new law made it virtually impossible for the State or the private sector to acquire land even for valid developmental purposes.
This new law needs to be balanced in the interest of both the land-owner and those who need to buy it at fair market rate for economic and/or infrastructural development. Farm sector reforms is another matter, requiring the attention of the new government. The promised doubling of farm incomes would not come without major structural reforms. There are other ways to spur growth.
Reducing debt to GDP ratio which stands today around 70 per cent, boosting private investment which has been stagnant following the extravagance of the 2008-14 phase, cutting down on freebies, further rationalising GST, further steps to ease the doing of business, disinvesting in low-priority government enterprises, long-term stability of foreign investment rules, etc, would certainly spur growth. With the US and the Chinese economies slowing, Europe in a bind over Brexit, India can benefit if it reorients its approach.
But for that it would need a courageous government which can discount the discordant noises from an obstructionist opposition. Playing politics with the economy is a dangerous game. Both the ruling party and the Opposition should try and insulate the economy against destructive partisanship. Instead of promising hand-outs to voters, promising and delivering growth is the surest way to banish poverty.