Indian Economic Reforms for a strong and balanced Economic
Governance “Regaining Growth with Employment” 1
Overview
Building on fragile economic growth and regaining public trust requires greater oversight, increased innovation and comprehensive structural reform. More remains to be done to strengthen regulation in order to deal with the risks of contagion and government and other fail institutions. As forecasts of India GDP performance continue to be revised downwards, new policy initiatives and a reduction in global trade restrictions are essential perhaps the most important policy to improve the Indian economic outlook would be an approach to medium-term deficit reduction that would provide a path to sustainable national debt levels.
The two most pressing, and related, challenges for public action in India are;
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Institutional reform to enhance the capability of public sector institutions to ensure the effective delivery of core services,
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Sustaining rapid growth and making the process of economic growth more inclusive across sectors, across regions, and bringing the benefits of higher incomes and living standards to more people.
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Mukesh Kumar Mishra, Secretary General of Krityanand UNESCO Club Jamshedpur
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Electronic copy available at: http://ssrn.com/abstract=2447576
Service delivery and expanding the inclusiveness of economic growth is needed for empowerment and opportunity. The central employment challenge is to create productive jobs and livelihoods for the millions of people who enter the labor force.
There is an urgent need for more data collection and statistical analyses, which should figure prominently in the post 2015 debate on the MDGs.
Inclusive development calls for a macroeconomic policy approach that goes beyond the narrower goal of macroeconomic stability. This approach needs for expanding the number of instruments and coordinating macroeconomic policies with other policies to stimulate the development of productive capacities. It should target financing public investment in physical and human capital by accelerating public investment in infrastructure and rising spending on development. To do so will require strengthening government capacity.
Though India faces a deep cyclical problem today, the sustainable solution in our view does not involve the classic counter-cyclical response of monetary and fiscal easing.
Rather, the sustainable solution would be to regain macro stability, improve productivity growth, and to lay down the foundations which will return the economy towards a higher growth path. This paper begins with a consideration of the Framework for Strong,
Sustainable, and Balanced Growth.
Reforms after the Elections
In my view, addressing these issues quickly in the post-election period would help to restore macro stability and revive productivity growth;
Initiate policy changes to manage wage growth in line with productivity
Cut the fiscal deficit
Policy to Improve the business environment
Reform urbanization policy
Address structural rigidities in the economy to unleash the growth potential – particularly in energy and mining sector;
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Electronic copy available at: http://ssrn.com/abstract=2447576
Challenge in current scenario
Weak Productivity Dynamic at the Root of India’s Macro Challenges
The root cause of India’s macro challenges over the past few years has been weak productivity growth. Productivity growth trends – as measured by either incremental capital output ratios or contribution of total factor productivity to headline GDP growth – have been steadily weakening since 2011. Rather surprisingly, India’s levels have risen to a level that is comparable to China’s, which has had to deal with the challenges of over-investment in recent years.
The deterioration in productivity growth is the direct result of a series of poor policy choices:
These include maintaining a high fiscal deficit, pushing for high rural wage growth, and general policy uncertainty against a
