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The Modi Government Has Rewritten The Economic IDEA Of India

The Indian economy is ready for the next big leap.

26/05/2017 3:00 PM IST | Updated 26/05/2017 3:00 PM IST
Toru Hanai / Reuters

Three years ago, when the Narendra Modi government took charge, India was running the risk of a potential sovereign ratings downgrade (to junk status), which could have led to the country's isolation from global capital markets. In contrast, speculation is now rife about the possibility of a sovereign ratings upgrade. With the conspicuous arrival on the international high table, avid investor interest is now chasing India amid successful transformation of the economy from among the "fragile five" in 2013 to a global macro hot spot currently.

Over the past three years, on the reforms front, the Modi government has adopted a holistic approach, targeting structural, institutional, administrative, micro and behavioural reforms.

The economic turnaround was the result of several decisive policy decisions taken by the government over the last three years. Focusing squarely on the objective of economic plumbing, the policymakers embraced the principle of festina lente, or make haste slowly, and in the process touched upon various facets of reforms. To me, a key facet of these reforms has been the whole new IDEA behind it.

Breaking down the IDEA


I: International collaboration

The government is leveraging diplomatic channels through determined policy engagements for enhancing trade and commercial linkages, and in the process also carving out an active role for India in the global geopolitical map.

D: Domestic reforms with outcome orientation

Over the past three years, on the reforms front, the Modi government has adopted a holistic approach, targeting structural, institutional, administrative, micro and behavioural reforms.

  • Structural macro reforms such as GST, Skill India, Make in India, fuel price deregulation, and re-contouring of the FRBM platform have the potential to pave the way for boosting India's potential GDP growth by at least 1.5% in the medium term.
  • The NITI Aayog, codification of insolvency and bankruptcy procedures, the Monetary Policy Committee (within the RBI), and creation of MUDRA Bank and RERA form the cornerstone of institutional reforms. Going ahead, this can enable sustained 8+% GDP growth and positively 9-10% beyond 2020.
  • Administrative reforms like e-biz portals, redrawing of the auction mechanism for natural resources, reforming APMCs, etc., have been successful in addressing targeted objectives like bringing down inflation, etc., in a meaningful manner.
  • Micro reforms like Direct Benefits Transfer, UDAY scheme, Smart Cities, crop insurance, REITs, are already working towards plugging loopholes, thereby enhancing sectoral efficiencies.
  • Behavioural reforms, such as the JAM trinity, have helped push financial inclusion, while the bold reform of demonetization is expected to drive swachh vitteykaran. The country has added 9.1 million new taxpayers in 2016-17, representing an 80% jump over the previous year, which is likely to boost India's relatively low tax/GDP ratio of 11.3% in 2016-17.

E: Ease of doing business

This was one of the first objectives of the new government. Policies such as GST, digitisation, FDI liberalisation, etc., were aimed towards achieving the same. Additionally, the government has ensured that it percolates to the states through competitive fiscal federalism.

A: Active consensus building

Active consensus building on critical policies like the Bankruptcy Code, FDI, GST, etc., brings out the importance of political unison and the concept of "Team India" in a meaningful manner.

Preparing for India's growth take-off

India has seen considerable progress on the reforms front over the past three years and I believe that the government will be focusing on reviving private investments and boosting job creation in the next few years. Programs like Skill India will provide an impetus to employment, which will help reap the benefits of the demographic dividend that India is expected to enjoy until 2040.

India took 31 years to increase the size of its economy by 10x to $2.3 trillion currently... I believe the next phase of 10x transformation will take less than half the time.

Soon, people born in the new millennia will start entering the labour force. Against the backdrop of the changing nature of jobs in a world—that is currently at the crossroads of globalisation, industrial revolution 4.0, and protectionism—increased policy focus on boosting employment and nurturing MSMEs will yield desired outcomes.

  • The NDA government is now in power in 16 states and reforming labour laws should be accorded top priority. States such as Gujarat, Rajasthan and Madhya Pradesh have already made a beginning with labor market flexibility. I believe other states too will soon follow suit. Further, states also need to amend archaic provisions in the Factories Amendment Bill, Shops and Establishments Bill and Industrial Relations Code to synchronise better with the needs of a modern economy.
  • MSMEs generate about 45% of total industrial employment and are critical for ground-level realisation of the Make in India dream. While GST will provide a shot in the arm, cluster-based development will help MSMEs reap economies of scale. Further, 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.
  • In a world where disruption and exponential change is the new paradigm, vocational training under skill development is imperative. In addition, I believe that we will see policy emphasis on DICE (Design, Innovation, Creativity-led Entrepreneurship) getting further energised through Stand Up India and Start Up India programs.

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The economic energy in the existing team of policy architects is palpable and infectious. I am confident that the government is now ready for the next leap. Though 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 the next phase of 10x transformation to a $20 trillion economy will take less than half the time.

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