An agenda for economic reform
Announce the stimulus, and undertake structural reforms
Over the past week, Prime Minister (PM) Narendra Modi has held a series of meetings reviewing the state of various economic sectors, the ways in which the current slump can be reversed, and most significantly, the fundamental reforms that can be undertaken in these respective sectors to overcome structural issues.
This is important, for once the coronavirus pandemic subsides, there will have to be a singular focus on the economy.
There is no doubt that the pandemic will force the economy to press the reset button. India will, in the worst case, witness a recession this year, or in the best case, grow by 1-2%, a projection offered by the chief economic adviser. These figures translate into businesses shutting down; a sharp dip in the profitability of companies which do manage to survive; shrinking incomes for citizens; the collapse of a high number of micro, small and medium enterprises; a spike in unemployment across sectors; a hit to trading arrangements; depleted taxes for the government at a time when expenditure commitments will increase; and an inability to pursue much-needed development goals. The ambition of becoming a $5 trillion economy will recede further.
This newspaper has consistently argued that to overcome the distress, the government must come up with a substantial fiscal stimulus package immediately. There is no alternative to enhanced public spending. This has already been delayed inexplicably. But beyond the size and the composition of the stimulus, the PM’S meetings offer hope that this moment can be used as an opportunity to undertake structural reforms. Two areas, in particular, stand out. The first is manufacturing. As countries turn inwards, and many global production hubs seek to relocate from China, India must cut red tape, reform its fundamental factors of production, and encourage businesses which can provide mass employment. To be sure, new ways of doing businesses — including mass manufacturing — will have to be found in keeping with social distancing norms. The second is agriculture. The PM indicated in a meeting on Saturday the need for integrated markets and a new legislative framework for the sector. Fragmented agricultural markets and the Agricultural Produce Market Committee’s framework have long been held farmers hostage, given inordinate power to intermediaries, and undermined India’s potential. If, after the stimulus, the government can use the pandemic to herald long-awaited reforms, it will be the best use of this crisis.