Press the foot on the ac­cel­er­a­tor

The Cen­tre must use the favourable eco­nomic cli­mate to usher in big-bang re­forms

Hindustan Times (Lucknow) - - COMMENT -

Union fi­nance min­is­ter Arun Jait­ley could not have been more ap­pro­pri­ate when he told del­e­gates at the re­cent World Eco­nomic Fo­rum that re­forms are not about one sen­sa­tional big idea. Re­forms, eco­nomic re­forms to be more pre­cise, are a con­tin­uum of pol­icy moves. In eco­nomics there is a widely used con­cept called the grand util­ity pos­si­bil­ity fron­tier. It rep­re­sents a tech­ni­cally plau­si­ble ideal best state that a so­ci­ety or econ­omy can at­tain. In con­tem­po­rary decision-mak­ing, the best ex­am­ples of this fron­tier can be found in the al­lo­ca­tion of nat­u­ral re­sources, tax laws and gov­ern­ment reg­u­la­tions over sec­tors such as fi­nance and telecom­mu­ni­ca­tion. This state of sta­bil­ity, as it were, is what pol­i­cy­mak­ers the world over de­fine as their per­fect tar­get to achieve, which also matches every­body’s ex­pec­ta­tions.

The change of guard at the Cen­tre, fol­low­ing the BJP’s vic­tory, has raised ex­pec­ta­tions among peo­ple and in­vestors that stalled poli­cies will now get a push. Such ex­pec­ta­tions are based on a few as­sump­tions. First, the econ­omy was in the boon­docks be­cause the UPA gov­ern­ment could not push through tough de­ci­sions be­cause po­lit­i­cal risk-man­age­ment was given pri­or­ity sta­tus. Sec­ond, Naren­dra Modi’s “Ac­che din aane wale hain” pre-poll cam­paign promised to usher in good times. Third, the BJP en­joys a majority in the Lok Sabha and that should en­sure smoother pas­sage of key Bills in Par­lia­ment.

While, there is no gain­say­ing the fact that the econ­omy is in a much bet­ter shape now, ex­perts reckon that there has yet to be a sus­tained re­vival in in­vest­ment. Pres­sure will build for more ma­jor re­struc­tur­ing needed for In­dia to re­move pos­si­ble con­straints to growth. The gov­ern­ment will have to move on ma­jor is­sues such as land ac­qui­si­tion, in­fra­struc­ture deficit, in­vest­ment in hu­man cap­i­tal, lack of reg­u­la­tory con­sis­tency across states and the need to de­velop the man­u­fac­tur­ing sec­tor and im­prove agri­cul­tural pro­duc­tiv­ity. With low en­ergy prices, the cur­rency sta­ble and core in­fla­tion fall­ing, in­ter­est rates are likely to come down. This favourable cli­mate is cre­at­ing more room to in­tro­duce ‘big-bang re­forms’. But the big­gest threat to a gov­ern­ment that has a clear man­date is some­times the un­re­al­is­tic ex­pec­ta­tions that come with a big vic­tory. It may just be the time to be a lit­tle more coura­geous and to press the foot on the ac­cel­er­a­tor. The world has got at­tracted to the en­ergy of the new gov­ern­ment. Man­ag­ing th­ese ex­pec­ta­tions and hand-hold­ing tran­si­tion for an econ­omy like In­dia that has mul­ti­ple ob­jec­tives to achieve — from poverty re­duc­tion to at­tract­ing in­vest­ment — are crit­i­cal to reach the next level of equi­lib­rium that has re­mained elu­sive over the last few years.

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