India should im­prove busi­ness en­vi­ron­ment to boost eco­nomic mo­men­tum

Global Times US Edition - - BIZCOMMENT - By Mei Xinyu Page Editor: [email protected]­al­

India’s sick econ­omy has drawn lots of at­ten­tion from both do­mes­tic and global mar­kets. Its eco­nomic growth de­clined to just 5 per­cent dur­ing the sec­ond quar­ter of this year, mark­ing its slow­est pace in six years. In the first half of 2019, the In­dian econ­omy grew 5.4 per­cent, mean­ing that it is no longer the world’s fastest grow­ing econ­omy.

From the per­spec­tive of the global eco­nomic en­vi­ron­ment, the world eco­nomic slowdown and the Us-china trade war just added in­sult to in­jury for the In­dian econ­omy. As for the long-term eco­nomic cy­cle, since 2014 the world econ­omy and trade has en­tered a low-growth pe­riod that may last for about 10 years, mean­ing that the good times for the sus­tained and rapid growth of the global econ­omy and trade have ended.

In India, a se­ries of in­sti­tu­tional and struc­tural prob­lems have con­strained the coun­try from re­leas­ing its eco­nomic growth po­ten­tial.

The se­ri­ous im­bal­ance of in­come dis­tri­bu­tion has curbed the con­tin­ued ex­pan­sion of do­mes­tic con­sump­tion, the biggest drive for India’s eco­nomic growth.

The com­bi­na­tion of “pri­vate land own­er­ship plus agri­cul­tural land leas­ing” has in­creased the dif­fi­culty of land ac­qui­si­tion, to the detri­ment of India’s in­dus­trial op­ti­miza­tion and upgrading.

A lag­ging ed­u­ca­tion sys­tem has made many young In­di­ans un­qual­i­fied work­ers for mod­ern in­dus­tries. To a large ex­tent, its de­mo­graphic div­i­dend ex­ists only on pa­per.

It is un­de­ni­able that India’s eco­nomic growth is un­der­go­ing a con­tin­u­ous de­cline, but we must ad­mit that the econ­omy de­cel­er­ated fol­low­ing years of rapid growth. While India’s cur­rent growth rate has fallen be­low that of China, it is still higher than that of most other coun­tries in the world, and the In­dian econ­omy still has the po­ten­tial to achieve con­tin­u­ous growth.

More­over, although some of the re­form measures im­ple­mented by the gov­ern­ment of Prime Min­is­ter Naren­dra Modi dur­ing his first five-year ten­ure have brought cer­tain shocks in the short-term, they will have long-term pos­i­tive ef­fects on the coun­try’s eco­nomic and so­cial de­vel­op­ment.

Then, in the face of the slow­ing eco­nomic growth, what should India do to boost its eco­nomic mo­men­tum? For starters, it needs to set up ra­tional eco­nomic goals and unswerv­ingly push for­ward in that di­rec­tion.

The In­dian gov­ern­ment has for­mu­lated plans to be­come a $5-tril­lion econ­omy. While I ap­pre­ci­ate India’s de­vel­op­ment am­bi­tion, I also feel that some of the pro­posed goals are con­tra­dic­tory and thus can­not be achieved at the same time. For in­stance, India ex­pects its do­mes­tic con­sump­tion to reach $4 tril­lion. Con­sid­er­ing the coun­try’s re­al­ity and tra­di­tion, it is jus­ti­fied to fuel its eco­nomic growth with do­mes­tic con­sump­tion, but it also means that an in­crease in its eco­nomic growth will in­evitably cause larger deficits in its goods trade. Thus, In­dian pol­i­cy­mak­ers need to make a wise choice as to whether it should give pri­or­ity to achiev­ing faster eco­nomic growth or to cutting the trade deficit, and then pur­sue its goals un­flinch­ingly. In this con­text, im­prov­ing its busi­ness en­vi­ron­ment should be a top pri­or­ity and a break­through point for India, which needs to at­tach great im­por­tance to im­prov­ing this en­vi­ron­ment for for­eign-owned com­pa­nies. The busi­ness circle has long been com­plain­ing about the de­fi­ciency of India’s busi­ness cli­mate, which im­peded nu­mer­ous projects that may ben­e­fit the long-term de­vel­op­ment of India’s econ­omy and society.

When it comes to at­tract­ing for­eign di­rect in­vest­ment, es­pe­cially from for­eign man­u­fac­tur­ers, India has re­lied too much on com­pul­sory measures like uni­lat­er­ally in­creas­ing tar­iffs on fin­ished prod­ucts to force man­u­fac­tur­ers to set up fac­to­ries lo­cally, rather than im­prov­ing its busi­ness en­vi­ron­ment. The ap­proach can­not help significan­tly im­prove the coun­try’s ef­fi­ciency, but in­stead may have neg­a­tive ef­fects like prop­ping up do­mes­tic costs and in­fla­tion­ary pres­sure, which also pro­vides neg­a­tive in­cen­tives for In­dian gov­ern­ments at all lev­els to im­prove pub­lic ser­vices.

Fun­da­men­tally speak­ing, rec­i­proc­ity is key to the sustainabl­e de­vel­op­ment of in­ter­na­tional eco­nomic and trade co­op­er­a­tion. It is through the con­tin­u­ous efforts to im­prove our busi­ness en­vi­ron­ment that China can quickly grow into one of the world’s top des­ti­na­tions for for­eign di­rect in­vest­ment. China is will­ing to ac­tively par­tic­i­pate in India’s eco­nomic de­vel­op­ment and to share its own ex­pe­ri­ence and lessons with In­dian part­ners. There­fore, to boost its eco­nomic mo­men­tum, India should start with a friendly at­ti­tude to­wards Chi­nese in­vestors, which can best demon­strate India’s de­ter­mi­na­tion and prac­ti­cal ac­tion in im­prov­ing its own busi­ness en­vi­ron­ment. The author is a re­search fel­low with the Chi­nese Academy of In­ter­na­tional Trade and Eco­nomic Co­op­er­a­tion un­der the Min­istry of Com­merce. bi­zopin­[email protected] glob­al­

Il­lus­tra­tion: Xia Qing/gt

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