By Rajiv Shah
Influential right-wing British journal, “The Economist”,
which had earlier opposed Narendra Modi as India’s Prime Minister calling him divisive, in its new commentary has "offered" certain neo-liberal recipes to the new government
in India to take over under Modi for "repairing" the world’s third largest economy. Titled “Kick-starting
India: India’s new government must get the economy working again. Here’s how”,
the journal (May 17) has said that “investors are excited” with Modi in power,
wanting him to take some tough measures. The steps me must take include abolition of “archaic labour laws”,
and take steps to ensure that “contracts to let firms buy land” are strictly obeyed.
At the same time, the journal wants the new government to
widen the tax net. It says, “The main reason why India has not run a budget
surplus since independence in 1947 is that its tax base is puny. So the
government must bring more of the economy into the tax net in order to repair
the public finances.”
The reason for being “ruthless”, according to "The Economist”
is, “A decade ago India’s economy was winning new-found respect as a riot of
energy and enterprise, but its performance in recent years has been dismal. Now
foreign bosses roll their eyes when you mention India, as they did in the
1980s. Growth has fallen to 5%, half the level at the peak of the 2004-08 boom.
Inflation and public borrowing are too high. The rupee slumped in 2013. Private
firms are fed up with red tape and graft and have cut investment from a peak of
17% of GDP to 9%.”
It points out, “On some measures the country is going
backwards in time. Households have been shifting savings away from banks into
the ancient refuge of gold. In a country that should be industrialising, the
contribution to GDP from industry has been declining while manufacturing jobs
have stagnated.” It adds, “The last government dithered and was preoccupied
with bolstering India’s welfare state”, something that must be done away with.
The “Economist” also wants the Modi government to “tackle
India’s rotten banks”, saying, “Bad debts have soared as the economy has slowed
and infrastructure projects have got snared by red tape. Banks have chosen to ‘extend
and pretend’ loans to zombie firms. The cost of cleaning up banks’ balance
sheets could be as high as 4% of GDP—slightly larger, in relative terms, than
Wall Street’s bail out.”
“But until the banks are fit enough to finance a new cycle
of investment, no recovery will happen. Deeper financial reform is vital, too.
Banks are forced to buy government bonds, giving politicians a blank cheque to
borrow. Limiting that would help end the habit of reckless public deficits”, "The Economist” underlines.
Pointing towards following East Asian economies in creating “decent
jobs”, "The Economist” wants that the new government do it the way these countries
have “prospered by employing unskilled farmworkers in factories”, adding, “India
should be doing that right now. Over 10m people a year will enter the workforce
for the next decade. Labour costs are rising in China, leading firms to shift
production elsewhere. Japanese companies are scrambling to diversify away from
China as military tensions crackle. The rupee has fallen by a third against the
yuan since 2010, making India’s workers more competitive”, the journal elucidates.
“The Economist” says, “So far India has blown it. For firms
wanting to invest, access to the ingredients of production—energy, labour and
land—is uncertain and expensive. The taxation of foreign companies is a
lottery. As a result, firms such as Li & Fung, which sources textiles and
toys for America’s supermarkets, say that factories are shifting to Bangladesh,
South-East Asia and Africa, not India.”
“India can go in one of two directions. It can watch its
position in the world decline as its infrastructure lags further behind and its
army of underemployed people grows. Or it can stabilise its finances and build
a productive private sector that creates the jobs its young people need and
turns it into a serious global power. The choice is the new government’s”, the journal concludes.
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