As the Modi government completes three years in office, one must look back to understand its policy trajectory and outcomes, and also the way forward. When the government was sworn in in 2014, India was running the risk of a sovereign rating downgrade (to junk status) which could have led to its isolation from global capital markets. Today, the situation has turned around and there is speculation about the possibility of a rating upgrade. India has successfully cemented its position as a Global Macro Hot Spot, a far cry from the label of Fragile Five which was
assigned to our economy in 2013.
Decisive policy actions by the government have been a cornerstone of this transformation and policymakers have adopted the principle of festina lente — make haste slowly. The key element of these reforms has been a renewed IDEA — international collaboration, domestic reforms, ease of doing business and active consensus building — for the future.
International collaboration: The government has leveraged diplomatic channels and determined policy engagements to enhance India’s trade linkages, while also establishing an active role for India in the global geopolitical landscape.
Domestic reforms with outcome orientation: The GST, Make in India, Skill India, fuel price deregulation, and re-contouring of the FRBM are the structural reform pillars which will enable boosting India’s potential GDP growth by at least 1.5 per cent in the medium term. The setting-up of the NITI Aayog, Monetary Policy Committee (within the RBI), the codification of insolvency and bankruptcy procedures, and the creation of the MUDRA Bank and RERA are the institutional reform pillars which will help sustain 8-plus per cent GDP growth in the near future and 9-10 per cent beyond 2020.
Most importantly, the behavioural reforms undertaken by the government have stood out. The JAM trinity helped to leapfrog financial inclusion. Additionally, the bold reform of demonetisation is expected to drive swachh vitteykaran. It is comforting to know that the country has added 9.1 million new taxpayers in 2016-17, representing an 80 per cent jump over the previous year. Going forward, this is likely to boost India’s relatively low tax/GDP ratio of 11.3 per cent in 2016-17.
Ease of doing business: It was one of the first objectives of the new government. Various policies and reforms outlined earlier like the GST, FDI liberalisation, digitisation, etc., have been tailored around this objective. Additionally, the government has ensured that this impact trickles down at the state level through competitive fiscal federalism.
Active consensus building: Critical policies like the GST, Bankruptcy Code, FDI, etc., bring out the importance of political unison and the concept of Team India in a meaningful manner. I believe that the focus for the next few years will be on reviving private investment and boosting job creation. As programmes like Skill India take flight, we will see an impetus to employment, which will be key to reaping the benefits of India’s demographic dividend.
Soon, people born in the new millennium will start entering the labour force. With the changing nature of jobs in a world which is at the crossroads of globalisation, industrial revolution 4.0 and protectionism, a policy focus on boosting employment and nurturing MSMEs — as an extension of existing policies — will yield desired outcomes.
MSMEs generate close to 45 per cent of the total industrial employment and are critical for the ground-level consummation of the Make in India dream. While the GST will provide a shot in the arm, cluster-based development will further help MSMEs reap economies of scale. Further, a specific focus financing for MSMEs through attractive corporate tax structures, the building of a robust ratings and exchange trading culture, will go a long way in strengthening these enterprises.
Finally, vocational training under skill development is critical in a world where disruption and exponential change is the new paradigm. In addition, I believe that we will see the policy emphasis on DICE (Design Innovation Creativity led Entrepreneurship) getting further energised through Stand Up India and Start Up India.
The economic energy in the current team of policy architects is palpable and infectious. After renovating the house, I am confident that the government is now ready to take the next leap. India took 31 years to increase the size of its economy by 10x to $2.3 trillion. Now, armed with the four tectonic changes, in the form of IDEA, I believe India’s next phase of 10x transformation to a $20 trillion economy will take less than half the time.