Memories are short. When 26 years ago, Narasimha Rao and Dr Manmohan Singh launched their revolution in economic policy with a double devaluation, there was near unanimous denunciation by the leading economists of what they had done. Ruination was predicted. The World Bank was thought to be dictating India’s policy. Even after all these years, the CPM/CPI keep denouncing neoliberalism. They prefer socialist stagnation.
For a government to be criticised for undertaking deep reform is almost invariably a compliment. The BJP should be proud that it has undertaken several policy initiatives which have begun to clear the decades of debris left from earlier economic policies. Lenin said you could not make an omelette without breaking eggs, nor a revolution without breaking heads. There is still unfinished business which will bring forth cries of anguish; ignore them.
At the anniversary of Demo (demonetisation), it is worth repeating that old currency was not devalued. It was converted into bank deposits. Total money supply was unchanged. This is shown by what people cite as the failure of the policy, i.e., 96 per cent of the outstanding cash came into the banks! The difficulty was Remo (remonetisation) not Demo; new currency did not arrive in time or in sufficient quantity during the first two months after Demo was launched. The new Rs 2,000 notes being unsuitable for ATMs compounded the difficulty. This was an implementation failure by the bureaucracy, not a policy error. The problem of cash shortage was sorted by end of the first quarter of 2017. The loss in growth rate of GDP was not more than 0.5 per cent, for the two quarters.
The government has been untiring in trying to bring money stashed abroad, as much as it will be in chasing the black money which came to the surface during Demo. It has tackled the insolvency legislation which has harmed the economy all these many decades. That then opens up the possibility of dealing with bank NPAs. The State Bank of India has been consolidated to give India, for the first time, a place in the 50 largest banks in the world.
The pace of reform needs to be kept up. PSU banks have had some recapitalisation, but the real solution is to consolidate them by merging and, when the climate is right, privatising them. Indira Gandhi’s move to nationalise banks was the biggest step in corrupting Indian politics. If Modi is serious about tackling corruption, PSU banks have to be divested. Otherwise another mountain of NPAs will rise up.
There is more unfinished business. The 2013 land acquisition Act is the most serious obstacle to growth and, if anything, the most anti-farmer, despite what its proponents claim. To increase infrastructure and manufacturing investment, the government needs to make the release of lands from agriculture to the larger economy easier. It will help many subsistence farmers sell land, get out of their hopeless situation and take up productive occupations.
The final challenge is labour market reform. All trade unions will fight these reforms. But if Indian manufacturing has stagnated for 50 years, it is due to these laws. Labour laws defend a minority of workers, leaving the vast majority insecure in the small and medium enterprises or informal sector. Clear this obstacle to see Indians grow rich.
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