India must develop a mindset to develop into a global economic player. This is the message from Raghuram Rajan, Chief Economist, International Monetary Fund (IMF) at the 3rd Pravasi Divas on Friday.“All too often, it is the vocal and the politically well-connected that get the manna from the government rather than the truly needy. A better form of insurance is flexibility. We need to build more flexibility into the economy so that it can react to inevitable changes quickly,” said Dr Rajan, Economic Counsellor & Director (Research Department) of IMF.The IMF economist observed that India has too much preservation, and too little creation or destruction. “Interestingly, studies show the way to get more creation of new businesses is to allow easier entry as well as easier exit or destruction. This means reducing the many petty bureaucratic barriers to entry, as well as more flexible labour laws, and a better and more rapidly enforced bankruptcy code,” he said.An alumnus of IIM Ahmedabad and IIT Delhi, Rajan later took a doctorate from the prestigious Massachusetts Institute of Technology. He also had a brief stint with the Tata Administrative Services before he left India.As India modernises, it has to create explicit safety net, including unemployment insurance, pension schemes, and health care, targeted at the individual worker to shield him or her from business cycle fluctuations. “In doing so, it should learn from the experience of other countries on how to avoid killing incentives for work or expanding programs beyond the ability of the country to pay,” Rajan said.People will be far more willing to accept competition if they are given time to adjust and if they are convinced the government will use that time to improve their ability to compete. “A time-bound phasing-in of competition and a phasing-out of protections and subsidies may find far greater acceptance than shock treatment,” he said.The IMF economist thinks that a better way of making foreign businesses more interested in India is to treat them as one would domestic investors, and deal with all the concerns domestic investors have. Foreign investors also value transparency in decision making, more so than large domestic investors as foreigners are less familiar with the corridors of power.“All too often in the past, policy has been hatched by theoretical bureaucrats, remote from the polluting influences of business reality. When the policy with all its clauses and sub-clauses is eventually rolled out nationwide after much discussion within a small but out-of-touch group, it quickly fails the market test,” he said. Rajan pointed out that policies that specify general principles rather than attempt to micromanage will have more success in withstanding change. “It would also help to experiment with different approaches on a small scale to see what (policy) works, or to have an initial phase during the rollout when changes will be made, before setting the policy in stone,” he said.
