Structural reforms should continue
Another year has gone by, and India has shown itself to be an especially exciting place on the world map. The last 12-18 months have been a significant period and one which could potentially affect the country several decades going forward. The defining feature of this period has undoubtedly been the string of structural reforms .
The striking part about these reforms has not been just their breadth in terms of coverage across industries, but, importantly, the depth to which these have tried to address existing structural challenges plaguing the country. In terms of numbers alone, the reforms list presents an impressive picture—as per the department of industrial policy and promotion (DIPP), we already implemented 122 reforms in India in 2017, with a further 90 on the anvil. But as they say, the proof of the pudding is in the eating. Deep-rooted structural reforms like the goods and services tax (GST), Insolvency and Bankruptcy Code (IBC), Pradhan Mantri Awas Yojana (PMAY), Pradhan Mantri Jan Dhan Yojana (PMJDY) and Real Estate Regulatory Act (RERA) have struck at the core of long-festering problems around taxation, asset quality, financial inclusion and housing for all. As the benefit of these reforms flows incrementally into the system, not only will they help resolve the current challenges around these issues, they will help give an overall boost to economic growth.
These reforms have also received validation and approval from investors, both domestic and overseas. The rapid rise in the market is a thumbs up from investors for the reforms-focused agenda, while the ratings upgrade from Moody’s and the improvement in the ease-of-doing-business ranking is again a reaffirmation of the success of our reformist path. The validation has come despite what might be called short-term blips in the form of decline in GDP growth. The global community has considered the long-term benefit accrual to be outweighing the short-term volatility we might see.
Time for next wave of reforms
While a lot has been done on the reforms side, a lot remains to be done. The government has done well to target the areas of immediate pain. However, key reforms in areas like agriculture and labour, specifically for job creation, will help democratize the benefit of reforms to all possible sections of society.
Job creation remains a bugbear for the country, despite several efforts in this direction. While the boost to the manufacturing segments through other initiatives will provide a collateral benefit to job creation, it is important to explicitly chart out a strong policy road map for job creation and adhere to it. Vocational training, especially, will play an important role in this road map. A lot of effort has gone into making vocational training mainstream, but with limited success. Integrating this into the school curriculum while revitalizing the education imparted in government schools can have a galvanizing effect in the long term. At the same time, a well-funded cluster development mechanism could align the micro- (replace with comma) small and medium enterprises’ growth with the job-creation agenda, particularly in the organized sphere.
The government has drafted an ambitious target of doubling farmer income by 2022. To back up this target, it has made some notable efforts, including Pradhan Mantri Fasal Bima Yojana (PMFBY), electronic agriculture market (e-NAM) and Pradhan Mantri Krishi Sinchayee Yojana, among others. While some of these have seen immediate adoption, PMFBY being a case in point, some schemes have lagged in execution. Others will only show an impact in the long term.
In this regard, the role of NITI Aayog becomes very important. NITI Aayog is now directly working with states to bring about a transformation in the agriculture sector by initiating a series of reforms, including contract farming, online spot and futures trading, and facilitating and incentivising the private sector to invest in agriculture logistics and cold chains, among other things. A lot more is on the anvil for the agriculture sector—what is important is good execution and a well-entrenched feedback loop to ensure that the ball is not dropped on the momentum we are starting to generate.
Labour reforms are a key ingredient of scale-up on the manufacturing side. Long-term growth cannot be sustained solely by the services sector. With the strong focus on ‘Make in India’, the time is opportune to undertake a variety of labour reforms. The principal shortcoming currently is around the lack of a holistic labour policy which can contribute towards making a competitive manufacturing and service ecosystem in the country. Any policy which is drafted must aim to substitute rigid controls with transparency, while ensuring that the basic rights of workers are well protected.
Miles to go before we can sleep
The spate of reforms that have been undertaken have rightly received widespread acclaim. However, it would be erroneous to think that the job is done. The government recognizes the need to keep pushing forward with the reforms agenda and we can expect more key reforms in the next 18 months. There have been concerns that reforms might take a back seat with the result in Gujarat, but that seems unlikely. The government has a good record with reforms. But there is a long way to go before this process can be given a rest.
Rashesh Shah is president of Ficci.
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