New Delhi: The Reserve Bank of India’s (RBI) decision to cut the repo rate by a quarter of a percentage point to 6.25% this week heralds a transition to a “low interest rate regime that will lay the foundation for 20 years of growth", said Naushad Forbes, president of the Confederation of Indian Industry (CII) lobby group.

Forbes, who is co-chairman of Forbes Marshall India, was speaking at a session of the India Economic Summit organized by the World Economic Forum.

But Vineet Nayyar, vice-chairman of Tech Mahindra Ltd, said at the same session that the cut was too small and “won’t change anything."

He complained that “interest rates have been way too high" in India and argued that other Asian economies, including South Korea and China, increased capital formation and productivity by lowering interest rates.

“We cannot guarantee that either interest rates or inflation will continue to decline over the next five years," said Gita Gopinath, professor of economics at Harvard University.

Rising commodity prices feed quickly into inflation, while the weather, which the RBI cannot control, plays a “key role in inflation," she added.

The panellists agreed on the urgent need to invest more in education, healthcare and skilling, and called for more attention to be paid to measuring outcomes.

Government schools—so strong a generation or two ago—have become “hugely poor", according to Nayyar. Corrupt practices, including teachers subcontracting their lessons and cheating in exams, are swept under the carpet.

“Already we see job losses in agriculture due to mechanization and the erosion of middle class jobs in accountancy, medicine and law due to technology," said Nayyar.

Pawan Munjal, chairman, managing director and chief executive officer of Hero MotoCorp Ltd, said, “There is a huge gap in skilling" but it is not only a government responsibility to fill the gap.

“We have to put our own efforts and investment into skilling and some of us are doing that," he added.

Gopinath identified the textiles sector as a great source of employment and re-skilling for agricultural labourers.

Investment in research and development is 10 times higher among tech companies in China than in India, said Forbes. The only investment is in start-ups, while major corporations are lagging behind. “If we do not move in that direction, we will see extinction," warned Nayyar.

Following its success with the goods and services tax, the government must prioritize land and labour reforms. These reforms are so politically contentious that the government is encouraging states to make the first move, said Forbes.

So far, six states have made progress on labour and three have moved on land reforms. With 10 states moving on both, the government can then recognize the reforms centrally—even if it does not, investment will go to those states in any case. These reforms, combined with greater investment in skilling, could transform the mass manufacturing sector, creating millions of new jobs.

Forbes is bullish about India’s future. South Korea, Taiwan and China have grown at close to 10% for 20 years. “We need to do the same, then we will lift millions out of poverty," he said. “The reforms of the past 25 years have led India to this point," he added, “but the best is yet to come."

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