Targeted fiscal stimulus and incentivizing exports will help put the economy back on a sustained growth path, noted ICRIER.
The government should put in place a strategy to boost exports to $1 trillion over the next five years.
New Delhi-based think tank Indian Council for Research on International Economic Relations (ICRIER) has recommended targeted fiscal stimulus and incentivizing exports to put the economy back on a sustained growth path after the pandemic shrunk the economy for the first time in more than forty years.
Authored by senior leaders at ICRIER including chairman Pramod Bhasin, director designate Deepak Mishra, Ashok Gulati, Alok Sheel and Nisha Taneja, the note said that the unprecedented nature of the crisis has exposed the limits of the current development model, thereby providing an occasion to think differently and to rebuild the foundations of a more inclusive, resilient, and prosperous India.
The note said that healthcare and pharma sectors can be engines of growth and the government should act as the prime mover, crowding in private investment. “A specially designed policy package comprising of reduced regulations, improved intellectual property protection, lower cost of trade and doing business along with targeted fiscal stimulus can be funnelled to make these sectors engines of growth," it added.
ICRIER said the government should put in place a strategy to boost exports to $1 trillion in five years comprising of a slew of policies to reverse recent increase in custom duties, signing trade deals with the European Union, the US, the UK and Australia, attracting more foreign investment in high-skilled sectors. “India’s exports are only one-seventh of China’s and a declining share of its own output. With booming external demand and reduced domestic demand due to covid-19 recession, there is a window of opportunity for India to export its way out of the pandemic," it added.
The Reserve Bank also in its latest monetary policy review earlier this month urged the government to provide enhanced and targeted policy support for exports taking advantage of the rising external demand for Indian goods. “With external demand strengthening, a rebound in global trade is taking hold, which should support India’s export sector. Global demand conditions are expected to improve further buoyed by fiscal stimulus packages and the fast progress of vaccination in advanced economies. The need of the hour is for enhanced and targeted policy support for exports. It is opportune now to give further policy push by focusing on quality and scalability," RBI said in its monetary policy statement.
ICRIER said India would also need to diversify its supply chains and play an active role in the Quad group in the Indo-Pacific region as several other countries are looking to reduce their dependence on China. “However, for this to become a reality, India would need to build more adaptable and resilient infrastructure and put in place coordinated border measures. On the services side, as some major IT companies are considering moving their back offices and operations, and software development out of India to mitigate concentration, a more resilient business environment and confidence building measures will be needed to retain such services in India," it added.
The think tank said that government should also leverage technology to spur inclusive growth and development. “Digital technology and platforms found new meaning during the pandemic as a medium to deliver health, education and livelihood opportunities to communities at large. Accelerated policy intervention for holistic growth of the sector including, deployment of communications infrastructure, skilling and digital literacy, research and development, etc. can collectively trigger productivity growth and enable inclusive development in the country," it added.