India must shed protectionist stance: Arvind Subramanian
Unless India’s exports grow at 15%, we won’t get 8% growth, says Subramanian
PremiumIndia must shed its protectionist attitude and find a way to be internally competitive to become an exporting economy in a challenging post-covid world as self-sufficient exporting power is an oxymoron, former chief economic adviser in the finance ministry Arvind Subramanian said on Wednesday. Subramanian’s comment comes at a time when the government has launched a self-reliant India campaign to promote domestic manufacturing through import substitution.
“Unless India’s exports grow at 15%, we won’t get 8% growth. For that, we should reverse some of the protectionist measures taken. If we turn protectionist, I don’t know how can we be an exporting power. Self-sufficient exporting powerhouse is an oxymoron," Subramanian said while speaking at a webcast organized by EY India.
Subramanian said India is looking at a slow and patchy economic recovery as it unlocks its economy from the two month long lockdown. “We should brace ourselves for a sharp decline in GDP. India’s fiscal deficit will be in double digits if measured correctly with debt to GDP ratio at around 85% when the dust settles. There are very few balance sheets which are reasonably robust to bear the brunt of the pandemic," he added.
Critiquing the “sweeping" labour reforms adopted by many states by abandoning protections available to workers, Subramanian said such reforms may not attract foreign investors into India. “Such labour reforms undermine the basic protection available to workers which is absolutely critical. These tweaks may not attract foreign investors as they may say if things can change so drastically in one direction and so quickly, it may be reversed in the other direction as well," he added.
Subramanian said after the covid-19 pandemic, facts have changed so much on the ground that the government may have to update its budget numbers, revise the FRBM Act and formulate new terms of reference for the 15th Finance Commission.
Holding that India may be entering a phase of turbulent centre-state relationship, Subramanian likened the centre’s conditional permission to states to borrow 200 basis points more than their fiscal deficit ceiling with an “IMF-like programme". “In the height of a pandemic, putting such conditions may not be the right thing to do. Asking states to carry out power sector reforms is desirable but this may not be the right time," he added.
Subramanian said reviving financial sector will be absolutely critical to revive economic growth. “How to clean up financial system going forward is going to be challenging. We need bad banks for the power and real estate sectors and a quick resolution mechanism. IBC needs tweaking since outside the steel sector, recovery is not very good. The focus should be on maximising recovery from underlying assets. Government taking up small stakes in companies in some sectors such as power is worth considering," he added.
Subramanian said the current crisis has made it clear that India needs a universal basic income, something he has been batting when he was the chief economic adviser in the finance ministry. “While poverty affects 10-20% of population, a crisis like this affects 50-60% of population. We need to try new ways of funding such as a wealth tax or property tax even though challenging. Unless you get inclusive in genuine sense, unless we give attention to distribution, capitalist models are in deep trouble," he added.
Drawing attention to the deficiencies in the JAM (Jandhan-Aadhaar-Mobile) trinity which he coined, Subramanian said lack of universal coverage such as the migrant workers was a problem. “We should have pumped in money regardless, whosoever got money would have been a good thing. It could have been complimented with physical cash. This crisis is an opportunity to complete the JAM infrastructure. We need a good social safety net at a crisis like this. This also opens the possibility for a UBI or a universal rural income," he added.
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