View: Few economic issues that need immediate attention


By Pranab Bardhan

Now that elections are over, no one in the ruling dispensation needs to pretend that the economy has not been in dire doldrums for quite some time. There are many severe problems the economy faces, some requiring immediate attention, others more structured long-term policy changes. Of the former, I’ll pick two.

First off, is the continuing scourge of demand deficiency (and the resultant low capacity utilisation) that discourages private investment. More than tinkering with tax concessions or interest rates, one needs pumppriming public investment on a large scale. The lack of investment is associated with lack of non-farm jobs and massive underemployment and unemployment, particularly among our restless youth (providing the foot soldiers of gangster-politicians and lynch-mobs).


So, the public investment has to be job-creating — in construction, roads, public housing, warehouses, cold storage, etc. In rural areas, demand has to be boosted through more such construction programmes and by expanding the scale of Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) schemes. It’s not really ‘employment guarantee’, as evidence suggests that there is a large unmet demand for such jobs in many states.

Evidence also suggests that leakages in the original programme have now diminished substantially. This rural programme now needs to be supplemented by an urban employment guarantee on public works and civic programmes improving our crumbling urban infrastructure.

So, where will the money come from, at a time when fiscal deficit is rising? With relatively low inflation, we may afford to relax a bit on the fiscal deficit goals if money is productively spent on income-boosting construction and capital projects. Besides, India’s tax-GDP ratio has remained low and stagnant even after decades of high growth, while wealth inequality (as measured by National Sample Survey (NSS) data) has now mounted to almost South American levels.

A large-scale reform of our current subsidies (much of which are enjoyed by the rich and middle-classes), and increase in direct taxes (with current under-taxation of property values and capital gains and zero-taxation of wealth, inheritance and agricultural incomes) can be carried out at a relatively short notice.

The other looming problem we can’t look away from any more is the water crisis — for both drinking water and irrigation in large parts of water-depleted and ecologically stressed India. Along with immediate and drastic reduction of power and water subsidies, mass mobilisation of decentralised water-user associations in water management and rainfall harvesting is imperative.

Of the more long-run policy issues, let me flag only a few. Our whole secondary education system has to be largely restructured and channelled to a mass-scale vocational training programme, in partnership with private employers.

Otherwise, many jobseekers will remain unemployable. In view of our dismal export performance — at a time when Vietnam is picking up the sectors China is graduating from — and the slump in our job-creating automobile and ancillary sectors, renewed efforts at a coordinated industrial policy, particularly in financing and supportive regulatory environment, are urgent.

In agriculture, where there is a large potential for job-creation in high-valued produce like fruit, vegetables and livestock products, what is needed, apart from investment in rural infrastructure, is opening up all marketing channels, thus disabling the current cartelised markets, and facilitating the widespread formation of farm companies and cooperatives to stem the adverse effects of declining land size.

The largely wasteful and iniquitous current minimum support price (MSP) policy should be oriented mainly toward millet crops and pulses. All this will require political courage. But that should not be beyond the capacity of our current muscular leadership.

In a country with one of the world’s largest disease burdens, GoI is pushing Ayushman Bharat, an underfunded and hyped programme of insurance for hospital indoor expenditure for the poor.

In general, India has yet to debate seriously at the political level why a subsidised private insurance model to cover only about 40% of the population — and that too not for their more substantial expenses on drugs and outdoor visits —is to be preferred to other models of universal healthcare with larger risk pools bringing down costs (as, say, in Thailand or Australia).

A large number of Indians, even far above the poverty line, face all kinds of brutal weather, health or market-related risks in life.

To provide some minimum economic security against such risks — apart from boosting the autonomy of women in the family and the fallback option of all informal workers — unconditional basic income supplement for everybody, far beyond PM-KISAN for farmers, should be implemented in phases.

Finally, administratively, we are retreating from effective decentralisation needed for successful economic policy in a large diverse country. Power remains over-concentrated in the PMO, choking decision points, while Bills impinging on state powers are hurriedly passed in Parliament without consulting the states. All this is making a mockery of the oft-repeated rhetoric of ‘cooperative federalism’.

Political loyalty and seniority, rather than performance, dictate promotion of bureaucrats, and public sector enterprises and regulatory bodies for private sector operations remain ‘independent’ only on paper.

(The writer is professor of economics, University of California, Berkeley, US Tomorrow: Arvind Panagariya, professor, economics, Columbia University, US)

Source link

Articles You May Like

Elizabeth Holmes denies destroying evidence in Theranos case
PPP loan rules and priority window excites and confuses small firms
Here’s what to evaluate before investing in the SPACs boom
How much Kevin O’Leary makes on Cameo
Forget bitcoin — fintech is the ‘real Covid-19 story,’ JPMorgan says

Leave a Reply

Your email address will not be published. Required fields are marked *