Right vision, wrong solution

Prime Minister Narendra Modi’s Independence Day address on Saturday highlighted some of the government’s achievements and reiterated the board direction for the future. While Mr Modi talked about various policy initiatives, there were at least three dominant themes that needed more debate. First, the prime minister restated the government’s aim of attaining self-reliance or an Atmanirbhar Bharat, seeking to pitch the country as a manufacturing hub. The prime minister also noted that India should embrace the idea of “Make for World” so that local value additions help the country make the switch from just a supplier of natural resources and raw materials and importer of finished products. The government also intends to integrate rural industry and the farm sector into the overall strategy, promising to set up special economic zones in rural areas.

These are worthy goals and India should aspire to become an important and integral part of the global supply chain. This will not only push medium- to long-term growth potential but also help create jobs at a scale the country needs. However, the policies being adopted to attain these goals need to be urgently re-evaluated. India needs policy pragmatism to attain higher sustainable growth. For instance, the trade policy objective of cutting imports will not take India too far. Recent decisions to increase import barriers would make the country a high-cost economy by creating friction in trade and supply chains. Modern supply chains need a seamless movement of goods across borders. Therefore, India should aim to increase exports without restricting imports. The government would also do well to review the internal policy environment and align it with global needs. For example, India is losing out on car exports largely because of the internal tax structure, which is out of sync with global realities. Thus, to make for the world, India will need large-scale policy changes. Raising tariffs will only damage its chances.

Second, Mr Modi highlighted the National Infrastructure Pipeline worth Rs 110 trillion. Large investment in building and improving infrastructure will help augment growth. However, the bulk of the investment is expected to come from the central and state governments, so it is important to review the plan in the light of the new fiscal realities following the pandemic. This will help the government prioritise projects that could potentially have a higher multiplier. The government has invested significantly in the infrastructure sector in recent years but it has not yielded the desired push to economic growth. Thus, it is crucial that the limited fiscal space is used more judiciously.

Third, Mr Modi announced the launch of the National Digital Health Mission. The idea is to give every citizen a health ID that will help maintain medical records and improve access to health care. This is an important step forward and would particularly help India’s large base of migrants, who may not be in a position to maintain medical records over a period of time. However, it would be important to ensure that records are not misused, because it could compromise the privacy of citizens. The absence of a privacy law will complicate matters further. At a broader level, the setback caused by the spread of Covid-19 and India’s underlying macroeconomic background would require large-scale policy reorientation. The immediate challenge, however, is to contain the virus, which will obstruct any medium-term policy initiative.

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