Finance minister hints at significant reforms

Background Analysis

Piyush Goyal, trade minister commented that exports must necessarily grow to $ 1 trillion if India aspires to reach a $ 5 trillion economy by 2024. Export growth of this magnitude would appear difficult if India can't get better access to foreign markets. Recent opting out of RCEP can be viewed as a set-back, but in reality, it is not so damaging as India has FTAs with ASEAN, Korea, Japan and Singapore. On the other hand, a step-up in trade with the United States and a deal with European Union incl UK -- if a good deal is possible -- could be more than enough.

RCEP poses a threat from lesser market access to the East Asian block, and from the stronger competition that will brew up in the future. Clearly, India too must raise the competences of agriculture, industry and services. In other words, India must significantly enhance domestic competitiveness to match foreign rivals, and this can't really happen unless it is fully exposed to the competition. India still has time to gear itself up, suo moto, to meet the challenges and then join the RCEP trading block as a competent partner. It is possible - though quite difficult. 

Take a look at India's lowly rankings in Global Competitiveness Index and Global Innovation Index. This is partly because India has not tried to lead the global product development, tried to reduce logistic costs, improve labour productivity, manufacture in large scale or have farmers become self-sufficient through various means. 

A start has been made in reducing the costs of doing business and allowing industry to keep more of their retained profits. Industry on its own must apply its mind to successfully gain in global competitiveness. Costs of doing business reforms have a very broad scope, that includes legal and procedural changes, on-the-ground operational changes, fees and tax changes, sectoral reforms, macroeconomic improvements, investment in infrastructure, and social changes that increase the economic engagement of people. Thus, very many reforms are needed and this is what Finance Minster, Nirmala Sitharaman is perhaps talking about. 


Finance Ministry's statement at Indian Express Adda

We will not miss the bus again, will next wave of reforms soon

Other aspects of a globally successful economy

An internally competitive economy, which reduces the costs of doing business, is just one aspect of a globally successful economy. Government and industry have a symbiotic role in creating goods and services that can be traded with other countries.

-- large supply of low-cost capital in hands of entrepreneurs
-- adoption of cutting-edge technologies
-- competence of workers in all walks of life
-- good labour mobility, and strong work-ethic & enterprising attitude of workers
-- marketable innovations (ie. intellectual property rights)
-- depth of competitive value chains within the country
-- strong institutions to support businesses
-- efficient trading systems for conducting business, low levels of corruption and a good system of governance
-- cache for attracting people and businesses to the country for tourism, conferences, services like education, health, financial services (ie good living conditions, infrastructure, high-quality public services, skilled workers and good image)
-- infrastructure capacity additions and upgradation of facilities, in line with economic growth
-- connectivity with neighbours, within the region and internationally
-- internal security, competence in defence and diplomatic wherewithals

Govt's $1.5 trillion infrastructure spending plan over 5 years, may just be enough to create infrastructure that provides good internal connectivity, efficient business processes, adoption of cutting edge technologies, good agricultural capacity and value additions, satisfactory tourism activity, improvement in quality of life parameters, etc. However, skills development, innovation and school education are not being vigorously targeted, and this will make it difficult for India to lead on marketable innovations, provide competently run systems, or establish depth of value chains. 

Make in India will be sub-optimal, particularly as IPR will be with foreign companies. Good response though is already seen in sectors like electronics, and this can extend to other sectors like medical devices. Strong growth, backed by indigenous IPR, can come in sectors where India has competences like engineering goods, chemicals and pharmaceuticals. Indigenous R&D in defence is showing good successes, and large orders of indigenous products are in the offing.

Internal security has improved, although policing and judiciary remain hard to reform. With respect to internal security, there are many positive initiatives like emphasis on Aadhaar ID & fingerprint recognition, face recognition (emerging), widespread use of CCTV & artificial intelligence (both emerging); interception of threats and action against preceived threats, cybersecurity & strong, in-country data security (emerging); highly trained commandos to protect cities, improved border security, automonous electronic surveillance at the border; stronger legal & actual stance on terrorism & transnational crimes, co-ordinated action by Centre & States against national crimes like illegal drugs trade, child trafficking, etc (emerging). Action against black money, money laundering, foreign NGOs, etc, which is ongoing, will reduce the scope for mischief -- but political malpractice will most probably continue to be overlooked in the interest of political expediency!!