Reforms for India

India is the 3^rd largest economy in the world in terms of GDP (PPP). It has grown at a rate of 7-8% p.a. for most part of the last decade. However, to grow further and bring the remaining 1/3 of our population out of poverty, India would need to grow at these rates. After 1991, there haven’t been significant reforms and India needs another round of substantial reforms.

A majority of these reforms need to tackle the supply side bottlenecks as there is a strong demand. One of the major concerns is the ease of doing business and the support structure for enterprises. The country languishes in infrastructure. There aren’t adequate roads, railways is suffering from under-capacity, waterways and aviation require lot of capacity creation. Energy is also a big issue as more than 70% of crude oil demand is met by imports. There is no reliable power supply available to industries as the power plants can’t meet the demand due to shortage of coal. Getting skilled labour, environmental clearances, unstable and complex tax regime, bureaucratic hurdles further puts stress on the enterprises. Due to these issues, while the foreign players are reluctant to enter India, some Indian players like Biocon have also gone abroad to set up their plants. Also, financial sector reforms are needed so that the cost of capital is low for firms and entrepreneurship gets a boost.

To tackle these problems, the government needs to cut down wasteful expenditure and redirect spending towards gainful capital expenditure. Also, a lot of the money is wasted due to inefficiencies and complex governing structures. E-governance with transparency, curbing corruption and simplifying policies and regulations would go a long way in dealing with these problems. Connectivity via infrastructure and telecommunications should get an urgent focus. Money would need to be raised for this purpose besides removing externalities, regular monitoring of projects and reducing turnaround time should help kick-start economic activities. Coal India Limited’s monopoly should be abolished and private players brought in to improve efficiency. Domestic oil and gas exploration, extraction, refining should be encouraged to reduce dependence on costly imports and potential for renewable especially solar should be tapped. Smart Grid, dynamic pricing, cutting T&D losses would also be helpful. Education should be made more job-oriented ensuring skill requirements of industries are met. Spending in Education, Research and Development should go from under 5% to 10% to ensure a bright future for the nation. Vocational training and skill-development along with labour reforms would give a boost to manufacturing sector and would employ the youth. Healthcare also needs attention for only a healthy workforce could help the economy grow. For taxation, GST should be introduced to subsume plethora of indirect taxes and make monitoring and compliance easier. Similarly Direct Taxes code should be implemented as early as possible.  Financial regulators like RBI, SEBI, IRDA, PFRDA, etc. need to help create a strong financial sector. There should be easy availability of capital – both equity and debt. The currency shouldn’t fluctuate wildly, inflation should be moderate and a healthy balance of payments should be ensured.

If these reforms are undertaken, especially by the new government which has a majority of its own in the legislature would ensure that India reclaims its old sobriquet ‘Sone ki chidiya’ or ‘The Golden Sparrow’.