From UPSC perspective, the following things are important :
Prelims level : Not much
Mains level : Paper 3- Long term prospects for Indian economy and reforms needed
The article discusses the long term and short term strategy to deal with the disruption caused by the pandemic and using it to bring about the reform in various sectors.
- The pain of COVID is real, GST shortfall of Rs 3 lakh crore, expected new bad loans of Rs 3 lakh crore, and a 25 per cent first quarter contraction of GDP.
- COVID will end, the last quarter was unique, and COVID has created a policy window for overdue reform.
3 Questions to be answered to determine short term measures
- 1) Are we at the start, middle, or end of the virus?
- This matters because life will be tentative until companies and individuals know where we are.
- 2)Will companies will they save for a rainy day or live for today?
- This matters because lower demand is fantastic for the environment but fatal for the economy (the paradox of thrift).
- 3) Do we have an effective solution for professions that can’t be done without social distancing until the vaccine arrives?
- All policy can do in the short run is ensure that disease doesn’t lead to death, unemployment doesn’t lead to hunger, and working capital problems don’t lead to bankruptcy.
Factors in favour of India in the long run
- Our post-COVID, post-Trump, post-China, post-GST, and post US Federal Reserve economic strategy must recognise factors in our favour.
- China’s territorial arrogance may be premature.
- China’s credit to GDP is an unsustainable 300 per cent, many of its big companies will not survive when faced with open market, and its domestic consumption is not sufficient to substitute for global trade.
- China’s military overreach is unifying the region and creating coalitions and alliances that they will regret but India will enjoy.
- Muted global growth means oil prices will remain low; this is a huge macroeconomic gift for a country like India.
- The global digitisation supercycle creates insatiable demand for software talent which would be big advantage for India.
- Over the next few decades, most rich countries will struggle to grow.
- This forces investors to overprice growth. And because of our past sins, India is the only big country with decades of growth left.
Reforms India need
- Our problem is not jobs but productivity.
- This needs compliance reform-taking an axe through our 67,000 compliances and 6,700 filings.
- Labour law reform.
- Banking reform: raising our credit to GDP ratio from 50 per cent to 100 per cent by licensing more banks and fixing existing ones.
- Education reform.
- Ease-of-doing-business reforms: reduce the number of ministries from 52 to 15.
- Civil service reform:cut the number of people in Delhi with the rank of Secretary from 250+ to 50, a risk-averse bureaucracy must be sidestepped or overruled.
Consider the question “The disruption caused by the pandemic offers a window for India to create enduring change through economic reforms to take advantage of the opportunity provided by the pandemic. Discuss.”
We should focus on creating climate change for our entrepreneurs, firms, and citizens with reforms that will give them economic Poorna Swaraj. And take our per capita income of $2,500 to $10,000 in five years. If not now, then when?