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  • 5 reforms that India needs

    The Indian economy grew remarkably in the last three decades. The growth appears to be slowing down. Right now, India is battling poverty and a huge population with limited opportunities to grow. A lot needs to be done in the reforms space to accelerate growth, according to former RBI advisor Vijay Joshi. He delivered the L K Jha Memorial Lecture last week. Joshi is an Emeritus Fellow, Merton College, Oxford. He spoke in the presence of RBI governor Urjit R Patel. RBI has put out the speech text.

    He believes that reforms can help India grow consistently above 8% in the next two decades.

    Here are 5 key things to note:

  • Privatise public enterprises: Public sector enterprises (PSEs) fail to innovate, increase productivity, and respond to consumer preferences. The profitability of central PSUs has been declining consistently in the last 10 years. Two-thirds of the 1,000 state PSEs make losses including power distribution companies. This affects our economy too. The losses of state and central PSUs amount to 1% of India's Gross Domestic Product (GDP). The Indian government should consider privatisation of PSE, especially those operating in the tradable sector. Privatisation can lead to better utilisation of resources and higher productivity growth. The government can use the proceeds of developing rural roads and irrigation.

  • Reform banks: The health of Indian public sector banks (PSBs) deteriorated post the financial crises compared to private and foreign banks operating in India. Non-performing assets (NPAs) or bad loans as a percentage of all advances at PSBs increased to 15.6% in 2017 from 3.5% in 2008. Private and foreign banks managed to keep bad loans below 5% during the same period. The PSBs should be brought under the Companies Act, while the Bank Nationalisation Act should be modified. It can help the government to privatize some viable banks, reform a few, and turn some banks into narrow banks. While PSBs are poorly managed, private banks can become reckless and delinquent. Their regulation should improve to make them accountable.

  • Revive government machinery: A number of posts in various government departments remain vacant right from courts to police to school. Understaffing, lack of independence, and lack of expertise are affecting regulation across many fields. Public-private partnerships and infrastructure services remain poorly monitored. The government machinery needs reform so that public interest is served first. Hiring the right candidate for a particular job can help the government in fulfilling the objective.

  • Employment creation: India needs labour intensive enterprises that can create jobs for its young population. Automation is already setting in and it can reduce jobs in the next few decades. The labour laws in India need a revamp. The Industrial Disputes Act makes it difficult for enterprises having more than 100 workers to cut staff without government permission. Further, the Contract Labour Act incentivizes companies to minimise labour and invest less in labour-intensive businesses. Changing the laws can help to promote labour-intensive enterprises.

  • Price control and subsidies: Price control on food, fuel, electricity, water, rail fares, and fertilizers discourage investments in the sector. Price controls are achieved through subsidies, which affects the fiscal math. In a few cases, the subsidies fail to meet their end purpose due to leakages. The central and state subsidies amount to 6% of India's GDP. Removing subsidies, removing price controls and encouraging direct cash transfer can benefit the poor as well as the government. It can lead to fiscal saving.

    • India’s Economic Reforms: Reflections on the Unfinished Agenda - Vijay Joshi  Read more

    • IMF favours three structural reforms in India Read more

  • 20,00,000

    The total number of posts vacant in both central and state government departments is close to 20,00,000, according to one estimate. Professor Joshi mentioned that the vacant post in government departments is in of the factors that lead to poor regulation in the country.