The Union government has completed one year and has achieved success on numerous fronts. The government led by prime minster Narendra Modi has taken a wide spectrum of significant economic policy initiatives in the very first year. On the monetary policy, the government has signed an agreement with the Reserve Bank of India (RBI) to target inflation. The inflation rate in the country is already very low as compared to the previous decade. Twin deficits—fiscal and current account—are contained and the growth rate of the economy has started to look northwards. A number of measures to ensure social security, mainly contributory, in terms of pension, and life and accident insurance are expected to increase the welfare of common Indian. The government has already announced various schemes to encourage micro, medium and small industries that would not only lead to higher employment but also higher growth. Gold monetisation schemes would provide liquidity to dormant gold held in households and temples and encourage economic activity. Gold bonds and gold coins would help to reduce stress on the current account and the space created therein can be used for importing capital goods which are growth-intensive in nature. The Union budget announcement to set up 100 smart cities, along with six crore houses, would encourage both industry and services. The shift in the vision of the government from the traditional Garibi Hatao to a house for all by 2022 itself signifies movement in the growth-oriented right policy direction. The first year has been momentous but there always is some gestation period before the policy announcements get implemented and start yielding concrete results.
The BJP swept the elections with a very wide majority that is unparralled in the last three decades in India. The vast majority in Parliament provided the government the authority to usher in reforms to kick-start the economy and help recover the stagnant growth characterised by policy paralysis of the previous government. Though a number of initiatives were undertaken by the government to enhance public welfare, a few important welfare enhancing initiatives also need consideration, probably early on in the second year.
The issue of corruption at high places seems to be history now. The budget announcement of rigorous punishment to people indulging in black money as well as the Black Money Bill being considered in Parliament are clear indicators of the good intention of the government. The government has successfully instituted transparent methods to auction public resources, and has earned budgetary revenue and respect for such endeavours. These are laudable steps which are historic in nature and have long-lasting implications. And such revolutionary measures could only be initiated because of massive popularity of the ruling party amongst the people and its vast majority in Parliament. In the history of corruption prevalent in many countries across the world, one significant contributing factor is election funding. And, the government could also consider initiating path breaking steps in this direction.
Hopefully, eventually, this will contribute in India performing better on ease of doing business.
In India, only 27 per cent of the women participate in the workforce. If India has to compete with other countries and assume the role of a superpower it would be essential that workforce participation of women increases along with the GDP. The reasons for low workforce participation can be insecurity at workplace or travel. In the last one year, the rate of crime against women as measured by incidence of reported rape cases has not declined. The government, given theunprecedented mandate, can address this issue through mass campaigns and declare that crime against women would be a zero-tolerance policy of India. Hopefully, amongst other benefits, tax revenue through increased workforce participation will increase.
On the issue of financial inclusion, government measures have been impressive. The policy makers had been trying since 1955, when the State Bank of India was nationalised to ensure extensive expansion of banking facility in the rural areas. The Modi-led government, by opening nearly 13 crore accounts between August 2014 and January 2015, established not only a world record in opening accounts but also in successful implementation of public policy. This indeed needs celebrations because once every household has a bank account direct benefit transfer would imply zero leakage in the process. This also sets the stage for initiating more welfare-oriented measures that would directly reach the intended beneficiaries. The success of social security measures, of which some have been announced and more are being planned, along with the MUDRA Bank that is focused on small loans for micro enterprises would yield results. In the absence of a centralised planning body like the erstwhile Planning Commission, there would be need to strengthen rural and urban local bodies, to not only monitor and evaluate the existing schemes but also shift the focus of development to a bottoms-up approach.
Those above 60 years of age number more than 11 crore people in India, and a majority of them are without any social security. These silent elderly continue to work hard in their sunset years without any recognition despite medical challenges. The government could also consider some measures including pension, and food and medical security, to provide them with some dignity in their old age. The need is to have an academic research centre on old age issues, combining the aspects of sociology, medicine and economics.
The reforms of 1991 were successful because they were carefully prepared after widespread consultations and cautiously implemented in a well-sequenced manner. Like royal poets in the durbar of a Maharaja, economists at key policy positions with grassroots experience and local network can serve an important purpose in formulation, implementation and success of the government’s economic policies. Their presence can help avoid recent instances like that pertaining to separation of debt and monetary management which impact credibility of policy making. Also, domestically training economists at key government positions can be viewed as an investment because they can later be marketed to hold critical offices in international organisations.
The writer is RBI chair professor, IIM Bangalore, and former senior economist, IMF. Email: charansingh@iimb.ernet.in