To me, the Prime Minister Modi-led government, since it came to power in 2014, has focused on bringing about two major transformational changes in the Indian economy.
The first is to bring about a qualitative difference in the life of the poor and make economic growth inclusive. The second relates to the government's role as a facilitator of private investment and provider of an efficient and transparent economic governance where structural economic reforms are crucial.
A number of schemes have been launched to benefit the poor.
More than 400 million persons have opened bank accounts under the financial inclusion scheme that enables them to get a debit card and have access to all basic banking services, including access to social security schemes like pension and insurance.
Non-farm micro-enterprises now have access to credit up to Rs 10 lakh and this should empower them to expand their business. Government-supported voluntary pension schemes are available to small farmers, traders, shopkeepers and the self-employed. Free LPG and electricity connection and subsidised LED bulbs are given to families below the poverty line. Piped water is planned to be made available to all households by 2024. Under the 'Housing for All by 2022' programme, 20 million homes are to be constructed for the poor. Five million homes have already been delivered to the beneficiaries and 3.4 million are under construction. The government also provides income support of Rs 6000 a year in three instalments to every small farmer through direct transfer to their bank accounts. The linking of Aadhar to bank accounts ensures that the benefits reach the targeted beneficiaries and there is no leakage.
On the economic reforms front, the rollout of Goods and Services Tax (GST) unifying the national market is the most important policy action. The growth acceleration impact of the GST was estimated to be 1 to 2%. Covid-19 may have pushed back this acceleration by a year or two.
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The second important reform that has been implemented is the Insolvency and Bankruptcy Code, which should speed up recovery from companies defaulting on their debt payments. With the conclusion of the sale of Air India to its original owners, the privatisation of the white elephants in the public sector has commenced. Privatisation and other structural reforms need to be put on the fast track.
Agriculture has been the weakest spot in the domain of liberalisation and structural reforms. In 2020, the government of India took a very bold step of legislating three farm laws aimed at increasing the liberalisation of trade and commerce in farm produce and promoting private investment in agriculture. However, in the face of sustained protests against these laws organised by big farmers and farm produce traders' lobbies for over a year, the government has announced that it will annul all three laws.
Farmers fearing the loss of MSP and corporatisation of agriculture have been cited as the major reasons fuelling the protests. But it is also a reality that MSP, which is one of the costliest food procurement programmes, is fiscally unviable for the government and that corporatisation of agriculture may be a necessity for a second agricultural revolution that is as important as the Make in India programme in the pursuit of an Atmanirbhar Bharat. The government cannot hence totally scuttle the reform process in agriculture. Alternative routes, perhaps through states will have to be pursued.
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Significant progress has also been made since 2014 in facilitating business and enhancing competitiveness. While India's ranking in the global index of ease of doing business has improved from 142 in 2014 to 63 in 2019, its ranking in the global competitiveness index improved from 71 in 2014 to 43. Similarly, substantial progress is being made in building physical infrastructure of international standards - highways, feeder roads, railways, waterways, seaports and airports.
Since 2015, except for the Covid-19 impacted period, India has been the fastest-growing major economy and according to IMF projections is expected to remain so in the immediate years ahead. If structural reforms to bring about flexibility in the labour market and liberalization of the financial sector along with privatization of large public sector enterprises (PSEs) is pursued in earnest, India, given our young population, can possibly achieve an average annual growth rate over 8% for next 25 years.
In such a scenario, we could emerge as the number one economy by 2050 both in terms of Purchasing Power Parity Rate (PPP) and nominal constant dollars, ahead of both the US and China. According to Pricewaterhouse Cooper (PwC) projections, India will be second behind China in terms of PPP and third behind the US and China in nominal constant dollars.
Going forward, however, India faces a daunting challenge that springs from a structural feature of our economy. While 10-15% of the total workforce will be enough for modern agriculture, 50-55% is currently engaged there. This is a historical legacy of the post-independence era. Fifty years of slow industrial growth and the consequent slow absorption of agricultural labour has led to the accumulation of "disguised unemployment" in agriculture. The main challenge is that of sucking out more than 80% of the workforce engaged in agriculture and absorbing them productively in other sectors. This will require the Indian economy transforming itself into a running tiger, something South Korea, Singapore, China and some other East Asian countries did a few decades earlier.
Other tasks such as the Make in India programme, modernisation of agriculture -- including food processing and value-added services, promoting labour-intensive, export-oriented industrialization, the development of high-quality social and economic infrastructure and providing an efficient and transparent governance etc. should be seen as linked and complementary to this challenge. All these tasks are daunting but doable.
Jagdish Saigal is a retired senior UN Official and an economist.