By Harihar Swarup
The second stimulus package announced by Prime Minister Narendra Modi has gone beyond expectations. His address to the nation on May 12 will perhaps mark the day when India embarked on the path of converting a global crisis into an opportunity to accelerate its economic transition and build on the solid foundations laid in the first term of this government. This will involve eliminating poverty, improving equity, and raising the living standards of the population in line with their aspirations. It promises to be historical.
The PM announced a package of Rs.20 lakh crore or nearly 10% of GDP to trigger economic growth in the post-coronavirus disease (Covid-19)-induced pandemic period to protect the interests of those affected by the extended lockdown, which was critical in the face of the pernicious virus. In doing so, he has overcome conservative impulses within the establishment and laid the ground for a paradigm shift. It is clear that we cannot continue to operate within self-imposed fiscal constraints. Across the world, these are being discarded in response to the deteriorating economic situation. Fiscal prudence has to be understood in a dynamic perspective. It can be achieved by reversing the slackening economic growth rate, rather than through a continued reduction in public expenditure in response to declining revenues. That would be the certain path to a vicious downward growth spiral from which it would take years to rebuild the economy.
But the unexpectedly larger fiscal stimulus package is only one of the components of the PM’s address on May 12. For me, the promise to undertake bold structural reforms and jettison the incremental approach holds an even bigger promise for India to regain its growth momentum. Without these bold reforms in areas such as land, labour, liquidity and laws, the fiscal stimulus risked being wasted in a one-off consumption hike, whose growth impulse would taper off quickly. With bold structural reforms, the proposed increase in public infrastructure will help attract fresh private investment to build new production capacities, raise productivity by absorbing frontier technologies and promote equity through higher efficiency in delivery of public services. The Bharatiya Janata Party (BJP)-governed states have taken the lead by introducing a slew of labour market reforms that will give flexibility to investors to tailor their workforce in line with changes in seasonal demand and output.
These bold reforms will also underpin the PM’s call for a self-reliant India, but one which is not self-centred and protectionist. He made it clear in his address that India will continue to participate even more aggressively in global value chains on the basis of greater competitiveness of its domestic firms and industries. This will call for encouraging local production, building local brands, improving logistics and lowering energy costs for domestic companies. This will enable them to achieve economies of scale and technological sophistication for successfully competing in global markets.
The PM’s emphasis on India’s continued engagement with global trends in commerce, finance and technology is surely an effective and decisive response to those raising fears of India turning protectionist. Self-reliance with continued participation in global markets and value chains will be the mantra going forward.
His call for promoting local products so that they become global brands and capture a share of international markets is timely. As new capacities are created locally, the support from the consumer will propel them to global qualities and scale. The domestic market, though large and growing, is still not enough to afford global scales of production and economies of scale.
India’s software industry came of age and achieved global scale and competitiveness with the Y2K phenomenon, mentioned by the PM in his address. Duties on hardware imports were reduced and software companies were supported to achieve this breakthrough. Similarly, India’s readymade garments industry achieved its present scale and competitiveness only through catering to global demand. It should be evident by now that Indian consumers are a discerning lot who are acutely price and quality conscious. The bold reforms emphasized by the PM in his address will help Indian firms to meet the demands of the local consumers while gaining share in the global markets.
We should not lose sight of the fact that the challenge has just begun. There is a difficult road ahead of us with the global economy showing signs of a perilous downward slide which could well be as steep as in the Great Depression of the 1930s.
The pandemic’s full impact on the global and domestic economy is still not fully known. In the coming days, we have to constantly be on guard, looking out for emerging risks and opportunities, and responding with agility and focus of these emerging trends. We have started a paradigm shift, which will take us in the direction of becoming a global player by focusing on our strengths and rooting our policies in our own ground realities. We will thus actualise the PM’s call for converting this crisis into an opportunity. (IPA Service)