As discussed several times on this page, India’s demographics and drive for reforms have the potential to significantly accelerate its economic growth in the next decade. It was timely therefore that Cornell University’s Johnson Graduate School of Management, in partnership with Northeastern University, should host an India conference this week on The Modi-fication of the Indian Economy.
The conference featured numerous speakers, notably the Union Minister of State for Finance the Honorable Jayant Sinha. Speaking via video link, Mr. Sinha gave an update on the reform agenda of Prime Minister Narendra Modi.
Below is a summary of Mr. Sinha’s comments, transcribed or paraphrased to the best of our ability (disclaimer: may include unintentional errors or omissions).
The Modi government is intent on building India’s productive capacity on the supply side. This means making good productive investments in both hard assets infrastructure such as power, road and rail, and soft assets such as education, institutions and R&D.
The Modi government is guided by five core principles:
- A “pro-poor” policy to lift everyone out of poverty.
- A “pro-market” policy, deemed necessary for the success of the pro-poor policy.
- “Empowerment, not entitlement”. Avoid policies based on rights and implement a vision based on creating opportunity.
- “Minimum government, maximum governance”. Strengthen a rules-based state that is transparent.
- “Cooperative and competitive federalism”. Devolve autonomy to the states, some of which are more populous than most countries in the world (for example the population size of Uttar Pradesh rivals that of Brazil’s, around 200 million).
The Minister responded to the notion sometimes encountered in the media that the government is moving too slowly with reforms. Saying “we have moved more and faster”, he pointed to the following examples of “game changing reforms”:
- Putting in place universal social security. The government sees the personal bank account as an important foundation of this effort and is ensuring that every family will have a bank account.
- Working to provide irrigation to 50% of unirrigated lands. As much as 60% percent of the population depends on small-scale agriculture for its food. Irrigation will boost agricultural productivity.
- Creating non-agricultural jobs. As agricultural productivity improves, more people will move to cities and search for jobs. Programs such Make in India, Skill India and micro lending for small entrepreneurs (e.g. taxi drivers, beauty salons etc.) are expected to create a large number of jobs.
- Changing the “fiscal architecture of the Indian State”. This is seen as a big bang change which includes:
- Streamlining and standardizing indirect taxes. The proposed Goods and Services Tax (GST) law has passed the Lower House of Parliament but is opposed by the Congress party in the Upper House. (see this article for the opposition’s point of view).
- Devolving tax revenues to the states.
- Reducing the corporate tax rate from 34% to 25% , while also getting rid of exemptions.
- Opening up the banking sector and increasing banking capacity.
- Spending $150 billion on railways and $15 billion on roads in large and small cities.
Mr. Sinha expressed optimism on the eventual passage of the Land Acquisition Act. This Economist article explains the changes sought by the Modi government.
He sees the biggest challenge to Modi-fication as “execution, execution, execution”. Implementation requires a change in the mindset of various constituencies towards more efficient execution and away from the rent-seeking habits of recent decades.
The challenge of successful execution was echoed by several other speakers through the conference. Yet, the general sentiment was one of bullishness and optimism. As noted many times on this site, the Indian opportunity is very compelling. But realizing the promise of this opportunity requires big improvements in governance, infrastructure and education.