India must work on capturing global markets as international firms begin to turn away from China over wages growth, Arvind Panagariya, vice-chairman of Niti Aayog, the government’s top policy planning body, said. The country should focus on strategies to raise its exports to as much as 5 percent from 1.7 percent of the $17 trillion exports market, Panagariya said at a Bloomberg event in New Delhi on Friday, noting that the protectionist stance of U.S. President Donald Trump should not prevent India from expanding its market share. “We’re overestimating the threat of protectionism,” Panagariya said. “What we need is to create an ecosystem” for exporters.
India has been pushing financial reforms to revive investments as Prime Minister Narendra Modi’s government enters the last two years of his term before elections in 2019. The Niti Aayog is advising Modi on boosting corporate spending crucial to filling a $1.5-trillion investment gap, creating jobs and on ways to keep his promise to double farm incomes. On July 1, the world’s fastest growing major economy is set to roll out a national goods and services tax that seeks to unify India’s 29 states into a single market.
By 2050, about 1.1 billion Indians are expected to comprise the working-age population of 15 to 64, according to the United Nations. Unless the economy grows at more than 10 percent consistently, the economy may not be able to absorb all those workers, analysts say.
“If we create a lot of good jobs, we can raise the growth rate to 8, 9, 10 percent,” Panagariya said. There was a “skepticism and fear” — which he described as “robophobia” — that automation would take away jobs. These fears, he said, were “grossly exaggerated” and meant India’s potential remained underestimated.
Between 1991 — when it opened its economy — and 2013, India absorbed less than half the new entrants into the labor market. So while its working-age population rose by 300 million, the number of employed people increased by just 140 million, a UN study showed. In contrast, China’ working-age population grew a lesser 241 million over the same period and it created 144 million jobs.
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Looming over India’s economy is the introduction of a national sales tax, scheduled for July 1. The federal government hopes that the GST will lead to a jump of 14 percent in revenue growth as more taxpayers are integrated into the formal economy and move on to digital modes of payment. Yet some businesses and analysts fear there will be chaos as millions transfer to the new system.
“Certainly there will be an adjustment period, there is no doubt about that,” Panagariya said. It was not yet clear “how painful or how long” this period would last.
India’s ratio of stressed assets — which comprise bad loans, restructured debt and advances to companies that won’t be able to service the debt — have risen to about 17 percent of total loans, government data shows.
India should support the auction of larger non-performing assets to private asset-reconstruction companies and bolster the existing company run by government-owned State Bank of India, according a draft three-year action agenda from the Niti Aayog, the National Institution for Transforming India.
Past attempts to solve the problem by injecting cash into banks to boost their capital buffers haven’t led to a revival of loan growth amid a reluctance to lend at state-run banks, which accounted for 80 percent of bad debt in the system last year.
The prime minister’s adviser has presided over India’s move away from a Soviet-styled five-year planning process. The NITI Aayog last month released a three-year reform agenda for the government to follow as it nears the 2019 general elections.