The Modi government has completed 731 days in power. It had assumed power with with a clear mandate favoring change. The sentiments continue to echo even after two years as reflected in the results of recent state elections. The challenge to transform India from a socialist society to a modern capitalist economy seemed to be initially accepted and eloquently demonstrated in an announcement to abolish the Planning Commission from Red Fort. But, that fervor has dampened thereafter.
The economic problems that the government inherited two years ago, can be briefly summarized as follows—a) nearly half of households did not have bank accounts; b) more than 95% of the micro, small and medium enterprises were not funded by formal financial institutions; c) 25% of youth less than 25 years of age were unemployed; d) low female participation in workforce; e) 90% of the population working in unorganised sector had no access to social security; f) rampant corruption; and g) policy paralysis in decision making. Since May 2014, there have been a series of gradual measures, none big bang, to address each of the issues flagged above.
In August 2014, the government initiated Pradhan Mantri Jan Dhan Yojana (PMJDY)-aimed at ensuring universal access to financial services in an affordable manner. PMJDY was successful in opening 21.7 crore accounts by April 27, a quantum leap when compared with an outstanding number of 122 crore existing accounts held in all commercial banks as on March 31, 2014. But now, more than 95% of households have access to banking facilities.
On April 8, 2015, the Government introduced Micro Units Development Refinance Agency (MUDRA) bank to provide credit to small entrepreneurs having financing requirements of up to R10 lakh. On May 9, 2015, it extended social security to masses through three schemes, to be operated through banking accounts-Atal Pension Yojana , Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Suraksha Bima Yojana.
Make in India, Stand and Start-up initiatives
To ensure a steady state of growth, with a strong foundation, it was important that industrial base was strengthened, and therefore, PM launched “Make in India” campaign and supplemented it with Start-up and Stand-up India initiatives. These aim to promote entrepreneurship by providing loans in the range of
R10 lakh to R1 crore. Hopefully, the focus on women entrepreneurs under Stand-up program would enhance female participation, which could lead to higher national income.
On corruption, the government has come out heavily by deregulating and simplifying laws, but still more could have been done like introducing transparency in funding of political parties, as is done in the US. Corruption negatively impacts macro-economic stability and sustainable economic growth. To mitigate corruption, important factors are transparency in decision making, enhancing rule of law, deregulation and simplification of rules.
India’s Growth Story
The Government, since May 2014, has been making efforts to reinvigorate India and help growth reach its potential of above 9%. Since 2015, India has been the fastest growing economy in the world and is projected to record a growth rate of 7.3% and above for the next 5 years. In view of difficult global scenario impacting our exports, the government is also learning fast as can bee seen in shift towards inward looking policies announced in the recent budget with emphasis on infrastructure, housing and farm sector.
The objective should be to maximise growth rate in India and to do so, some historical facts may be helpful. The reforms of the 1990s which helped India to break out from sub-3% growth in per capita income, were successful because there was dialogue, debate and dissemination of information on economic issues that needed to be addressed. A number of committees with policy makers and academia were set up to examine banking and external sector. Then, came cautious implementation of reforms, well sequenced, after achieving wider public acceptability.
The Modi Government, almost after every budget, rolls-back a few proposals which does not augur well for a robust business environment. Therefore, there is a need to have panel of economists with India-specific knowledge advising the government. Further, such a panel could assist in planning for future—5 to 50 years ahead—and preparing India to become a global super-power.
To meet the gigantic challenge of providing 115 million jobs to youth joining the workforce in the next decade, the government has been emphasizing on facilitating entrepreneurship. To generate job creators, and not job seekers, would require introducing degree-level courses on entrepreneurship in leading universities across India. In addition, as in the case of IITs, IIMs and agriculture universities, the government could also consider setting up Indian Institute of Innovation and Entrepreneurship.
It is necessary to have an evaluation and impact assessment of departments in every state. Finally, and most important, mistrust between private and public sector that prevails in India, needs to be corrected in spirit of sabh ka sath sabh ka vikas.
The Parliament is more productive than it has been in the past. The government has certainly ushered a new mantra and breath in the economy. Given its success in the recent state elections, it is time to introduce big bang measures, for which voters have long been waiting.
The author is RBI chair professor in economics, IIM Bangalore. Views are personal