The World Bank’s chief economist Kaushik Basu has asked the government to ease the rules for doing business further and take advantage of China’s slowdown to bolster India’s manufacturing industry.
Basu said that the country’s vast labour force could stand it good stead. Speaking on the Make in India campaign, he said it could take one or two years to show results.
Stressing the importance of ease of doing business, on which the Modi government has taken several steps and is working on an action plan along with the state governments, Basu said the focus should be on cutting bureaucratic costs, making it easier to start businesses and shut them down and get contracts enforced. “India needs to work more on these areas,”Basu told FE in an interview on Saturday.
He said that though the government has taken some initiatives in the past year to boost investments, it should also focus on “investing in people’s health and education” for faster economic growth.
Basu also suggested that India increase its tax to GDP ratio from 10% to 14-15% in the near term and aim to get to 20% a couple of years later. “And that would immediately mean that India will be able to invest more in health and education and better infrastructure, and all these things will spur growth,” he said.
Getting Parliament’s nod for GST Bill and a deeper focus on increasing savings and investments rate could also bode well for the economy, he said.
Basu, who was the chief economist in the finance ministry prior to his current stint at the World Bank, said the 7.8% GDP growth forecast for India in FY17 by the bank is low compared to the country’s potential (if structural changes are made), given the fact that India grew at an average rate of 9.4% between 2005 and 2008. “But global scenario is very difficult and in that scenario, to grow by 7.8%,” he said.
Stating that India is gaining advantage of low crude oil prices, Basu said the 7.8% GDP forecast has downside risks including a further slowdown in China’s economy, and an aggressive action by the U.S. Fed. Still, India will be able to weather the challenges because of its high investment and savings rate, reflecting the trend in East Asian economies decade-and-a-half earlier, he said.