In a market economy, perceptions matter. In economic terms this is called ‘rational expectations’ and are linked to the past performances. Highlighted by Keynes, in the 1930’s, barely a decade after the last pandemic, the medicine found ample use worldwide to survive odds, maintain order and ensure growth.
Over the last few decades, China used this tool most efficiently to be perceived as the ‘growth engine’ of the world. In comparison, the perception about India suffered, arguably due to the wide gap between promises and action. India was referred to as a ‘nation that talks’.
Creating fresh expectations
Over the last six years, the Prime Minister Narendra Modi paid maximum attention to bridge this gap.
From implementing long pending reforms like Goods and Services Tax (GST) or Bankruptcy Code to Balakot airstrike and abrogation of Article 370 from Kashmir – he was consistent in challenging the status quo.
His attempts were relentless and there is little doubt that the government has been highly successful in creating an air of positivity about India – both domestically and internationally. It is no longer taken as a benign force.
In the face of unprecedented disruption caused by COVID; this ‘waves of optimism’, as Keynes had put it, was India’s biggest bet not only to survive the pandemic but also to make it an opportunity to take the country to the next level of competition.
The Prime Minister did just that in his Independence Day speech.
From reference of sanitary pads to mocking the prevailing pattern of exporting raw materials and importing finished goods, and warning silos within the administration – he upped the ante against status quo with a clear goal to make a far stronger and confident India.
Realizing this dream will not be easy. If the share of manufacturing is as low as 23 percent (CIA Factbook) in India as against 40 percent in China, there must be wider reasons behind it.
If we haven’t built adequate roads connecting ports, neglected creation of strategic infrastructure on the Northern border, delayed rail connectivity to North East India and kept Arunachal Pradesh outside the civil aviation map for so long; it must not be an omission.
But, if it were an easy task, who needed Modi? His historic win in 2014 reflected the strong dissent of the Indian electorate against the status quo. His re-election in 2019 by a wider margin indicated, Mr Modi didn’t fail them.
Looking back, it is unbelievable that in merely six years, coal mining was denationalized; the endless debates on GST, that required change in federal structure, was put to rest; public sector banks, which were experts in hiding bad assets by evergreening, were sent to the cleaners.
The scale and speed of change is mind blowing. Most Indians families now have cooking gas and electricity. Social benefits are transferred directly to bank accounts. Digital transactions are not a luxury. Even roadside ‘panipuri’ sellers accept ‘google pay’. E-commerce is booming.
It is not easy to match expectations of common Indians as well as the international community. The Modi government did it with ease.
Dirt-cheap life (PMJJBY) and medical insurance (Ayushman Bharat) for the underprivileged; and ‘Housing for all’ (PMAY for the poor and sharp cut in home loans for the middle class) benefitted millions.
Global investors were convinced by futuristic steps like fast expansion in digital and renewable space, big bang reforms and rapid improvement in ease-of-doing-business and logistics efficiency. FDI inflow peaked.
Military logistics deal with the US and aggressive push in neighbourhood connectivity projects consolidated Indian position in the region. Regional trade grew at a fast pace. Relationship with the Islamic power centre, Saudi Arabia is at a historic high.
Fighting from the front
The world is not run on static principles. Opportunities come and go. Global growth was suffering in the post-2008 (meltdown) period. COVID had shaken up the global economy right from its root. Everyone is suffering. As fear grips the human mind, all theories are failing.
Despite giving huge cash handouts, unemployment is at record high in the US, as businesses are increasing automation. Huge State-sponsored construction activities failed to stop closure of steel plans in China. Beijing restricted withdrawals to prevent bank runs. The UK’s economy shrunk by 20 percent in the June quarter.
The mayhem has gripped Indian economy as well. With services contributing 60 percent of GDP, India is in a particularly weak spot. Because all studies indicate the services sector will take too long a time to recover.
The fear of infection impacted consumer behaviour. Hair clippers are selling like hotcakes. Barber Shops will not find as many customers again. Opportunities may shrink even for domestic helps as robot house cleaners started arriving in the marketplace.
It was useless trying to protect the prevailing model of the economy, from this mayhem. No amount of money will take people back to brick and mortar shops now. India needed to shift gear to tap future value addition opportunities.
The Prime Minister is leading the country in that direction through his call for Atmanirbhar Bharat.
Towards a more competitive economy
Beginning with schemes or programmes rolled out since March, India has clearly taken a protective stance with regard to rural economy.
The reasons are simple. Rising automation will reduce the need for unskilled or semi-skilled labour in cities. A healthy rural economy including both farm and non-farm opportunities can offer the perfect income cushion, as people will go back to their villages.
However, to translate that into better living and higher demand for industrial goods, the rural economy must be unleashed. Farm practices should be more productive and output should get the best price. A series of reform measures are trying to reach that goal.
On the industrial and services segment, the government rightly denied to give sector-wise assistance. It focused on removing the regulatory obstacles and ensured availability of finance. The rest is left to market innovation.
MSMEs attracted maximum attention as the Centre offered guaranteed loan finance even to the sick. If we combine the two, the government is forcing a complete shift from the closed economy principles where the government went for micro planning and ended up creating silos of inefficiency.
As the final push, the government wants to ensure play of capital by reducing the role of the public sector to bare minimum. The BPCL privatization marks the beginning of the end of politics-PSU nexus. India is now inviting the private sector to take companies to global scale.
The aim is clear, the government wants competition to intensify in Indian manufacturing. There is no protection, excepting the restrictions imposed on unfair State-backed competition from China. The impact will be felt on every sphere of economy and policy making.
United we stand
COVID forced a shift from the usual practices to the entire world. The Modi government is aligning India to the new realities. It decided to face short term problems so as to optimize the country’s long-term gains of the country and its people.
The question is no more if they will be successful. In a democracy, it is people who chose their leader. The success of the leader is the success of the nation. India gained immensely from PV Narasimha Rao’s liberalization programme in 1991.
It is imperative that India should win the unprecedented challenge thrown in by COVID.
(The writer is an independent columnist and researcher and a public policy expert. Views expressed are his own)
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