Why India needs to get over growth numbers, and look beyond

There is a growing concern over India’s GDP growth figures. While it is true that there has been a decline in the growth rate, reading GDP numbers in isolation doesn’t give us a holistic picture of the economy. The Indian economy is in a transitional phase, given the many structural reforms GoI has introduced. It should emerge stronger once the positives of these reforms have percolated the market. The good news is that the percolation process is already underway.

These reforms were imperative to lay the foundation of sustainable growth and equity. When private participants were allowed in sectors such as power, coal and telecom — which were earlier in the public domain — new regulatory mechanisms followed. However, the power of the regulators, the writ of the concerned government department and the judiciary were limited, and evolving. They had to learn how to ensure transparency, prevent monopolistic practices and protect the interest of consumers. The process has proven to be a path of learning both for policymakers and the judiciary, and is still in the works.

The changes were largely structural in nature, and were essential for the public sector-dominated economy to move towards a competitive market economy. The economy is still grappling with the upshots of that transition.

The second important structural change has been in the direction of reducing social and economic inequality.

High levels of inequality cannot support social stability or economic growth. The march to a market economy in the 1990s meant that while some people could climb the economic ladder quickly, millions were left behind.

The first few years of the first term of the Modi administration were spent in leveraging the power of JAM (Jan Dhan, Aadhaar and Mobile) to lay the foundation for programmes aimed at boosting direct transfer of benefits. An example of this is the emphasis laid on mobilising Unified Payments Interface (UPI). Through various schemes for housing, cooking gas, toilets, health, education, electricity and employment, GoI tried to counterbalance poverty, exclusion and inequality to ensure that the poorest had access to basic facilities. This was done in a manner that would minimise leakages to reach the maximum number of people, and improve the delivery of public programmes.

This took up a significant share of the government’s money and focus.

Three, any market economy needs mechanisms for entry and exit of firms to remain dynamic, and not get flooded with zombie firms. This required GoI to work on two fronts. One, improve the ease of doing business to allow easier entry; and two, put in place a bankruptcy process that allows resolution for failing firms. GoI did both.

Currently, there may be some hiccups in these processes, but the bottlenecks are being removed. Once all the minor problems are weeded out, the economy should be much more robust.

Four, the introduction of the goods and services tax (GST) was a long overdue reform. Reaching consensus with all states was difficult. Today, the media focus on shortages in GST collections.

However, excise collections by states were not making headlines earlier as they were hidden in state budgets. Today, since the system is centralised, all its difficulties are transparent. Second, GoI has been very responsive, and is resolving the various problems as and when they are reported.

Some people criticise the GST Council for being too responsive. But until the GST implementation and rates stabilise, there may be uncertainty and disruption, and the council will have to work to allay concerns effectively. Finally, GoI is committed to an environment-friendly sustainable growth.

The PM has made commitments to reduce carbon emissions, to increase the share of renewable energy, and to move towards electric vehicles. This means businesses such as the automobile industry need to move to new standards. These, too, are structural reforms that disrupt investment plans and drag growth figures down.

GoI initiated bold and long due reformsthat were necessary to lay the understructure of sustainable growth in the country. These reforms are currently showing that growth is in slow track, but will eventually ensure that the economy will emerge more resilient. The size of the Indian market, its large middle class, the varied demographic profile, a democratic political system and amarket-based economy are key features of the economy. These, along with the important structural reforms already undertaken, and more that are on the agenda, will ensure that the Indian growth story will emerge stronger.

The writer is national general secretary, BJP