India Today ⁽¹⁰⁾

India is on course to being the third largest economy in the world. But fulfilling this promise will require sustained reform and a commitment to openness. Read full article In his all-time classic, Protection or Free Trade, published in 1886, American political economist Henry George provides one of the wittiest and most persuasive defences of free trade. At the time he wrote, the world was in the midst of the First Globalisation. Liberal trade policies had swept across the globe. Yet, his own country remained staunchly protectionist. Unsurprisingly, his axe fell on every conceivable argument protectionists of his day offered. In the book, George observes that protection implies prevention and defence. In this vein, protective tariffs prevent foreign goods from flowing into our country. Unlike a flood, earthquake or tornado, which are acts of nature, flow of goods is the result of human action. He asks, who are the people whose actions lead to this flow of goods? Foreign sellers may well be the answer. George reasons, however, that this is erroneous because those sellers could not sell their products…

Read full article (pdf) Abstract: On the morning of August 17, most of India’s economic policymakers gathered in the Prime Minister’s house in Delhi. The mood was tense. India, said Manmohan Singh, the Prime Minister, faced ‘very difficult circumstances’. So began the story titled “India in Trouble: The Reckoning” in The Economist magazine of August 24, 2013. The story went on to offer a chilling account of India’s troubles. News on the economy had been disappointing for two years, with growth falling to 4-5 per cent; consumer-price inflation had remained stubborn at 10 per cent; the current account deficit had soared to almost 7 per cent of GDP at the end of 2012 and was expected to be 4-5 per cent in 2013-14; and the rupee had dropped to an all-time low and 13 per cent below its level just three months earlier. “It is widely agreed the country is in its worst economic bind since 1991,” concluded the story.

The critical question that Rajan does not address is how precisely a highly labour-abundant India can escape the path that every successful labour-abundant economy has followed to achieve economic transformation. Read full article In his recent Bharat Ram Memorial Lecture, Reserve Bank of India Governor Raghuram Rajan offered a puzzling proposition: that the global economy "is growing more slowly, and is more inward-looking, than in the past means that we have to look to regional and domestic demand for our growth-to make in India primarily for India." Rajan, in effect, rejected export-led growth as a feasible strategy for India. A corollary of his proposition: mass manufacturing cannot be the backbone of the Make in India campaign. To be sure, mainstream economists can hardly disagree with many of Rajan's policy recommendations. Export subsidies-which in any case are prohibited by the World Trade Organization-are not a smart way to stimulate export growth. And import substitution industrialisation through higher trade barriers isn't a winning strategy either. Indeed, I would go a step further and argue for the resumption of trade liberalisation that has…

In a country with nearly 500 million workers, no more than 10 million are employed in larger corporations. It should concern us all. Read full article Dear India Inc, You represent the most productive part of the Indian economy. Sectors in which you dominate, such as auto parts, automobiles, two-wheelers, chemicals, engineering machinery, petroleum refining, telecommunications, software and finance, produce more value per rupee of resources used than any other part of the economy. Yet, one fact sticks out like a sore thumb. You employ a minuscule part of India's workforce. About half of the workforce is in agriculture and the vast majority of the rest is self-employed or toils in low-wage informal sector jobs. That less than 10 million workers should hold good private sector jobs in a country with 500 million workers is a matter of national shame. Of course, I do not suggest for a moment that this is your fault. You are in business not to promote employment but to create wealth. You must chase revenues, not employment. I also appreciate that you must choose technology…

Return to trade liberalisation. Widen tax base to spend more. Initiate land and labour reforms. Read full article With fiscal year 2014-15 already underway and the interim budget in place, the room for major tax-expenditure adjustments in the first year is limited. Therefore, the new government's focus should be on modest tweaking of the budget, laying out the road map of future fiscal actions and making as much progress towards them as possible. On the tax front, the revised Budget must focus on completing the Goods and Services Tax (GST) reform by March 31, 2016, and begin action by clearing all central sales tax dues of the states and winning their confidence. The revised Budget should also commit the government to implementing a new Direct Taxes Code (DTC) beginning with the next fiscal year and spend the current year reworking the existing draft and developing consensus on it. The Budget must reassure investors that the government will not introduce measures such as retrospective taxation that would render investments that were profitable when undertaken turn unprofitable now. Symmetrically, it should warn…