0 penilaian0% menganggap dokumen ini bermanfaat (0 suara)
40 tayangan14 halaman
Eeconomic growth and regaining public trust requires greater oversight, increased innovation and comprehensive structural reform. More remains to be done to strengthen regulation in order to deal with the risks of contagion and government and other fail institutions. As forecasts of India GDP performance continue to be revised downwards, new policy initiatives and a reduction in global trade restrictions are essential perhaps the most important policy to improve the Indian economic outlook would be an approach to medium-term deficit reduction that would provide a path to sustainable national debt levels.
Judul Asli
Indian Economic Reforms for a strong and balanced Economic Governance “Regaining Growth with Employment”
Eeconomic growth and regaining public trust requires greater oversight, increased innovation and comprehensive structural reform. More remains to be done to strengthen regulation in order to deal with the risks of contagion and government and other fail institutions. As forecasts of India GDP performance continue to be revised downwards, new policy initiatives and a reduction in global trade restrictions are essential perhaps the most important policy to improve the Indian economic outlook would be an approach to medium-term deficit reduction that would provide a path to sustainable national debt levels.
Eeconomic growth and regaining public trust requires greater oversight, increased innovation and comprehensive structural reform. More remains to be done to strengthen regulation in order to deal with the risks of contagion and government and other fail institutions. As forecasts of India GDP performance continue to be revised downwards, new policy initiatives and a reduction in global trade restrictions are essential perhaps the most important policy to improve the Indian economic outlook would be an approach to medium-term deficit reduction that would provide a path to sustainable national debt levels.
Indian Economic Reforms for a strong and balanced Economic
Governance Regaining Growth with Employment 1
Overview
Building on fragile economic growth and regaining public trust requires greater oversight, increased innovation and comprehensive structural reform. More remains to be done to strengthen regulation in order to deal with the risks of contagion and government and other fail institutions. As forecasts of India GDP performance continue to be revised downwards, new policy initiatives and a reduction in global trade restrictions are essential perhaps the most important policy to improve the Indian economic outlook would be an approach to medium-term deficit reduction that would provide a path to sustainable national debt levels.
The two most pressing, and related, challenges for public action in India are;
Institutional reform to enhance the capability of public sector institutions to ensure the effective delivery of core services, Sustaining rapid growth and making the process of economic growth more inclusive across sectors, across regions, and bringing the benefits of higher incomes and living standards to more people.
1 Mukesh Kumar Mishra, Secretary General of Krityanand UNESCO Club Jamshedpur 2
Service delivery and expanding the inclusiveness of economic growth is needed for empowerment and opportunity. The central employment challenge is to create productive jobs and livelihoods for the millions of people who enter the labor force. There is an urgent need for more data collection and statistical analyses, which should figure prominently in the post 2015 debate on the MDGs.
Inclusive development calls for a macroeconomic policy approach that goes beyond the narrower goal of macroeconomic stability. This approach needs for expanding the number of instruments and coordinating macroeconomic policies with other policies to stimulate the development of productive capacities. It should target financing public investment in physical and human capital by accelerating public investment in infrastructure and rising spending on development. To do so will require strengthening government capacity.
Though India faces a deep cyclical problem today, the sustainable solution in our view does not involve the classic counter-cyclical response of monetary and fiscal easing. Rather, the sustainable solution would be to regain macro stability, improve productivity growth, and to lay down the foundations which will return the economy towards a higher growth path. This paper begins with a consideration of the Framework for Strong, Sustainable, and Balanced Growth.
Reforms after the Elections In my view, addressing these issues quickly in the post-election period would help to restore macro stability and revive productivity growth; Initiate policy changes to manage wage growth in line with productivity Cut the fiscal deficit Policy to Improve the business environment Reform urbanization policy Address structural rigidities in the economy to unleash the growth potential particularly in energy and mining sector; 3
Challenge in current scenario
Weak Productivity Dynamic at the Root of Indias Macro Challenges The root cause of Indias macro challenges over the past few years has been weak productivity growth. Productivity growth trends as measured by either incremental capital output ratios or contribution of total factor productivity to headline GDP growth have been steadily weakening since 2011. Rather surprisingly, Indias levels have risen to a level that is comparable to Chinas, which has had to deal with the challenges of over-investment in recent years.
The deterioration in productivity growth is the direct result of a series of poor policy choices:
These include maintaining a high fiscal deficit, pushing for high rural wage growth, and general policy uncertainty against a backdrop of weak external demand. The result has been an unfavorable business environment. These policies have been largely guided by a preference for income redistribution over income growth as a means to lift societys economic and social welfare. However, this policy direction has generated the side effects of weaker economic growth and slower employment, which has hampered the urban economy.
Unproductive dynamic has also caused elevated levels of inflation: This has eroded the purchasing power of households and is likely to have increased income inequality. To that point, the rural population, which has been the focus of the redistribution efforts, is no longer reaping the benefits of higher nominal rural wage growth. Higher rates of rural inflation have meant that real rural wage growth has now decelerated to 3.4% from a peak of 12.3%. Hence, the redistribution policies seem to have left the country with a sub-optimal outcome in the goal of maximizing economic welfare.
4
The Sustainable Solution Reforms to Boost Productivity Though India faces a deep cyclical problem today, the sustainable solution in our view does not involve the classic counter-cyclical response of monetary and fiscal easing. Rather, the sustainable solution would be to regain macro stability, improve productivity growth, and to lay down the foundations which will return the economy towards a higher growth path.
Some Other Economic Challenge is Goods and Services Tax, Central Bank Policy, Privatization and Subsidies, Labor, Defence, Insurance & Banking, Power and Gas.
Indian Economy: Features
We have now had 23 years of economic reforms spanning six governments. What have these reforms achieved? We have ascended a higher growth path; poverty has been reduced; the external sector is more than comfortable; industrial growth has been restored; and all this has been achieved with financial stability in the country. As a consequence of all these momentous changes there is a new respect for India in the world and, even more important, Indians in all walks of life have found a new level of self confidence. But we still have miles to go. We need to move to the next level of sustained growth so that per capita income growth can exceed over 8% per annum on a sustained basis and thereby see at least a doubling every decade.
As India looks towards further liberalization, it must first prepare its economic institutions by re-orienting them from managing the economy to regulating the economy. Without an enhancement of regulatory capacity, increased liberalization will simply perpetuate corruption and further inequality. By improving regulatory capacity, the state can better focus on the socio-economic aspects of governance that will be so important for Indias 5
future. In order to better direct and manage institutional change in India, we must first look to history to understand how Indias economic infrastructure was built.
Key Reforms that we need to do
Indias economy has had to face dual challenges over the past few years slowing growth GDP growth has been steadily decelerating from above 9% before the credit crisis to sub 5% now, well below Indias potential growth. and elevated inflation: Inflation (CPI), on the other hand, has been running high by historical standards. It has persisted above the central banks comfort zone of 5.05.5% since March-2008.
This stagflation-type environment has persisted Thats despite the support of strong positive structural factors such as favorable demographics and high potential for catch-up growth, suggesting that the challenges are largely cyclical in nature. and to escape it, India needs further action on economic reforms: The last government had already started to work to implement some key reforms in the last few months, but we believe the new government that will need to get to work quickly on the pending reforms.
Key policy reforms: the new government will need to implement these to move out of the current stagflation type environment and accelerate GDP growth in a sustainable manner towards 7-8%; and;
1) Initiate policy changes to manage wage growth in line with productivity:
If we were to list only one policy reform that India needs to implement to move out of the current stagflation-type environment, it would be fixing labor policy. We believe that 6
persistent high nominal wage growth even as GDP growth and job creation have collapsed can only be explained by the intervention of policy makers in the labor market. Strong rural wage growth, due in part to the national rural employment guarantee scheme, has led to an increase in food production costs and food inflation. In turn, the persistence of food inflation is a key factor behind elevated inflation expectations. Ensuring an effective implementation of the rural employment scheme would ensure future wage gains more in line with productivity, which should limit the inflationary impact. Modi government will need to implement measures to ensure that the national rural employment policy is implemented with a focus on efficiency.
2) Cut the fiscal deficit: Indias fiscal deficit has remained high over the past five years, mainly due to a slippage in revenue to GDP trends. In the first stage there is a need to reduce expenditure - to the tune of about 1% of GDP. In the second stage, as growth recovers and tax revenues to GDP improves, expenditure growth will need to be maintained at a lower level to ensure that the national fiscal deficit is brought down from current level of close to 8% of GDP to about 5% of GDP. Consolidating the fiscal deficit would help to improve public saving, thereby helping to increase the overall level of saving in the economy and lower the current account deficit in a sustainable manner. More importantly, there is a need to improve the mix of government spending towards more capital expenditure, which tends to be more productive and produces more positive spillover effects in the economy.
3) Policy to improve the business environment:
Policy uncertainty, corruption-related investigations, and regulatory hurdles have led to deterioration in the business environment and held back the investment cycle. The last government had taken steps such as liberalizing FDI limits, yet the overall business environment still remains challenging. Thus, policy makers should address this comprehensively, on the following policy; 7
Providing a consistent policy framework in key infrastructure and industrial sectors Streamlining the approval process for investment projects, Facilitating the rehabilitation of corporate balance sheets, Providing funds for recapitalizing SOE banks to unclog their balance sheets Promoting reforms to encourage more workers to move into organized forms of labor market activity.
4) Reform urbanization policy: The focus on redistribution and development of rural areas has resulted in dis incentivizing urbanization. The ideal policy for an emerging economy like India with such strong growth in working age population is to promote urbanization so as to lift overall productivity growth. The urban economy is typically more efficient, and brings with it higher-value-added job opportunities. Instead, in the last five years, the governments policy to promote higher rural wages has directly worked against the urbanization effort. To encourage urbanization, policy makers will need to focus on creating physical infrastructure in cities and ensuring better delivery of public services to citizens. A comprehensive nationwide plan needs to be implemented to accelerate urbanization and Smart Cities concepts
The government needs to focus on creating infrastructure for sustainable growth of the cities with proper civic amenities such that cities are able to absorb the rural migration. The government would need to focus to create a systematic plan for development of:
physical infrastructure creation in cities; delivery of services through empowering the local level government bodies;
5) Reform structural rigidities in the economy to unleash growth potential particularly in the energy and mining sectors:
8
India is a net importer of energy requirements, and is the fourth-largest energy consumer in the world. Meeting energy needs to sustain a higher growth trend of 7-8% will become increasingly challenging. Though India is not as well endowed with energy resources, the presence of structural bottlenecks is creating shortages and necessitating imports in areas even where resources are present. Thus there is an urgent need to use all available domestic resources to the maximum potential to reduce import dependence. Several supply bottlenecks including the approval process for environment and land acquisition, and lack of rail connection have hampered the energy and mining sectors and have weighed on Indias growth potential. Addressing these structural bottlenecks would help India secure its energy requirements and boost its mineral exports, thereby removing a constraint on growth. Our estimates show that the increase in coal imports and decline in iron ore exports likely added close to 0.8% of GDP to Indias current account deficit between 2005 to 2014.The new government policy action needed in Coal block allocations; Surplus coal usage policy and the environmental clearance process; Monitoring of Coal India projects. The government should embark on a sustained process of meaningful SEB reforms, especially for the bigger loss making states, many of which have had their loans restructured recently. The process of State Electricity Board reforms should include:
Consistent and regular tariff hikes by states aimed at reducing and eventually eliminating the tariff gap Incremental funding by banks should be stopped for SEBs that stops adhering to the reforms process.
Other Economic Reforms
The macroeconomic environment is expected to improve and growth is expected to accelerate gradually over the next years. The baseline scenario in this Update is conditional on further improvements in the macroeconomic framework, benign global conditions, and continued efforts by the authorities to strengthen the business 9
environment and improve fiscal sustainability. Under these assumptions, the pace of economic activity is expected to accelerate appreciably in the second half of FY2014, bringing economic growth to 4.7 percent for the entire fiscal year. Growth is expected to improve further to 6.2 percent in FY2015 as manufacturing growth accelerates and new and existing investment projects come on stream. The acceleration in growth is unlikely to create inflationary pressures as several years of growth below potential have opened a positive output gap, and inflation is expected to decelerate to 5.3 percent and 5.2 percent in FY2014 and FY2015.
Key Reforms in following sector is also needed,
Financial Sector Agriculture Regaining Growth in Employment Opportunities Industrial Policy and Foreign Investment Public Sector Policy The key challenge for economic governance, hence, has been to find the right balance between democratic politics and free-market economy. Another challenge has been reluctance on the part of state to cede more space to the private sector. There is needed to relook at the terms of engagement between state and the private sector. And to strengthen this engagement through measures such as reforms in regulation and institutions that manage the state and private sector interface through state and citizen participation. A new growth agenda is needed. Micro, Small & Medium Enterprises (MSMEs) and agriculture are cornerstone sectors in the Indian context generating employment for 55 per cent of Indian population and make a significant contribution to the GDP. However, financial inclusion has slowed down with just 5 per cent of MSMEs and 12 per cent of farmers having access to institutional finance. The financial sector has failed to meet the needs of this sector.
10
It is only natural that the definitive post-election dialogue towards an agenda for an aspirational India should begin with a discussion on Economic Governance & Reforms. Three factors drive this priority: one, all the major political parties have highlighted economic governance and reforms as an integral part of their manifesto. It is therefore imperative that the new government implements its promises and, strengthen the economic governance. In light of recent economic problems, governments must achieve more with fewer resources. In addition, new policies are required to address global challenges in areas such as public safety, climate change, and the transition to renewable energy. New approaches are also needed to manage an aging society, changing lifestyles, urbanization. Public Administrations today have to serve informed and educated citizens who have high expectations and hold governments accountable. EGovernment enables a more mature and deeper relationship between the public and the private sectors, greater collaborating among all levels of government, and new service delivery models. EGovernment also allows us to reduce costs, corruption while at the same time improving the quality of services and increasing civic participation. At a time when macroeconomic policies are under acute pressure in many countries, the role of structural policies has come more into focus. Structural reforms are important both on the conventional grounds that they boost long-term growth and welfare but also because they can take some pressure off macroeconomic policies. Better structural policies will help achieve fiscal sustainability and provide greater leeway for monetary policy. Importantly, structural reforms can bolster confidence. Priorities aiming at strengthening competition and increasing the flexibility of resource allocation increase the responsiveness to market-based environmental policy instruments, and hence are complementary to the latter by making green growth policies more cost effective.
For India to continue its rapid growth while also expanding this growth across regions, sectors, and people, I suggest remove key binding constraints of poor infrastructure and high fiscal deficits, focus on reforms that both improve economic efficiency and spread the benefits of growth, employment and reforming financial sector; raise agriculture 11
productivity by returning to investments in technology and infrastructure and empower the poor community through policies and programs that assist them to take part in the market on fair and equitable terms. As we looks towards further liberalization, we must prepare our economic institutions by re-orienting them from managing the economy to regulating the economy. The adverse economic factors, such as higher level of fiscal deficit, expanding trade gap, deteriorating current account deficit, rising inflation and resultant higher interest rates which have caused industrial slow down and worsened economic environment in continue to prevail with serious challenges to Indian economy.
Concluding Observations
A common conclusion from the discussion of individual issues in this paper that economic reforms will help to improve governance by reducing the scope for discretionary power and increasing the degree of transparency in policy and procedures. But economic reforms are no guarantee against malfeasance. Governance problems can arise in any system and improved governance is therefore only likely if the political and administrative system and civil society generally works jointly to achieve it. One thing is certain. India's democratic politics and free press will ensure that these issues will remain in the forefront of public consciousness and therefore on the political agenda, and there will be continuous pressure for improvement.
More generally, Going for Growth provides a wealth of recommendations aimed at fostering efficiency gains through higher investment in skills, technology and infrastructure. In this regard, earlier gains from greater openness to international trade and investment should not be rolled back, openly or covertly, as this would undermine efforts to sustainably boost productivity. Raising economy-wide productivity also comes through a shift in resources from inefficient sectors and firms to more productive ones. Policies can assist this process with reforms in the areas of product market regulation, general taxation, subsidies as well as a more efficient provision of public services. The sources of economic growth are; 12
Increasing Physical Capita The first pillar of economic growth is increases in physical capital, which enables workers to produce more goods and services, because it reduces the governments borrowing, deficit reduction will remain the key to how much of national saving is available for private investment in physical capital.
Improving Human Capital The second pillar of economic growth is improvement in what economics call human capital the knowledge, experience, and skills of the workforce.
Expenditure Trade The third source of increasing efficiency in the economy is more open markets abroad, like the freeing up of domestic markets, opening of foreign markets shifts resources into relatively more productive area. For good Inclusive growth we need broad-based and significant improvement in health outcomes, universal access for children to school, increased access to higher education and improved standards of education, including skill development. It should also be reflected in better opportunities for both wage employment and livelihood, and in improvement in provision of basic amenities like water, electricity, roads, sanitation and housing.
As for Indias place in the global economy, given the vast developmental challenges that remain domestically, it would be difficult to imagine India asserting its economic dominance in international markets any time soon. Processes of institutional change tend to take decades rather than years, and, as a result, the rise of India as an economic superpower will only occur over a long period of time. The new governance structure will need to be based on representative institutions that reflect the changing 13
economic weight of emerging economies in the global economy by doing following reforms;
Institutional reform to enhance the capability of public sector institutions to ensure the effective delivery of core services, Sustaining rapid growth and making the process of economic growth more inclusive across sectors, across regions, and bringing the benefits of higher incomes and living standards to more people. Initiate policy changes to manage wage growth in line with productivity Cut the fiscal deficit Improve the business environment Rethink urbanization policy Address structural rigidities in the economy to unleash the growth potential particularly in energy and mining sector
Reference
1. UNCTAD 2013, The Least Developed Countries Report 2013, UN Publications, Geneva. 2. UNCTAD 2012, Twenty years of Indias Liberalization; UN Publications, Geneva. 3. India Economics; 2014, Morganstanley Research Asia. 4. Principle of Economics: Case and Fair, Prentice Hall, NJ 07458, 1999. 5. Campbell R McConnell, & Stanley L Brue, Economics, McGraw Hill, USA.
14
Indian Economic Reforms for a strong and balanced Economic Governance Regaining Growth with Employment
By
Mukesh Kumar Mishra Secretary General Krityanand UNESCO Club, Jamshedpur (United Nations ECOSOC-accredited NGO) knunesco@yahoo.com
Krityanand UNESCO Club Jamshedpur is an NGO Registered Under Societies Registration Act,1860 working for the aims and purpose of the United Nations. At the 41st plenary meeting, On July 23rd, 2012, Krityanand UNESCO Club Jamshedpur was officially granted special consultative status as a Non- Governmental Organization (NGO) with the United Nations Economic and Social Council (ECOSOC). The ECOSOC is one of 6 principal organs of the United Nations System established by the UN Charter in 1945 and serves as the central forum for formulating policy recommendations regarding international economic and social issues.