Viewpoint: Revisiting policy priorities

03 OCT,2022 | MEDC


India's trade policy needs to expand on what Atmanirbhar means. Contrary to what some would like to believe, it is not a license to engage in mindless protectionism, which does our economy more harm than good. Due to the operational complexities caused by the pandemic, India's foreign trade policy which was supposed to be updated in 2020, could not be. In a rapidly changing geopolitical environment, this does not bode well for the country’s export and growth prospects. Much of the rhetoric on self-reliance has been outright import substitution. But that approach has its limitations. Subsidies cannot continue forever, and there has to be a clear vision on how temporary subsidies could permanently enhance our economic competitiveness. Structural reforms are necessary to ensure a sustained economic recovery.

GST has proved to be a bone of contention between the Centre and the states. The southern states are generally growing faster than the northern ones, and, unless this disparity is promptly addressed, it will lead to regional imbalances and disputes over the sharing of centrally-raised revenues. Making lower-growth states part of a national value chain is a policy imperative.

Due to the high level of subsidies provided to state electricity corporations in several parts of India, many states are becoming fiscally vulnerable. They will not be able to sustain themselves for long without external support. Financial inclusion is important, but it should not occur at the cost of making the state bankrupt. Political one-upmanship should not upend economic rationality.

The rupee crossed 80 to the USD this week, and corporate India expects the government to take remedial steps to stem its further slide. In this regard, a top policy priority has to be the curbing of all non-essential imports. This could be done by imposing a higher import tax on non-essentials like cosmetics, gold and some electronic items. Using foreign exchange recklessly to defend any particular level of the rupee also needs a rethink.

The government could consider India’s inclusion in global bond indices, for which some proactive policy steps might be required. Inclusion in a global bond index may exert pressure on the government to adhere to fiscal discipline and ensure that domestic bonds retain investment grade. While India's bonds are currently of investment grade, they are just a notch above a junk rating by all sovereign rating agencies. This must change. Global bond index providers have reportedly been reaching out to the government recently for the inclusion of its sovereign debt on their platforms, as the exclusion of Russia from international capital markets has led to a large void, which needs to be filled in by a suitable emerging market.

Finally, an unintended (but beneficial) consequence of Covid is India's thrust on digitalization. The social distancing norms imposed by the pandemic forced many high-level government and corporate meetings to take place online. Fortunately, the demographic profile of India also supports this trend. Indians born after 1981 are more likely to subscribe to soft copies of newspapers and magazines rather than rely on their hard forms. An increasing number of residents in rural and small-town India are now getting their news from social media, thus raising the likelihood that digitalization can proceed relatively smoothly throughout the country. India has not yet lived up to its potential given its rich human and natural resources. We need to begin our countdown to a new tomorrow at the earliest.

*Picture Credit:Google

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