India should be careful not to repeat the mistakes of import substitution from the 1950s, which in principle lacked two crucial elements that made economic protectionism successful in some countries: export promotion and identifying the country's niche in the global manufacturing supply chain.
Posts published in “Economy”
Despite two decades of fast-paced growth, millions of Indians still live in abject poverty and the promise of economic reform is yet to come. Here is a new-age blueprint for an intelligent market economy that works for Indians of all classes and sets India on a path of equitable and sustainable growth.
In the absence of any spending by industry or consumers, the government wants to say that it is now spending in their place. But many spending allocations in the budget seem opaque when analysed by sector. This year too, there was some smart wordplay and marketing wizardry at play.
During COVID-19, larger centralised rice mills have been shut down due to transportation restrictions and lack of diesel. But smaller decentralised rice mills have been running and keeping farmers alive. There are many lessons for rural development from this experience.
Ruling parties often review or walk back on public contracts signed by previous administrations. This inconsistency and uncertainty in policy cause problems for investors — both domestic and foreign — who often look for clarity and certainty. It is also hurting India's economic ties with other countries.
Bank managers have no sense of how much money can be productively used by MSME borrowers in the current circumstances and are afraid to lend. If the MSME sector is to be revived, there would have to be transparency and coordination across all stakeholders.
Has the lockdown truly prevented COVID-19 from gripping India – or has the ‘cure’ been worse than the disease? Stories from the ground suggest that the livelihoods of millions of Indians have been harmed, perhaps irreparably, with no coherent policy framework for their revival.
The coronavirus lockdown has reinforced the merits of a basic income scheme. But apart from alleviating distress, the replacement of wasteful subsidies by a basic income scheme would even be financially prudent. It would make economic reform more viable and the public sector more efficient.
Across the world, countries have been forced to sacrifice economic activity to contain the spread of coronavirus. In India, lockdowns and restrictions will have an adverse impact across a range of issues, from NPAs in the banking sector, to trade in the chemical sector.
The working middle class in the West faced difficulties due to globalisation. But unlike in the West, the rise of right-wing populism in India does not have an economic rationale. Instead, it actively sabotages the economic openness which has worked well for India in the past.
The basic principle of trade is that a country exports in sectors where it has a comparative advantage while importing in sectors where it does not. But in the Indian economy, only a minority of the workforce is engaged in activities where India is competitive.