India is poised to grow at 7-8% over the next decade and be the third largest economy by 2030 on the back of four big reforms by the government. This could even go up to 9-10% with increasing the size and scale of operation and doing away with protectionism, Arvind Panagariya, professor of economics at Columbia University and former vice-chairman of NITI Aayog said.
“I predict we will grow 7-8% in the next decade provided the Covid is behind us. However, if we want to reap the full benefits of reforms we need to open up and increase our scale of operations,” Panagariya said. He was referring to the four big reforms in the forms of Bankruptcy Code, labour reforms, GST and Corporate Tax.
Panagariya was speaking at the lecture series, organised by the Institute of Economic Growth (IEG) in collaboration with the department of economic affairs in the finance ministry to commemorate 75 years of India’s independence.
According to Panagariya, India with the size of its labour force, both skilled and unskilled, can seize the opportunity to attract fims to set up bases in India as they look for additional facilities outside China.
Panagariya is critical of the government’s focus on the production-linked incentive scheme for 13 sectors, most of which are capital intensive. “India continues to have its earlier approach of investment in capital-intensive sectors and protectionism,” he said, adding that under the PLI scheme also the subsidy is going to capital and not labour.
According to Panagariya, the challenge before India is to ensure land acquisition at cheaper rates, opening up of borders for trade and setting up large scale, labour-intensive manufacturing units to compete globally.
“We have made land acquisitions so expensive and difficult as a result of which acquiring big pieces of land to create massive factories is difficult. Factories are not able to grow horizontally nor vertically,” he said.
Talking about the restrictive trade practices, Pangariya said, protectionism is not going to help as even with low tariffs the cost will add up. “Smaller FTAs like that with UAE, Canada and Australia are good but India needs a free trade agreement with the EU which is a big market,” he said.
Stating that 87% of India’s workforce is occupied in low productive employment (42.5% in agriculture and 44.5% in small enterprises with less than 20 workers), Panagriya said it will not help the country to work towards increasing farmers’ income through agriculture.
“With such a huge workforce occupied in agriculture and MSMEs, the political incentive is to do good to them. If you want to increase the income of farmers, move them out of agriculture and provide them jobs in manufacturing and services,” he argued.