Growth Challenges on the Path to Viksit Bharat 2047

Context

India’s recent GDP growth estimates have fallen, exposing challenges in economic policymaking and highlighting the need for reforms to achieve the vision of becoming a developed nation by 2047.

Need for Growth-Oriented Policies

• High-Income Status: Achieving this requires sustained reforms and strategies targeting growth.
• Policy Consistency: Long-term economic performance hinges on well-crafted, stable policies.

Challenges Hindering Growth

1. Persistent State Intervention
   • Nehruvian socialist impulses continue to influence policymaking, slowing modernization.
   • Excessive government control clashes with the vision of a market-driven economy.
2. Infrastructure and FDI Deficits
   • Despite robust infrastructure projects, declining FDI inflows impede growth.
3. Judicial and Bureaucratic Hurdles
   • Delays in conflict resolution and inconsistent judicial decisions discourage investments.
4. Economic Disparities
   • A growing gap between per-capita income and aggregate economic size limits equitable growth.

Issues with Current Economic Policies

1. GDP Growth Decline
   • GDP growth dropped to 5.4% (Q2 FY24), down from 8% five quarters ago, raising concerns over forecasting and economic strategy.
2. High Taxation Rates
   • Tax-to-GDP ratio at 19% is higher than regional peers (China: 16%, Vietnam: 13%), reducing economic competitiveness.
3. Declining FDI
   • Withdrawal from Bilateral Investment Treaties (BITs) increases risks for investors.
4. Tight Monetary Policies
   • Real repo rates higher than global non-advanced economies create contractionary pressures on growth.
5. Retrospective Tax Policies
   • Practices like indexation benefit removal undermine investor confidence and harm the ease-of-living agenda.

Reforms Needed

1. Reinvigorate BITs
   • Re-enter and renegotiate Bilateral Investment Treaties to provide security for foreign investors.
2. Reform Tax Policies
   • Lower tax rates and eliminate retrospective tax changes to attract investments.
3. Balance Monetary Policies
   • Align repo rates with non-advanced economies to adopt a growth-friendly monetary stance.
4. Institutional Strengthening
   • Focus on timely conflict resolution, enforcing contracts, and ensuring policy consistency.
5. Adopt Best Practices
   • Learn from East Asian models with lower tax-to-GDP ratios and higher growth.
6. Address Statist Policies
   • Limit socialist legacies to align with a reduced state intervention model, enhancing private sector participation.

Way Forward

To achieve the vision of Viksit Bharat, India must embrace pro-growth reforms emphasizing economic liberalization, institutional strengthening, and policy consistency, ensuring equitable and sustainable growth.