There is no alternative to completing the economic reform process and making India a cost competitive economy.

= Dhiraj Nayyar

Director, Economics & Policy, Vedanta Ltd

In the end only private investment and exports can drive double digit growth rate which is what India needs to be a strong and vibrant economy. And those are dependent on creating a competitive base. The government must remove all barriers to investment, whether it is FDI caps or hurdles in the ease of doing business, states Dhiraj Nayyar, Director, Economics & Policy, Vedanta Ltd. In a chat with Construction Times, Nayyar highlights on what needs to be done in rebuilding a strong economy. Excerpts from the interview…

How do you assess the impact of the twin crisis due to the pandemic - health emergency and - sharp economic downturn - on Indian economy?

The impact is unprecedented. Could anyone have ever imagined that India would register quarterly growth rate of minus 23.9 percent? That the annual growth rate may be around minus 10 percent? It will take two years for the economy to return to its pre-pandemic size. And underneath those numbers are the severe impact on livelihoods and businesses, particularly of the poor and SMEs.

The nature of the health crisis made a spillover into the economy inevitable because the measures suggested to contain the Covid-19 pandemic, such as lockdowns and social distancing, had a negative impact on economic activity. Six months on, with a better understanding of the disease, superior disease management protocols and lower mortality rates, it is possible to keep the economy running while managing the virus. Still, some sectors like travel, tourism and hospitality, which are big employers in India, may take a lot longer to recover.

What has been the impact of the stimulus packages and regulatory reforms initiated by central / state government so far? Are there green shoots visible?

There was nothing the government could possibly do to mitigate the full impact of the pandemic on the economy. The purpose of stimulus packages is to mitigate some of the impact, particularly on vulnerable segments. The initial stimulus exercise which targeted the poor and provided liquidity support to SMEs was welcome, because it enabled survival. Indeed, while a full lockdown was in place, there was little sense in a stimulus which went beyond that since no one would be in a position to spend or even run a business.

However, now that lockdown has been wound down, barring a handful of activities, there is a case for a bigger stimulus. The government has announced a limited stimulus primarily for government employees and for some state governments to spend on infrastructure, but these are not enough to restore demand in the economy. Further incentives must be given for people to spend more.

Of course, once the lockdown was lifted the economy would begin to revive so green shoots are bound to be visible. The government deserves praise for some of the structural reforms it has announced like the opening up of the coal sector for commercial mining and the freeing of farmers from the tyranny of APMC monopolies and the Essential Commodities Act. These will unleash the entrepreneurial energies of the Indian people and yield very positive results.

What do you think the major focus areas that need to be addressed in Rebuilding India with a strong and vibrant economy? 

I believe there is no alternative to completing the economic reform process and making India a cost competitive economy. Right now, we are a high cost economy. Land acquisition is difficult and expensive. India's interest rates are among the highest in the world. The cost of power for industry is high because farmers and consumers are subsidized. Similarly, rail freight in expensive because passengers are cross subsidized. All of this renders us less competitive than rival countries.

In the end only private investment and exports can drive double digit growth rate which is what India needs to be a strong and vibrant economy. And those are dependent on creating a competitive base.

What is the current scenario of investment? Could you also throw some light on the policy and reforms needed and initiated?

When India grew at almost double-digit levels in the period between 2003 and 2008, investment as a percentage of GDP was around 36 percent. Since 2011-12, it has hovered at just below 30 percent. We know from the experience of China and other East Asian economies that an investment level of 40 percent of GDP is essential to sustain double digit growth rates. India has not done badly on investment, especially on FDI, in recent years but we must aspire for a much higher level.

The government must remove all barriers to investment, whether it is FDI caps or hurdles in the ease of doing business. Every policy that is made must put investment first. Anything which vitiates the investment climate should be abandoned. The government must take a back seat and become a facilitator, not leader. Let it focus on social sectors.

The multiplier effect of the sector - mining- is very large both in terms of output as well as employment. Moving forward, what do you think the major challenges a mine developer is facing on different fronts?

Indeed, mining can be a major driver of both growth and employment in India. So far, given India's tremendous geological potential, mining has played a small role, contributing just 1.5 percent to GDP. Only 10 percent of India's potential is explored and just 2 percent mined. So, the potential is huge. In other countries with similar geological potential like Australia and South Africa, mining contributes 6 to 8 percent of GDP.

Again, the challenge is to benchmark the mining policy regime with the best in the world. The government must liberalise what is an over regulated sector dominated by public sector companies. The government has promised radical reform in mining as part of its Atmanirbhar Bharat strategy. It is the need of the hour. Half of India's imports are on account of natural resources.

There is no benchmarking of prices available for a host of minerals. What is your take on this and what needs to be done? 

In a market economy, the prices of minerals like of any other product must be determined by market forces. That said, for the purpose of royalties, the government requires some benchmarking of prices. For this, there is a proposal to create a National Mineral Index for different minerals. That is a step in the right direction.

What is your outlook on the post Covid era?

The world is going to be different post Covid. It was changing even before the pandemic came. There was a backlash against globalization, especially in the advanced countries like the US and UK. So, the world is not likely to be as open as before. China will not grow as fast as it did between 1980 and 2015. The world will need a new economic engine. India can potentially aspire to be that engine. The 4^th industrial revolution will also bring changes once new technologies like robotics, 3D printing and artificial intelligence are successfully commercialized. All of these can be viewed as challenges. I would prefer to view them as opportunities, at least for India.

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