India’s turning point for the economy? (Financial Express)
Mains Paper 3: Economy
Prelims level: McKinsey Global Institute report
Mains level: Indian Economy and issues relating to planning, mobilization of resources, growth,development and employment
- India’s Turning Point is the title of a new report from McKinsey Global Institute, the think-tank type unit of the massive global consulting company.
- The subtitle of the report is “An economic agenda to spur growth and jobs”. With over a dozen people having worked directly on the report, along with a host of distinguished advisers, the book-length document deserves serious attention.
- At the same time, there is nothing completely new in the report for Indian economy researchers or policymakers. One can find the arguments drawn from reports of the government and RBI committees, economic surveys of multiple chief economic advisers, and so on.
- Nor are the issues and recommendations matters of political ideology, at least in terms of first-order thinking; although any change, good or bad, has distributional consequences, and managing the effects on winners and losers is ultimately a matter of politics.
Three interrelated observations:
- To begin with, the following three interrelated observations struck me as particularly useful, if one is to begin tackling all the different areas that need policy attention.
- The report highlights the relative paucity of medium-sized firms that can bring more competition to markets dominated by large firms, as well as raising productivity and generating employment.
- India’s “missing middle” in the firm size distribution has been recognised for decades but has yet to be remedied.
- One of the reasons for this failure to grow more firms is the extreme dysfunction of its financial intermediation.
- India desperately needs to improve capital markets and financial intermediation, to bring down the high cost of finance, and remove credit constraints, especially for smaller firms. Numerous technological and regulatory innovations are needed.
- The report also reminds us of the need to tap household savings more effectively, and to channel them more into productive investment.
- References to RBI’s Ramadorai Committee and academic work by Ila Patnaik and Radhika Pandey on this topic are welcome examples of how the McKinsey report builds on a range of previous analyses.
State-level reforms and regions and clusters within states:
- A third noteworthy feature of the report is its emphasis on state-level reforms and regions and clusters within states.
- Maps of Maharashtra, Uttar Pradesh and Odisha on pages 143-145 of the report are examples of how politicians and policymakers can be helped to visualise the economic geography of their constituencies and begin to develop coordinated plans and prioritisations.
- Of course, such exercises are just a bare beginning to what needs to done, and state-level policymakers need to have very detailed analyses of how to overcome obstacles and inertia, especially in an environment where there are severe fiscal constraints.
- At the same time, concerns about inclusion cannot come at the cost of the rapid growth that India desperately needs.
- There has to be common ground. One would have thought that the current government would be well-positioned to find that common ground. But, the government seems to have won those battles, whatever one thinks of that victory.
- Covid-19 is still a challenge, but there is no excuse now for the Indian government not to achieve a turning point for the nation’s economy.
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Q.1) With reference to the International Day to Protect Education from Attack, consider the following statements:
1. The first-ever International Day to Protect Education from Attack is being celebrated on September 9, 2020 under the theme “Protect Education, Save a Generation.”
2. The day was established by a unanimous decision of the UN General Assembly, calling on UNESCO and UNICEF to raise awareness of the plight of millions of children living in countries affected by conflict.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Q.1)Covid-19 is still a challenge, but there is no excuse now for the govt not to achieve a turning point for the nation’s economy. Comment.