India needs to further open its economy, privatize banks, and introduce factor market reforms to elevate its growth beyond the 6.5-7% levels, said 16th Finance Commission chairman Arvind Panagariya.
“The main reform we need is the privatization of banks,” Panagariya stated. He explained that over the past 20-25 years, India has experienced two cycles of non-performing assets (NPAs), each necessitating government intervention to clean up. “And each time we did the cleanup, we got the growth spurt,” he noted.
The first cleanup occurred under the Vajpayee government, leading to an approximate 8% growth in real terms beginning in 2003-04. Panagariya highlighted that significant macro and micro reforms were implemented, and the banks were in robust condition. “Private banks were okay even if they got a little bit of these NPAs and they took care of it themselves,” he said, emphasizing that the government did not have to use taxpayers’ money. “I think it is a very important part of the reform that’s required,” he reiterated.
Last two Chief Economic Advisors under UPA, K Basu and R Rajan, both supported even the entry of foreign retailers in Agri marketing. They have now changed their position. Are they right? Here is my detailed critique of critics of the new laws. pic.twitter.com/f1D9E5VANj
— Arvind Panagariya (@APanagariya) December 18, 2020
He also stressed the need for greater involvement of the private sector in the economy. “Despite the expansion of the private sector, overall economic activity in manufacturing remains heavily in the public sector,” Panagariya pointed out at the launch of ‘India@100,’ a book by K V Subramanian, Executive Director at the International Monetary Fund (IMF), organized by FICCI. “And the capital is not being efficiently used by the public sector,” he added.
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Panagariya stated that among factor market reforms, including land, labor, and capital, land reform is the most challenging to implement, but easing land acquisition is essential for the country.
The implementation of the four labor codes is also crucial for rapid economic growth in India. He suggested that even if 4-5 states implemented these reforms, it would significantly accelerate the country’s economic growth.
