NITI Aayog is preparing a 15-year vision and a seven-year strategy document, and has circulated a three-year action agenda.
The goal of transforming India and attaining the desired level of economic and social outcomes will require higher and sustainable growth in coming years.
What are the advantages of higher growth?
Higher growth is the best way of lifting standards of living, as has been demonstrated by China in recent decades.
It will will not only create employment, but will also generate higher revenue which will help increase government spending without disturbing the budgetary balance.
Attaining and sustaining this level of growth is feasible, but will need policy action on various fronts.
As things stand today, in order to push both potential and actual output growth, policymakers would do well to focus on at least four broad areas.
What are the four areas of focus?
Strengthening macroeconomic fundamentals: It is a prerequisite for sustained higher growth.
India has made significant progress over the last few years on this front, and all efforts should be made to attain the medium-term fiscal and monetary policy targets.
The N.K. Singh committee has proposed a new fiscal architecture that will reduce the level of total debt stock with steady reduction in fiscal deficit.
On the monetary policy side, the RBI’s rate-setting committee is targeting 4% inflation on a durable basis.
Continued progress in both these areas will help strengthen economic stability.
India will need higher savings to sustain higher growth. A stable macro environment should augment savings and investment.
Fix the banking sector: It is now well accepted that high levels of NPAs—particularly in public sector banks—are a drag on investments and growth.
The sector needs a fresh road map in the short to medium term that not only addresses the current problem, but also provides the necessary checks and balances for the future.
For a durable solution, the government should reconsider its role in the sector.
Further, India also needs a lively corporate bond market as it will provide an alternative source of financing and reduce the pressure on the banking sector.
Improve conditions in land and labour markets: In order to sustain higher growth, the government will need to make it easier for businesses to acquire land and hire labour.
The government should work on creating a flexible labour market, which will allow businesses to take advantage of economies of scale.
A number of projects are stuck because of land acquisition problems. Reforms in these markets would require greater coordination between the Centre and states.
Review its own functioning and change: It will allow the market to attain its full potential.
For instance, it will need to withdraw from commercial activities through privatization and focus on strengthening regulatory capabilities.
Policymakers need to constantly work on multiple levels in order to create enabling conditions that will allow the Indian economy to develop at a rapid pace and achieve long-term goals.
