TeaThe Finance Ministry will soon release the last full budget of the second term of the Narendra Modi government. It also provides one last chance to set out key reforms and incentives that will help India attract a large share of manufacturing supply chain investment that is currently fleeing China.
With election season set to begin later this year, the window to make major reforms may be closing — at a time when investors are starved of options. There are several important reasons for India to seek to become more integrated into global supply chains. It will enable rapid employment generation, counter the nation’s high goods trade deficitand secure the supply of strategic materials and products.
- Trade Balance: India has a huge deficit of $284 billion in the 12 months from November 2022. This is equivalent to about 9 per cent of GDP and about 50 per cent higher than the pre-Covid peak.
- Employment Generation: About half of the labor force in India still toils in basic agriculture. While the big farm bill proposed in 2020 failed, other reforms would accelerate modernization. Finding employment is important for workers.
- Strategic Materials and Products: Related to COVID supply chain disruptionsPaired with China’s growing ease of use economic coercionagainst rivals, has strengthened India’s desire to ensure alternative supply chains for critical goods – preferably “onshoring”.
Nearly a decade after the “Make in India” campaign was launched in 2014, evidence of its success is hard to find. According to the World Bank, manufacturing as a percentage of GDP is stuck 14 percentdown from 16 percent in 2015. India’s 12-month foreign direct investment (FDI) inflows hit an all-time high during Covid, reaching $74 billion by July 2021. But this growth was primarily driven by block investment. Reliance Jio, FDI has come down significantly since then, with $55 billion in the 12-month period till October 2022. Sectoral FDI data from Department for Promotion of Industry and Internal Trade (DPIIT) does not indicate An increase in FDI in manufacturing industries, either.
even though the world bank shut it down Doing Business Report, the finance ministry should take note of its lessons. Areas where India ranked poorly in the past Doing Business report good Improvement should be given priority. This includes starting a business, registering property, paying taxes and enforcing contracts. The government has made real progress on the first item in launching National Single Window System (NSWS). The allocation of resources to these sectors in the Budget, as well as the associated ambitious policy announcements, will continue to build India’s credibility as a manufacturing hub.
Read also: Border crisis, no NSS, no reforms. But the Modi government is going after imaginary colonial demons
pending correction
Our program, the Wadhwani Chair in US-India Policy Studies at the Center for Strategic and International Studies (CSIS), tapped top business leaders and economists to highlight the 30 most important things to consider as the Modi government gets re-elected in 2019. conducted a survey of Government should consider important job-creating reforms- our India Reforms Scorecard, we did a similar exercise in 2014. By comparison, the Modi government completed nine of these 30 major reforms in its first term, and another 15 were partially completed. With this apparatus, the pace of reforms slowed markedly in the second term. The government has completed only six of the 30 reforms, and the other five have been partially completed.
Many of the long-pending reforms we’ve been tracking have been highlighted by the Modi government for action. Filling judicial vacancies and digitizing court documents, easing land acquisition, reforming the process of developing business rules, simplifying the Goods and Services Tax (GST), and other pending reforms are among the major ones May be within reach of the government at the end of the term. The Indian government has shown courage from time to time, such as finally going ahead with privatization of Air India or lifting foreign investment caps in sensitive sectors Defense, insurance, and telecommunications. 2021 repeal Retroactive taxation also helps repair past losses for investors using treaty partners. Despite these laudable successes, there is no “end condition” for creating a welcoming investment climate.
Moving forward with a strong, end-of-term reform program would send a powerful signal to global investors—one that says India is really hungry to attract supply chain investments that are looking for an alternative to China. The government should use the budget speech to send a clear signal that it is prepared to work hard to attract such investments, even as we enter the election season.
Wadhwani Chair in US-India Policy Studies at the Richard Rosso Center for
Strategic and International Studies (CSIS), Washington DC. they are also management
Director at McLarty Associates, where he leads the India and South Asia practice. views are personal
(Edited by Ratan Priya)