Economic Policy Rfrm

(a)        Macro-economic stability and sustainability

            Inflation rates in India rose sharply in 2008, largely due to the global commodity price boom. Poor monsoons have contributed to food inflation. However, inflation seems to have persisted much longer than in previous episodes, while current account deficits have risen and the very welcome down-trend in fiscal deficits has been disrupted.  At the same time the global crisis has increased the volatility of capital flows and could at any time flare into a global liquidity freeze. Thus restoration of fiscal and current account balances to the trends prevalent before 2008-9, must be one of the priorities of economic policy.

(b)        Market reform to increase competition

            Fast growth has accentuated and magnified the price distortions arising from existing supply bottlenecks and created new ones.  Policy and regulatory reforms are needed to introduce and/or enhance competition in the markets for land, infrastructure services, agriculture and skills.  With careful calibration increased competition will stimulate increased supply, help accelerate productivity growth, reduce rents and rent seeking and sustain inclusive growth.

(c)        Institutional reform and conflict resolution.

            Higher growth has also accentuated conflicts over land and natural resources, between rent accumulators and outsiders and between social and political groups. These must be resolved through economic policy and institutional reform, if fast growth is to be sustained. These conflicts can effect economic growth not just directly (e.g. inadequate supply of urban land) but also through their effect on the political system and its ability to act decisively in resolving issues not directly connected to them, such as macro-economic response to external shocks and fundamental policy reforms.  Some of these require institutional change that will take time. Fortunately, affected economic agents do not expect perfect instantaneous solutions to institutional and social problems.   They do expect the government and the political system to appreciate the importance of the problem and demonstrate that it is serious about addressing them i.e. take credible steps to address the problems.

 (d)      Social equity and inclusion.

            Innovative and imaginative approaches are needed to ensure that the goals of sustaining fast growth are not in conflict with inclusiveness and social equity and vice-versa.  The key is to identify the problems carefully, use the scientific method to link problems to potential solutions and choose the solutions that can be effectively implemented.