We are happy to publish an interview with Pradeep Agrawal, the professor of Economics and the Head of the Reserve Bank of India Endowment Unit at the Institute of Economic Growth, New Delhi (for more information on professor Agrawal look below the text).
Krzysztof Iwanek: You recently edited and co-authored a book entitled ‚Reviving Growth in India?’ [cf. information below the interview]. Which factors, according to you, will be crucial in reviving the growth of India’s economy?
Pradeep Agrawal: I believe that the most crucial factors for reviving growth in India would be:
- to improve energy security and food security for India by adopting appropriate policies for these sectors
- improve infrastructure,
- strengthen manufacturing sector in India by reducing regulations, better and faster decision making regarding clearing approvals for environment, land acquisition, etc.
- to improve governance, reduce corruption
Fortunately the current government has started with very appropriate policies relating to coal and energy sector. It has vigorously initiated many efforts towards much greater use of renewable energy sector. Attempts are being made towards improving infrastructure, such as roads, electricity availability, railways, homes for more, etc. There is also considerable emphasis on expanding the manufacturing sector (partly through reducing defense related imports and producing them at home) and through attempts to reduce red tape and improve „ease of doing business”. There has also been a significant improvement in governance and reduction in corruption. . Therefore I am very hopeful that the government will be able to achieve significant improvement in growth in the near future. Indeed some improvement is already visible.
Krzysztof Iwanek: The Indian government has initiated a Make in India campaign last year. It’s focus is on the industrial sector and on bringing in foreign investors to India which would in turn strengthen exports. What do you think of this strategy?
Pradeep Agrawal: I think this is an excellent idea and very badly needed one. It can help produce a lot of jobs for the large number of people seeking jobs in India. The impetus to manufacturing is being attempted partly through improving regulatory environment, improving ease of doing business. In addition, it is aided by a very practical approach of producing a lot more defense related equipment at home (India imports a lot), possibly in collaboration with well established foreign producers. This can gradually broaden and deepen this sector as many firms gradually develop the capacity to produce such equipment and related products which can eventual also be exported, although the impact for initial years will be more in reducing imports.
Krzysztof Iwanek: In recent years we witnessed heated debates in India regarding foreign direct investment, especially in the retail sector. Do you think that India will open new sectors of its economy to FDI in the coming years and if so, then in which sectors?
Pradeep Agrawal: This still remains politically very controversial because of fears of loss of jobs in the huge unorganized retail sector that employs almost 40 million people. But some changes have happened for example Amazon and E-bay (from USA and UK) are running huge e-commerce business in India. Other changes are possible but will be gradual.
But other sectors can and are being opened to FDI. This includes FDI in defense, insurance (where maximum foreign ownership has been increased from 25% to 49%), and several others.
Krzysztof Iwanek: On the 1st of January 2015 the Indian government has dismantled the old Planning Commission and established a new institution, NITI Aayog. One of its goals is to focus more on finances of the states, rather than the Centre. What do you think will be the outcome of this change?
Pradeep Agrawal: The previous Planning Commission had assumed the role of planning as well as implementing lots of policies that were actually implemented by states, leading to a lot of red-tape. The new NITI Aayog is going to think and suggest policies for sectors needing policy help, usually at the request of central or state governments. I think this is quite fine, perhaps a better system.
Krzysztof Iwanek: Another widely debated change in India is the issue of the Land Acquisition Bill. While some criticise it as a form of forcing out some farmers from their land, others claim that is a necessary step to achieve faster development, e.g. in modernising and enhancing infrastructure.
Pradeep Agrawal: Yes , this is currently quite controversial. I agree with the government’s position that land acquisition has to be made easier to promote industry and infrastructure development. However, we do need to ensure that this happens with minimum pain and displacement for those whose land is acquired and whose lives are thus seriously disturbed. Farmers whose land is acquire must be properly looked after and not only given adequate compensation but alternative land or part of the developed land so that they can keep having a good, perhaps better life.
Thank you very much for the interview!
About Pradeep Agrawal:
Pradeep Agrawal is Professor of Economics and Head, Reserve Bank of India Chair Unit at Institute of Economic Growth, Delhi. He has been a consultant to the World Bank, the Asian Development Bank and several ministries of the Government of India. He has been a faculty at several universities in USA and holds a PhD (Economics) from Stanford University, USA.
About Reviving Growth in India:
Pradeep Agrawal (ed.), Reviving Growth in India, Cambridge University Press, Cambridge 2015.
Between 2000 and 2011, India’s growth rate averaged over 8 per cent per annum. This growth rate raised hopes of a Chinese-type economic miracle, and of regaining its bygone glory as a leading nation of the world. However, since mid 2011, India’s growth rate has been faltering precipitously as rapidly rising prices of crude oil and commodities prices along with rising food prices and high government deficits led to persistent inflationary pressures, leading to sharp increase in interest rates that further contributed to slowed investment and growth.
This book brings together latest research findings from leading economists from India and abroad on ways to revive and sustain higher growth rates in India. The book is divided into five sections. First Section empirically examines the various factors that affect poverty and shows that growth is crucial to poverty reduction. The second section investigates the factors responsible for sustaining industrial growth including skill formation and innovation. Section 3 analyses the critical role of monetary policy and shows that it is not very effective in the presence of commodity price shocks and supply constraints. It explains why RBI could not effectively control inflation despite keeping interest rates so high and why government must play a crucial supporting role in controlling inflation by helping release supply constraints. Section 4 then analyses various supply constraints to growth including agriculture, energy security, social and physical infrastructure and discuses how to deal with them effectively. Section 5 analyses the labour and financial market policies.
Overall, the book covers various sectors of the economy – innovations in expanding market size; need for quality infrastructure; productive employment generation; financial structure of firms in the private corporate sector; and internal issues such as infrastructure development and institution building. Several studies in the book suggest that India’s growth is primarily supply constrained, and a concerted effort at improving physical and social infrastructure is essential to revive growth in India.
While the studies here are set in the context of India, the lessons about how to improve growth rates would be equally applicable to most other developing and emerging economies. Thus the book should be of considerable interest internationally.
List of Tables and Figures v
Section 1: The importance of growth
Chapter 1: Introduction: Reviving Growth in India 3
Chapter 2: Economic Growth: The Key to Poverty Reduction in India 17
Section 2: Reviving growth of industry and exports
Chapter 3: Sustaining a High Rate of Industrial Growth in India 47
in the Next 10 Years
Chapter 4: Growth Drivers: ICT and Inclusive Innovations 82
Chapter 5: Determinants of India’s Service Exports 107
Pravakar Sahoo, Ranjan Kumar Dash, Prabhu Prasad Mishra
Section 3: The dampeners to growth: Controlling inflation
Chapter 6: Macroeconomic Effects of Monetary Policy in India 141
Sushanta K. Mallick
Chapter 7: Role of Monetary Policy in Sustaining High Growth 170
in India: Lessons from the Recent Dynamics in
Determination of Bank Credit
Section 4: The supply constraints to growth
Chapter 8: Sustainability of Indian Agriculture 197
Nilabja Ghosh, Anita Kumari
Chapter 9: Energy Security for India 220
Pradeep Agrawal, Shruti Tripathi
Chapter 10: Social and Physical Infrastructure in India: 239
Constraints to Rapid Growth
Chapter 11: Infrastructure Challenges in India: The Role of 269
Section 5: Emerging issues in growth: The labour and capital markets
Chapter 12: Issues in Labour Cost and Employment 303
Arup Mitra, Chandan Sharma
Chapter 13: Financing Structure and Growth: A Study of Firms 334
in the Indian Private Corporate Sector
Prabhakaran Nair V. R.
Chapter 14: Export Intensity and Dividend Policy of Indian Firms 358
Elena Goldman, Viswanath P. V.