The public interest calls for real reforms for equitable growth.
Shyam Ponappa | October 4, 2018
Our fuel pricing is puzzling, because while it affects the majority, it is treated as affecting only the affluent (many of whom are also likely to be very productive). Affluent consumers comprised around 27 per cent of India’s population in 2016, and may grow to 40 per cent by 2025.3 Constraining productivity and output is surely not beneficial except in containing imports, especially when productivity is declining (see Chart). Yet, this is the effect of high taxes on inputs. This is why there’s a genuine need for the evaluation of alternatives to demand compression and high taxes.
Labour Productivity in India - January 2010 to November 2017
A compelling reason for scenario planning is that coordinated policies could yield higher growth than foreign borrowings without systematic policy support. A policy framework with lower interest rates and good infrastructure (energy, logistics and communications) could accelerate growth, thereby attracting capital despite current account imbalances. Such alternatives deserve to be evaluated against the approach of higher interest rates to attract, then struggle to retain foreign capital (when there is a flight to quality, raising interest rates in emerging markets is usually ineffective), with lower growth. Lower rates would also facilitate redeeming NPAs, as banks could profit from rising bond prices.