Fiscal prudence, rule of law & quality edu needed for growth

A crisis can once again be the opportunity to push our economy, society into a higher growth orbit on a sustained basis for next quarter century

- JAYAPRAKASH NARAYAN

Paul Romer, a Stanford economist and Nobel Laureate, said, "A crisis is a terrible thing to waste." In a complex, competitive political economy, often a crisis provides the breathing room to engineer necessary reforms. Thanks to Trump tariffs, a crisis of sorts is forced upon us. This is not as grave a crisis as we faced in 1991, but it is a crisis, nevertheless.

Hopefully, the present tariff crisis will soon be resolved satisfactorily. Meanwhile, the Union will certainly do whatever is possible and necessary to meet the challenge. Over the past decade, sustained fiscal prudence, improved performance of public sector banks, and a focus on infrastructure and capital expenditure have served the country well. There is now fiscal room to spend money to address the challenges faced by exporters. In particular, labour-intensive sectors like garments and textiles, shrimp farming and gems and jewellery need special attention. The government has the will and the capacity to address these issues.

But it would be wise to go beyond the fiscal measures. Even today, our goods exports are only about 10-12% of the GDP, low by the emerging economy standards. China's merchandise exports were over 35% of the GDP in 2006, and even after a steady decline over two decades, they stand at 20% of the GDP. In that sense, our economy is less reliant on global trade. We can withstand the current difficulties without serious damage, as domestic demand drives our economy in the most part. But it would be a mistake to only address the immediate problem and carry on as usual. Our real challenges are the many internal hurdles to productivity, investment and growth. This is a good opportunity to take stock of these barriers to growth and remove them.