Former Prime Minister and economist Manmohan Singh has pitched for structural reforms to tackle the economic challenges the country is facing. In an interview to The Hindu BusinessLine, which was published on Wednesday, Singh said the government first had to acknowledge the crisis.
“Already, a lot of time has been lost,” he said. “Instead of wasting its political capital by adopting a sector-wise piecemeal approach, or on monumental blunders like demonetisation, the time has now come for the government to carry out the next generation of structural reforms.”
Singh said the crisis was of a different kind. “…a prolonged economic slowdown that is both structural and cyclical,” he added. “The government must instil confidence in the people and send a message to the world. Unfortunately, I do not yet see such a focussed approach from the Modi government.”
Singh said the “blunder of demonetisation, followed by the faulty implementation of GST” triggered the slowdown. Echoing former chief statistician Pronab Sen, Singh said demonetisation had caused a liquidity crunch. “India has a substantial informal economy that runs on cash,” Singh pointed out. “A large portion of this involves legitimate activities that are below the tax threshold and therefore should not be thought of as part of the ‘black’ economy.”
In an interview to Dainik Bhaskar, Singh suggested five remedial measures to reverse the fall in growth. He said it would take a few years to get out of the slowdown if the government acted “sensibly” now.
Singh said the two most important things to do were simplifying and rationalising the Goods and Service Tax regime, and finding innovative ways to boost rural consumption and revive agriculture.
The former prime minister also called for infusion of liquidity in the system for capital formation. The fourth measure listed by Singh was revitalising key labour-intensive sectors such as textile, automobile, electronics and affordable housing. “For that easy loans would be required, especially for micro, small and medium enterprises,” he told Dainik Bhaskar.
Singh also asked the government to recognise new export opportunities arising out of the trade war between the United States and China. He added that a new export roadmap could be beneficial for India.
In his interview to The Hindu BusinessLine, Singh questioned the Centre’s move to merge several public sector banks. “The need of the hour is to facilitate credit flow and address the challenge of non-performing assets,” he pointed out. “Instead of focussing their attention on these aspects, the mergers may divert bankers’ attention to integration challenges.” He added that the benefits of mergers would be seen only after a few years.
“The government is also relying on the assumption that merging weaker banks with stronger ones will ameliorate any deficiencies and create larger, stronger banks,” said the former prime minister. “It is equally possible that the weaker banks will drag the stronger ones down with them, as they have weaker balance-sheets.”
Singh advised the government to address the crisis in a transparent manner and show serious intent about handling it. “PM Modi and the government need to come out of their habit of headline management,” added the former prime minister.
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