What policy advice would you give the current Prime Minister of India given your views about the driver(institution hypothesis) of economic growth?

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INDIA'S PATH FROM CRONY SOCIALISM TO STIGMATIZED CAPITALISM Feb 8 2018| Arvind Subramanian Over the past few years, the Indian government has pursued far-reaching economic reforms to address the twin problems of overly indebted private-sectornns and under-capitalized public-sector banks. But, morefundamentally, the government isnally trying to deliver the country from the legacy of its socialist past. NEW DEHLI Is India about to get its mojo back? As the country's exports accelerate on the back of today's synchronous global economic expansion, the negative effects of the November 2016 demonetization of high-value bank notes and the enactment last July of a new goods and services tax (GST) are receding. Provided that macroeconomic pressures from high oil prices are contained, and sharp corrections to elevated asset prices are managed, India is poised to regain its status as the world's fastest-growing major economy. But ongoing efforts by the government will be key to reviving private investment and sustaining medium-term growth. Specically, economic policymakers must address the long-standing problem of over-indebted rms and under-capitalized public-sector banks the so-called \"twin-balancesheet problem.\" To that end, many distressed companies have been forced to clean up their balance sheets under a new bankruptcy code that was adopted in December 2016, and more companies are likely to follow suit this year. Meanwhile, the government has also announced a large recapitalization package (about 1.2% of GDP) to shore up public-sector banks, so that they can write down their stressed assets. As these reforms take hold, Indian rms should nally be able to resume spending, and banks will once again be able to lend to the critical but currently indebted infrastructure and manufacturing sectors. India's economic reforms have taken a long time to implement. But if they continue to be a success, they will provide valuable lessons for future leaders about the proper role of the private sector not just in India, but around the world. In India, the private sector and capitalism generally evokes feelings of deep ambivalence. This is for good reason, given that India's private sector still bears the stigma of having been midwifed under the pre-19905 \"License Raj\" an era remembered for its red tape and corruption. To this day, some of India's legendary entrepreneurs are believed to have built an empire simply by mastering the minutiae of India's tariff and tax codes, and then manipulating them brazenly to their advantage. Some of the private sector's stigma was cleansed by the boom in information and communications technology that started in the 1990s. The ICT sector had developed by virtue of its distance from, rather than proximity to, government. Indian ICT firms adopted exemplary governance standards, were listed on international stock exchanges, and thrived in the global marketplace. And, by extension, they improved the standing of Indian capital. But after that era of good capitalism, the stigma returned. During the infrastructure boom of the mid- to-late 20003, public resources were captured under a \"Rent Raj,\" which put terrestrial rents (land and environmental permits), sub-terrestrial rents (coal), and even ethereal rents (spectrum) up for grabs. Moreover, the infrastructure investments of this period were mded by reckless and imprudent lending by public-sector banks, which often funneled resources to high-risk, politically connected borrowers. As a result, the Indian public concluded that majority equity holders (\"promoters\") had little skin in the game, and that \"limited liability\" really meant no liability at all. And now that rapid technological change is threatening the ICT sector's business model providing low-cost programing services to foreign clients even India's \"cleanest\" capitalist industry is confronting governance challenges. More broadly, one could say that India has moved from \"crony socialism\" to \"stigmatized capitalism.\" And under stigmatized capitalism, the prevailing zeitgeist has hobbled policymakers' efforts to address the legacy of the twin-balance-sheet problem, which, in turn, has constrained growth. Indeed, the mere thought that major shareholders' debts would be forgiven at taxpayers' expense has created political paralysis for years. After all, why should ordinary people bear the burden of fat cats who are laughing all the way to the bank? Seen against this background, it is easier to understand why India's economic reforms have taken so long to adopt, and why they have been so difcult to implement. At the same time that the government has had to resolve the twin-balance-sheet problem, it has had to ensure that promoters cannot regain access to their assets, driving up scal costs. India's early-stage experience with capitalism has lessons that other countries should heed in an age of rising tech giants. The Indian model, whereby public-sectorbanks lent to private rms, proved so toxic and difficult to replace that public-sector bank ownership itself has lost much of its traditional socialist appeal. The irony is that after a long and bruising experience with crony capitalism, the best thing for India now might be more capitalism, starting in the nancial sector. This commentary is based on the just-released Economic Survey of India. Universal basic income in India is a tantalisingly close prospect Biometric ID cards and the squeeze on rural poor are propelling the idea forward Arvind Subramanian FEBRUARY 7, 2019. A flurry of announcements, most recently by India's opposition Congress party, holds out the tantalising prospect that something like a universal basic income - direct cash transfers to households, guaranteeing a minimum standard of living - may soon become a reality. The government's Economic Survey of 2017-18 (which my team and I co-authored) advocated UBI as a policy idea and politicians across the spectrum have taken up the debate with renewed vigour. Several developments have conspired to rehabilitate it as a serious policy option. The core idea of providing a basic minimum income was raised by India's first prime minister, Jawaharlal Nehru, in 1938 even before Indian independence in 1947. But, historically, the success of government anti-poverty programmes in India has been mixed. Although there has been improvement in some areas, implementation has been afflicted by corruption, leakage and the exclusion of many of the deserving poor. For example, the major employment guarantee scheme in 2011-12 did not reach 40-65 per cent of the poorest. Providing universal income is an appealing alternative because it obviates the need for identifying and targeting the correct beneficiaries. The advent of biometric identification, which now covers nearly all Indians, financial inclusion and mobile penetration has created the scope for directly transferring cash to household bank accounts. There is still some way to go because biometric identification remains contentious and financial inclusion suffers from the last-mile problem: beneficiaries are still physically distant from banks or ATMs. But India is catching up. The translation of ideas into actionable policy requires opportunity, which agrarian distress has created. For two years, prices received by farmers for most non-cereal crops have declined sharply, denting incomes and livelihoods. Politicians across India have felt compelled to act, not least since the ruling Bharatiya Janata party suffered setbacks in three state elections in December last year. The losses were widely attributed to the government not having addressed farmers' concerns. The first step taken by the southern state of Telangana was to start providing cash transfers to land-owing farmers. The state of Odisha in eastern India followed by extending this scheme to agricultural labourers and tenants. Last week, the Congress party announced that providing a minimum income guarantee for the poor would be a key part of its manifesto for the parliamentary elections in May. The central government budget presented this week proposed a cash transfer of RS6,000 per year for all small and marginal farmers up to a landowning limit of two hectares. None of these schemes amounts strictly to a UBI because they all aim to target a fraction of the population (with the exception of the small north-eastern state of Sikkim, which has promised a full-fledged UBI). Moreover, many are just announcements with implementation yet to be elaborated. Pronouncements have to contend with tight government budget constraints; neither the central nor state governments have much fiscal capacity to implementanything close to a true UBI, which could cost up to 5 per cent of gross domestic product every year. That said, the idea has gained such momentum that the question is no longer if it will happen, but what form it will take. My preferred idea is to exploit the political opportunity created by agrarian distress to start with a quasi-universal basic rural income. Under this proposal, about 75 per cent of all rural households would receive direct cash transfers that would top up their current incomes by about 40 per cent for the poorest. Such a proposal would be more moderate in its scal impact than a true UB1, costing less than 1.5 per cent of GDP. But even this model cannot be afforded unless wasteful and regressive agricultural subsidies for capital, power, fertiliser and water are simultaneously phased out. Making these cuts will be the real political challenge. What is both distinctive and challenging about India is that a UB1 will have to be nanced and implemented jointly by the central and state governments. Cooperation between New Delhi and the states will be necessary to nd the necessary resources. Competition between states ensures that the rewarding of tough political choices to implement a UB1 in one area will be imitated by others. When India repudiated its socialist past in favour of market reforms in 1991, then nance minister Manmohan Singh midwifed the change by invoking Victor Hugo's words, \"no force on earth can stop an idea whose time has come\". It is only a slight exaggeration to say that UB1 is gaining similar momentum. The writer, a visiting lecturer at Harvard University and senior zllow at Peterson Institute for International Economics, was India 's chief economic adviser from 2014-18 The Alarm in the GDP Numbers1 The recently released quarterly GDP growth numbers for the first quarter of FY2020-21 should alarm us all. The 23.9 percent contraction in India (and the numbers will probably be worse when we get estimates of the damage in the informal sector) compares with a drop of 12.4 percent in Italy and 9.5 percent in the United States, two of the most Covid-affected advanced countries. Yet India is even worse off than these comparisons suggest. The pandemic is still raging in India, so discretionary spending, especially on highcontact services like restaurants, and the associated employment, will stay low until the virus is contained. Governmentprovided relief becomes all the more important. This has been meager; primarily free food grains to poor households; and credit guarantees to banks for lending to small and medium (SMEs) firms, where the take down has been patchy. The government's reluctance to do more today seems partly because it wants to conserve resources for a possible future stimulus. This strategy is self-defeating. lfyou think of the economy as a patient, relief is the sustenance the patient needs while on the sickbed and fighting the disease. Without relief, households skip meals, pull their children out of school and send them to work or beg, pledge their gold to borrow, let EMIs and rent arrears pile up...Similarly, without relief, small and medium firms think of a small restaurant -- stop paying workers, let debt pile up, or close permanently. Essentially, the patient atrophies, so by the time the disease is contained, the patient has become a shell of herself. Now think of economic stimulus as a tonic. When the disease is vanquished, it can help the patient get out of her sickbed faster. But if the patient has atrophied, stimulus will have little effect. Even if they start earning, indebted households will not consume freely, especially if they believe they have to manage further periods without livelihoods or government help. Similarly, even small and medium firms that have stayed open but have huge unpaid bills and interest will not be able to function well. Without relief measures, the growth potential of the economy will be seriously damaged. Brazil, which has spent tremendously on relief, is seeing a much lower downgrade to medium term growth than India. So government officials who hold out the possibility of a stimulus when India finally contains the virus are underestimating the damage from a more shrunken and scarred economy at that point. Instead of claiming there is a V-shaped recovery round the corner, they should wonder why the United States, despite spending over 20 percent of GDP in fiscal and credit relief measures, is still worried the economy will not return to pro-pandemic GDP levels by the end of 2021. Obviously, because of the pre-pandemic growth slowdown and the government's strained fiscal condition, officials believe it cannot spend on both relief and stimulus. This mindset is too pessimistic, but the government will have to expand the resource envelope in every way possible, and spend as cleverly as possible. It also has to take every action that can move the economy forward without additional spending. All this requires a more thoughtful and active government. Unfortunately, after an initial burst of activity, it seems to have retreated into a shell. On the resource front, India could borrow more without scaring the bond markets if it committed to return to fiscal viability over the medium term for example, by setting future debt reduction targets through legislation, and committing to honest and transparent fiscal numbers with a watchdog 1 By Raghuram Rajan independent fiscal council. In addition to borrowing, it should prepare public sector firm shares for on- tap sale, to take advantage of every period of market buoyancy. The current period of buoyancy already looks like a missed opportunity. Many government and public sector entities have surplus land in prime urban areas, and those too should be readied for sale. Even if sales do not take place immediately, preparations for sale, as well as an announced time table, will give bond markets greater conviction the government is serious about restoring fiscal stability. Turning to government spending, the key will be to prioritize. MNREGA is a tried and tested means of providing rural relief and should be replenished as needed. Given the length of the pandemic, more direct cash transfers to the poorest households, especially in urban areas that do not have access to MNREGA, is warranted. The government and public sector firms should clear their payables quickly (something that has been talked about for years) so that liquidity moves to corporations. In addition, small firms below a certain size could be rebated the corporate income and GST tax they paid last year (or some portion thereof}, with the rebate tapering off with firm size. This would be an objective way of helping small viable firms based on a hard-to-manipulate metric, even while rewarding them for their honesty. Finally, the government will likely have to set aside resources to recapitalize public sector banks as the extent of losses are recognized. The private sector should also be urged to give a helping hand. Cash-rich platforms like Amazon, Reliance, and Walmart could help smaller suppliers get back on their feet, even funding some of them. All large firms should be incentivized to clear their receivables quickly. As the various payment moratoria come to an end, a number of entities will be unable to repay. Instead of reacting in a piece-meal way, the government should have a well-thought-out plan to deal with the coming financial distress. A variety of structures should be in place to help debtors and claimants such as landlords and banks reach agreements to restructure obligations, including having unpayable amounts written off. A number of arbitration forums should be set up to renegotiate claims of various sizes. Civil courts, debt recovery tribunals, and the NCLT should be beefed up to provide rapid back-up judgments. Given the depth ofthe contraction, stimulus will also be needed, especially investment in infrastructure construction which creates jobs and increases demand for all manner of inputs like cement and steel. The center should replenish the coffers of the state governments, which typically spend more on infrastructure. This can be accounted for as part of the GST dues the center owes the states. In addition, the center should notify shelf-ready projects that are in the National Infrastructure Pipeline for implementation. Given the lead time for such spending, all this should happen now. Reforms can be a form of stimulus, and even if not carried out immediately, a timeline to undertake them can boost current investor sentiment. The world will recover earlier than India, so exports can be a way for India to grow. For that to happen, the government has to reverse its recent raising of tariffs so that inputs can be imported at low cost. Once it resets tariffs, the government should make it harder to change them at whim, else firms will not have the confidence to invest in export production, given how competitive the world is. To improve our competitiveness, long debated reforms to land acquisition, labor, power, and the financial sector should be implemented, as should recently announced reforms in agriculture. Temporary half-baked \"reforms\India needs strong growth, not just to satisfy the aspirations of our youth but to keep our unfriendly neighbors at bay. The recent pick-up in sectors like autos is not evidence of the much awaited V-shaped recovery. It reflects pent-up demand, which will fade as we go down to the true level of demand in the damaged, partially-functioning, economy. No doubt, the government and its bureaucrats are working hard as always, but they need to be frightened out of their complacency and into meaningful activity. If there is a silver lining in the awful GDP numbers, hopefully it is that