Vol. 1 No. 1(Sep-Oct) (2020): Indian Public Policy Review

Issue: Sep-Oct 2020

The story of the Indian economy as it unfolds under the impact of COVID-19 is disquieting. Had the economy been strong to start with, the situation would have been different. We have analysed the sharp decline in growth rate since 2011-12 and traced the causes for the slowdown to such factors as unsustainable expansion of credit followed by sharp increase in non-performing assets, and decline in savings and investment rates. We have also noted that centre’s gross tax revenues declined sharply on trend basis because of the fall in nominal GDP growth. This led to a squeezing of available fiscal policy space for the central government. Disruptions caused by such decisions as demonetisation also played an adverse role on both income and employment. The lockdown imposed to curb the spread of COVID-19 has put a brake on the economy. The need to kick start the economy and move it forward has become urgent. We have in this context discussed the roles of monetary and fiscal policies. Maintenance of government expenditure at a high level is unavoidable and monetisation of debt is also unavoidable. But policy makers must also be conscious of the fact that there is a limit to monetisation. Wisdom lies in striking the appropriate balance. JEL: E5, H2, H5, H6

Issue: Sep-Oct 2020

Transformation of Indian economy to a modern, urban and industrial one at a fast pace requires the creation of a policy environment that would accelerate the growth of medium and large enterprises, especially in labour intensive sectors such as apparel, footwear, furniture and numerous light manufactures.  Key policy reforms required for the emergence of these enterprises include opening the economy to foreign trade and investment wider, flexible labour markets, availability of land to businesses at reasonable prices and low rental housing for migrant workers taking up jobs in the enterprises. Considering the complexity of undertaking multiple reforms involving both Centre and States, an option may be to create Autonomous Employment Zones, spread over areas of 500 square kilometres or more with full autonomy to implement their own labour and land laws, as is the case in Shenzhen in China.  The zones can also be designed such that imports and exports can move rapidly into and out of it. These zones may help bring many multinationals currently looking for locations other than China.  The paper also lists a number of reforms in education, privatization, food procurement and public distribution system, power sector, civil service, tax administration, and fiscal and monetary policies.  I discuss these reforms in detail in my recent book, India Unlimited.  JEL: F1, F4, J2, R3

Issue: Sep-Oct 2020

The economic shock of COVID-19 makes the current method of defence budgeting redundant. When the GDP itself is set to reduce, defence expenditure demands as a percentage of GDP is less feasible. On the other hand, the situation on the Line of Actual Control (LAC) in Ladakh has demonstrated again that managing China, not just Pakistan, should be the focus of India’s military planning. To overcome these two challenges, a few incremental budget cuts, postponing of capital acquisition plans, and forgoing of salaries for a day would be insufficient. This paper proposes major doctrinal shifts in military planning. It identifies the mismatches between India’s political objectives and the kind of force structure put in place to meet those objectives. Derived from these mismatches, six doctrinal shifts — a paradigm of employable power, a structure for integrated theatre commands, conversion of manpower to human capital investment, organisational changes to build firepower, and a shift in focus to the seas and new domains — are discussed. The paper ends with a discussion on the civil-military pieces that need to fall in place in order to execute these shifts.

Issue: Sep-Oct 2020

Amidst the economic slowdown triggered by the outbreak of the COVID-19 pandemic in India there have been many demands for the government to announce a large fiscal stimulus to support the economy. Economic growth and tax revenues remain uncertain in 2020-21 making it challenging for the government to finance any addition to the fiscal deficit. In this paper we work out alternative scenarios of fiscal deficit for 2020-21. We find that in our baseline scenario, assuming a 5% contraction in real GDP and a 14.4% contraction in net tax revenue, fiscal deficit of the central government will be 6.2% of GDP. JEL: E6, H2, H5, H6

Issue: Sep-Oct 2020

In Service of the Republic: The Art and Science of Economic Policy Making,  by Vijay Kelkar and Ajay Shah, is a book largely in the Public Choice tradition and yet, wants the government to correct its path. This is an important contribution and a necessary reading not only to those involved in serious policy making but also a general citizen who is at the receiving end.  It is hoped that the policy makers listen to what the authors have to say and general readers get sensitised on wrong policy interventions.