Not cash transfers, but bold structural reforms needed in India: Manish Sabharwal

By Jit Kumar
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Manish Sabharwal

From Nobel laureate Abhijit Banerjee to former Indian Finance Minister P Chidambaram, almost every financial expert has been urging Prime Minister Narendra Modi’s government to target the country’s ultra-poor by directly giving them cash to tide over the Covid-induced economic crisis. But Manish Sabharwal argues for bold structural reforms instead.

According to Sabharwal, merely more government spending—like printing more currency notes to dole out direct cash to those in need on the lines of the US—won’t help the Indian economy. He says it can only be a short-term solution as India is the only big country with decades of growth left.

“I don’t think monetary and fiscal policy can solve India’s problems. I think we’ve done something in fiscal policy, but we can’t be like the US—it is running a fiscal deficit of 3.2 trillion US dollars which is more than India’s GDP. India is already running a fiscal deficit of 12, we’ve done on monetary policy so what needs to be done is now structural reforms.

“The fiscal package was useful as a short-term measure but it was never going to take us to higher levels of productivity. We need higher productive areas”

“We need labour reforms, we need compliance reforms, we need banking reforms, we need infrastructure reforms. So, I would submit that the three pillars of fiscal, monetary and structural reforms we need to now shift focus to. You know beating up banks to lend or you know stealing 10 lakh crores from our grandchildren, which we shouldn’t,” the chairman of Teamlease Services, one of the country’s leading HR companies, told NDTV.

Sabharwal says the current economic pain is not the disease. “The disease is inadequate urbanisation, formalisation, industrialisation and skilling. So, I would submit that the fiscal package was useful as a short-term measure but it was never going to take us to higher levels of productivity. We need higher productive areas,” he said.

The economic expert says India doesn’t have a jobs problem, but “we have a wages problem”. “Unemployment has been between 6-9% since Independence… so, everybody who wants a job has a job, but they don’t have the wages they want,” he said.

Asked about India’s dismal GDP figures, the leading economic analyst said, “If you shut down the country for three months or four months, then obviously you will expect a GDP contraction, but it can come back pretty quickly.”

“If we make the kind of fiscal, monetary and structural reform that is on the table, so my sense is that Covid is an opportunity for change, given Covid has exposed a lot of pre-existing conditions in the Indian economy.”

As per the latest GDP figures released by the Indian government, the economy showed a sharp contraction in the first quarter of this fiscal. The GDP shrank by 23.9%, its worst slump since the country started releasing quarterly data in 1996. Another contraction in the next quarter and India will slip into recession.


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