The economy is on fire, and in a good way! Many early indicators suggest that Indians are out there with a vengeance. They are spending, consuming, travelling, and experiencing whatever they couldn’t in the last two pandemic choked years. Indian tourist and pilgrimage sites are jam packed. Mall owners tell me traffic is above pre-Covid levels. India’s biggest domestic airline is already seeing travel above pre-pandemic levels on certain specific days. GST collections are at an all-time high. Restaurants are packed. The stock market is soaring. Passenger vehicle sales have surged back to pre-Corona levels. There are plenty of other signs that the economy is red hot. The recent ET economists poll suggest GDP growth for the Jul-Sep 2021 quarter to be between 6.5%-9.9% (partly due to lower base of last year). The current Oct-Dec 2021 quarter might be even better and trounce all expectations.
The scorching economy is great news, especially after a bad phase. However, it is important we keep this growth momentum. It shouldn’t be a passing, post-Covid mini bounce back. We should have loftier goals. We must maintain this momentum for the next five years, to realize our dream of a $5 Trillion GDP economy. For this, we need to grow at 9% per year for the next five years. It’s difficult, but not impossible. The $5 trillion GDP level would mean a per capita income of over $3,300 per person, a solid level for a developing country. It would allow us to build infrastructure and substantially improve our healthcare and education. We must pursue this as national priority.
A 9% annual growth will take more than just pep talk. We need solid steps to maintain this growth. Here are eight ideas that will enable us to keep the momentum to get to the $5trillion GDP mark.
- Shifting gears from tax reform to growth reform – Tax reforms are important. The government done major policy changes in this area in the past few years. However, the government has to decide this: if the Indian economy was a car, should it have the best brakes or the best acceleration right now? Tax reforms can act like brakes. It’s time to turn from fixing the brakes to fixing the accelerator mode.
- The ISAR, or Indian Special Administrative Region – Let’s have a bigger vision and imagination. Why do investors, top managerial talent and businesses flock to Singapore, Hong Kong and Dubai? These city-states give low taxation, clean governance, business friendly policies and a good corporate law system. Why can’t we create our own such city, or an ISAR? Why not demarcate two or three cities with a port as ISARs, where certain laws are different. The boost in GDP from this alone can be $1 Trillion in the next five years. We can’t make the entire country developed right now. However, we can make a developed country level city or two. Why not do it if it creates massive growth for India?
- Move-from-China package – For whatever reasons, China is still pursuing the zero-Covid, closed borders, lockdown policies. It’s leading to global supply chain issues. It’s an excellent window for India to get global businesses to relocate production here. We can give a package to people moving house from China. Tax breaks, cheap land, port credits – everything should be on the table. Do realize this window will close soon as China will eventually open up. Let’s act on this soonest.
- Judicial reform – It is a widely accepted view that Indian laws are good and there is a decent court system in place. The only issue is it is too slow. Technology speeds things up, and that’s what is needed here. Tech has touched almost every area of India, but it hasn’t yet optimized our legal system. We do have court document uploads and video call hearings are excellent early steps. However, we can be far more cutting edge in terms of tech and a speedy legal system.
- GST rationalization – The way GST works around the world is that it is one rate applied across products and services. We still have too many slabs and exceptions. The sooner we rationalize it the better.
- Currency liberalization – Perhaps due to the bad experience with the balance of payments crisis in early 1990s, we have become wary of a fully convertible currency. The Indian rupee is highly liberalized now, but we still have too many controls to make it seamlessly integrated globally. That balance of payments situation of the past is unlikely now. We need to open up the rupee further.
- Tourism and Hospitality package – since the last two years have been terrible for this industry, we need to give this sector some real incentives so they can bounce back strong. This is also a huge job creation sector so there is extra reason to give them incentives.
- Global and NRI taxation – One of the reason rich capitalists of India base themselves abroad and become NRIs is to not be liable for paying global taxes, which apply if one is resident in India. Don’t we want these rich people here instead? Why let other countries get the benefit of their capital and expertise, when we can simply have them here, investing their billions and creating jobs? Maybe the tax policy of global taxation needs to be revisited – how much do we collect through global taxation of residents, versus what would we gain if this capital-rich crowd was located here?
The above ideas can help, as can many others. However, it all fundamentally comes down to our mindset. What we want more in our car – better brakes or better accelerators? Both are important in the long term, but right now, it’s time for India to step on the gas and race right ahead!