India needs to prioritize the privatisation of banks and public sector enterprises as a key reform to drive higher economic growth. This was emphasized by Arvind Panagariya, chairman of the sixteenth finance commission, during a FICCI event on August 7.
Need for Bank Privatisation
Panagariya stressed that the primary reform needed is the privatisation of banks. He highlighted the history of non-performing assets (NPAs) in the country, which have necessitated bank recapitalisation efforts. According to Panagariya, India has gone through two cycles of NPA cleanup, and the government needs to break free from this repetitive cycle.
Economic Activity in Public Sector
On the topic of economic activity, Panagariya pointed out that it remains heavily concentrated in the public sector, where capital is not being utilized efficiently. He underscored the necessity for the government to divest from these sectors to enhance economic efficiency.
Ineffective Use of Labour
Panagariya also highlighted that India is not using its most abundant resource—labour—effectively. He remarked, “India’s abundant factor was labour, but we focused on heavy industries and machinery. We don’t use our labour effectively at all.” He called for comprehensive factor market reforms to address this issue.
Challenges of Land Reforms
Addressing land reforms, Panagariya noted that they are the most challenging to implement. Despite this difficulty, he implied that land reforms are crucial for holistic economic reform.
Vision for India@100
Panagariya’s remarks were made at the book launch of IMF executive director KV Subramanian’s book, India@100. The book outlines a vision for India to become a $52 trillion economy by 2047.
Growth Targets for $52 Trillion Economy
Subramanian, a former chief economic advisor of India, stated that for India to achieve this vision, it needs to grow at an annual rate of 8 percent, and 12-12.5 percent in nominal terms. This ambitious growth rate is essential for transforming India into a $52 trillion economy by the centenary of its independence.
