Modi dreams big for India, promises $20 trillion economy

Buoyed by renewed global confidence in the India story, Prime Minister Narendra Modi has raised the bar by declaring a new ambitious target of scaling up the Indian economy 10-fold to $20 trillion. To make sure that his claim was not seen as grandiose showmanship, the Indian prime minister unveiled a raft of reforms, including reforming country’s the labyrinthine tax system to attract foreign investment and streamlining the governance system to make it faster and more effective.

Underlining the importance of fast-tracking institutional reforms, Mr Modi declared at a business conclave, organised by The Economic Times, that he was preparing the ground to turn India into a $20-trillion economy from $2 trillion. “In 20 years of liberalisation, we have not changed a command-and-control mindset. We think it is okay for government to meddle in the working of firms. This must change,” he said in New Delhi in a speech that was generously interspersed with the word reform and its improvisations.

However, in a carefully-worded formulation, the prime minister made it clear that his government would not cut subsidies that will adversely impact the poor. “I believe that subsidies are needed for them (poor). What we need is a well-targeted system of subsidy delivery. We need to cut subsidy leakages,” he told the country’s industry titans in New Delhi January 16.

Promising to deliver on his mantra of ‘Minimum Government and Maximum Governance,” Mr Modi underscored that his government will make sure that tax stability and a positive regulatory framework were being fast-tracked to make India the preferred destination for business.

The state, the prime minister stressed, should focus only on five functions: public goods (defence, police, judiciary etc), its externalities (such as pollution), empower markets (restrict monopoly), fill information gaps and a well-designed welfare and subsidy mechanism. Other than this, the government has no business to be in business, he said.

The prime minister put job creation at the centre of his economic revival agenda. “Reforms, economic growth, progress — all are empty words if they do not translate into jobs. What we need is not just more production, but mass production and production by masses.”

Looking ahead, the prime minister exhorted all Indians to make national development their agenda. “It is seen as a scheme. That should not be the case. Development should be everyone’s agenda. It should be a people’s movement,” Mr Modi said.

The World Bank has projected that the Indian economy will catch up with China’s growth by 2016-17.

“According to our analysis, India will catch up with China’s growth in the year 2016 and 2017,” says World Bank chief economist and senior vice-president Kaushik Basu. “In India, export growth has been robust, and investor confidence has been bolstered by election of a reform-minded government. The current account deficit and elevated inflation—both persistent vulnerabilities—have declined considerably. Over the medium term, growth is expected to rise steadily to 7% as reforms begin to yield productivity gains,” ,” the World Bank said in its flagship publication, Global Economic Prospects, released on January 13.

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