According to Dhiraj Nayyar, Chief Economist, Vedanta Ltd, “Perhaps India’s economy is not a lumbering elephant, but a tiger on leash.”
What does he mean? In a major article in the Economic Times, he notes that every time India tries to break free, it hurts – rising economic growth is plagued by side-effects, whether high inflation or rising Current Account Deficit (CAD). With growth crossing 8.2% in the last quarter, India’s recovery may be adding to its external account woes.
I have followed the writings and commentary of Dhiraj Nayyar for some time, including when he was with NITI Aayog. He has just released a book “Modi and Markets”. Always clear and persuasive, he is a passionate advocate of a successful India.
He believes politicians look for the quick fix, rather than curing the problem.
Instead, politicians should “focus on enabling the most important feature of free markets: competition. In the end, that is the principle which delivers the lowest prices, highest quantities, reasonable profits, investment and plenty of jobs.”
Since economic liberalisation, the successful industries have been aviation, telecom, pharma, IT, hospitality and automobiles — those where competition has been intense. Sectors where the government has retained greater control on outcomes through policy, and dominant public enterprises have done less well.
Dhiraj Nayyar argues the government should test every policy on the principle of competition. The goal of policies should be to ensure competition between enterprises operating in India, and to create a fair competition for India-based enterprises vis-à-vis their foreign counterparts.
He goes further: “Domestically, policy should be agnostic about whether an enterprise is foreign, private domestic or public domestic, as long as the policy/regulatory regime creates maximum competition.”
Entry for a new firm should be simple, exit for a dying firm should be orderly.
India suffers from mostly self-imposed constraints. A more liberalised and flexible economy will help correct chronic CAD, while containing the pressures of excess demand as growth approaches double digits.
Dhiraj Nayyar concludes: “Less control by government will lead to outcomes that don’t need to be controlled. It will also lead to rapid growth without side-effects.”
As always, he makes a strong case – will politicians act on it?