Arun on India: Use The Weakness To Improve The Future

Views from Arun Panchariya, Specialist in cross border transaction between Asia, Europe and the US 

India’s economy grew an annualised 6.1 per cent in the quarter to the end of December last year. This was the slowest in three years. Many experts believe the future growth prospects are set to be on a substantially lower level than in the previous years.

In my view there is no reason for panic or too much short term “doctoring”.  What is essential is to implement a number of structural reforms that in a vibrant society as the Indian would have a reasonable quick positive impact on the overall economy. At least in the medium term this could make a basis for a stronger growth based on an optimal recourse allocation on the investment side.

I will just here mention a few of the areas where reforms in my opinion would have a significant positive effect on the economy.

A radical opening up of financial markets would create a much better allocation of investments, reduce the cost on capital, improve the access of beneficial foreign investment and even reduce the scope of corruption somewhat.

Corruption is seriously undermining the goal to allocate all recourses available to areas, companies and individuals where it is most needed. Thus corruption has a serious negative impact on long term growth. Also nepotism as in India as in more or less all societies is a problem that hinders growth. Obviously, it is essential to use the best available human resources. India would therefore benefit from being a society where nepotism is lesser a problem than elsewhere in the world. I am afraid that is not the case today.

Other areas of reform should be to reduce trade barriers, and a number of regulations. It is very interesting to see that the countries in the western world that best has handled the crises is the countries that early opened up their economies to international competition and adjusted their economies accordingly. Examples of such countries are Sweden and Denmark.  

In my view India has a great advantage of being a stable democracy and in combination with reforms as mentioned above is in an excellent position to have a better long term growth than for example China.