The Modi government is focussing on creating the building blocks that will improve India's productive capacity and lay the foundation for a sustainable high growth rate of anywhere between 8-10 percent over a long period of time. Speaking at the Global Business Forum organised by IIT Bombay Alumini Association in Goa, minister of state for finance Jayant Sinha said that while China could experience a sustained GDP growth rate of 9 percent over a 30 year period, India could achieve that only for a few years and the growth slipped back to lower levels due to supply side bottlenecks. "We want to avoid the supply side bottlenecks in the future," he said.
The government, he added, has rolled a two-fold strategy that aims to improve the hard and soft assets to ease supply side shocks. Improving the roads, highways and other infrastructural facilities apart from giving a fillip to the manufacturing base is the hard asset strategy. Skilling people, building institutional framework and creating an innovation eco-system is the soft asset part, he said.
When asked if India can achieve a 13-14 per cent growth, he said every economy has a natural speed limit based on the investment rate and the speed at which things can be done. He put India's limit at around 10 per cent. At the same time Sinha also emphasised that what is more important than the rate of growth is the duration of that growth and the measures that the government is taking will ensure that India grows faster and sustains that pace over a long period of time.
He said that there are three things that makes Indian economy perform at a slower place. Firstly, there are dysfunctional state governments. Then there is the issue of mindset. Most governments lack an execution focus and finally, India lacks adequate political leaders who are also great administrators. "Three things India needs today (to grow faster is) execution, execution and execution," he said.
Sinha also explained two major structural initiatives the government is taking to fuel India's growth. The state electricity distribution companies which are in dire straits will soon get a financial package that will ease their debt burden and at the same time make them viable and efficient. "A state has the policy space to offer power subsidies, it must think whether it has the fiscal space too," he said. The policy will offer the right incentives to reform the distribution system.
The other major challenge, he said, was bad debts of public sector banks. "It is a legacy issue that we inherited," he added. The government has come out with a five-pronged strategy -- fix governance in public sector banks, improve their operational autonomy (no political interference), attack bad assets problem, recapitalise the banks adequately and finally, set up Bank Board Bureau for better governing of the banks. "You will agree these are truly historical and sweeping set of reforms since nationalisation of banks," he said.