Education & Job

Virus crisis is chance for India to reform economy

NEW DELHI: A looming economic crisis triggered by the coronavirus pandemic is a chance for India to enact sweeping reforms to fix ailing sectors and attract more foreign investment to the country.

That’s a call being made by a former central banker and an ex-government official, as well as financial market participants, who say India needs to liberalise and deepen its financial markets, and take policy steps to fix the banking and farm sectors.

There are early signs of this already happening, with the central bank giving overseas investors greater access to its sovereign bonds, allowing local banks to tap offshore currency markets and companies a choice of more complex hedging tools.

Coronavirus outbreak: Live updatesIndia is facing its biggest crisis in decades, with a three-week lockdown in a nation of 1.3 billion people likely to result in economic recession, millions of job losses and possible starvation among the poor.

“It is said India reforms only in crisis,” Raghuram Rajan, the former governor of the Reserve Bank of India (RBI), wrote in a LinkedIn post this week. “Hopefully, this otherwise unmitigated tragedy will help us see how weakened we have become as a society and will focus our politics on the critical economic and health care reforms we sorely need.”

India has a history of taking reform steps during periods of crisis. For example, in 1991-92, it freed the private sector from a myriad of government controls, deregulated financial markets, reduced import tariffs and opened up the economy to more foreign investment to avoid a balance of payments crisis.

Time-line of reforms induced by crisis:

* 1991-92:

With the economy on the brink of a balance-of-payments crisis, the then government cut import tariffs, abolished industrial licensing to foster competition. A stock market scam during that period led to formation of the capital market regulator — the Securities and Exchange Board of India (Sebi).

* 1997-98:

Economic sanctions post India’s nuclear weapons tests, and the Asian financial crisis prompted large-scale divestment of state-run assets to garner revenues.

* 2014:

Post the Federal Reserve’s taper tantrum, authorities started work on an inflation-targeting regime for the central bank and an asset quality review that made disclosure of India’s bad loans more transparent.

Prime Minister Narendra Modi has championed a number of reforms since first coming to power in 2014, including introducing a nationwide sales tax and an insolvency law, reducing corporate tax rates and kickstarting the biggest sale of state assets. At the same time, he’s raised import duties and dithered on trade deals, setting back progress.

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