Raghuram ragan make in india
.docx
School
University of Delhi**We aren't endorsed by this school
Course
ECONOMICS MISC
Subject
Economics
Date
Dec 18, 2024
Pages
6
Uploaded by DrWorldGiraffe3
The global economy has experienced sluggish growth in recent years, prompting theInternational Monetary Fund (IMF) to continuously revise its growth forecasts downward.Following six years of a lackluster recovery post-financial crisis, the IMF's "World EconomicOutlook" reflects persistent challenges, encapsulated by the title "Legacies, Clouds andUncertainties." This slow recovery has raised questions about why the world economy isstruggling to return to pre-recession growth rates or even reach the GDP levels anticipated if theGreat Recession had not occurred. Typically, economies rebound quickly after recessions, butthis time, both GDP levels and growth rates remain subdued.One explanation for this persistent slow growth is the overhang of debt. High levels of debtconstrain economic expansion as banks face limitations on lending, households struggle toborrow, and governments are unable to engage in Keynesian spending due to restricted fiscalspace. This scenario has led to what the IMF Managing Director describes as the "NewMediocre," where growth remains unacceptably low relative to potential, and more stimulusmeasures are deemed necessary to boost economic performance.A different narrative about the pre-crisis period highlights structural issues, such as secularstagnation and challenges in total factor productivity, exacerbated by technology andglobalization. The export-led growth model, which many emerging markets have traditionallyrelied upon, appears less viable in a world with sluggish external demand. Consequently,initiatives like "Make in India" need to be re-evaluated, focusing on bolstering domestic demandand enhancing internal economic stability. This comprehensive approach aims to create aresilient and self-sustaining economic environment in India.Secular StagnationSecular stagnationrefers to a condition of negligible or no economic growth in a market-basedeconomy. This concept, reintroduced by economist Lawrence Summers, suggests that someadvanced economies are facing long-term stagnation due to several factors:●Insufficient Demand: Persistent lack of demand despite low interest rates.●High Savings, Low Investment: High levels of saving and insufficient levels ofproductive investment.●Demographic Trends: Aging populations leading to reduced consumption andinvestment.●Technological Advancements: Rapid technological progress that might not createenough new jobs to replace those displaced by automation.Total Factor Productivity (TFP)
Total Factor Productivityis a measure of the efficiency with which all inputs (labor, capital,etc.) are used in the production process. It is often seen as a measure of an economy's long-termtechnological change or productivity growth.●Importance: TFP growth is crucial for long-term economic growth as it reflectsimprovements in an economy's efficiency and innovation.●Factors Influencing TFP: Innovations, advancements in knowledge, improvements inmanagerial skills, better allocation of resources, and economies of scale.Promises to DeliverPromises to Deliverrefers to the commitments made by governments to their populace in termsof economic policies and outcomes:●Managing Debt and Expectations: Governments must balance between managingpublic debt levels and meeting public expectations without resorting to excessiveinflation or default.●Economic Policy: Implementing policies that can realistically be achieved and that fostersustainable economic growth.●Trust and Credibility: Maintaining trust and credibility by delivering on promises, thusavoiding social unrest and maintaining economic stability.Technology and GlobalizationTechnology and Globalizationhave dramatically changed the economic landscape, with bothpositive and negative effects:●Impact on Jobs: Automation and technological advancements have displaced routinemiddle-class jobs, leading to job bifurcation into low-paying and high-paying categories.●Middle Class Anxiety: The middle class in industrial countries faces anxiety overeconomic mobility, quality education, and financial security.●Global Supply Chains: Globalization has led to the creation of complex global supplychains, increasing efficiency but also exposing economies to global shocks.●Income Inequality: Both forces have contributed to rising income inequality within andacross countries.Export-led GrowthExport-led Growthis an economic strategy where a country seeks to grow its economy byexporting goods and services:
●China's Model: China successfully used export-led growth to transform its economy,leveraging its vast labor force and integrating into global supply chains.●Challenges for India: Rajan argues that the same path may not be viable for India dueto:●Limited Global Demand: Slow growth in industrial countries limits their abilityto absorb significant imports.●Competitive Pressures: India faces stiff competition from other countries,particularly China, which still has untapped labor reserves.●Need for Domestic Focus: Given these challenges, focusing on domestic demandmay be more sustainable for India.Make in IndiaMake in Indiais an initiative launched by the Indian government aimed at transforming Indiainto a global manufacturing hub:●Objectives: Increase manufacturing sector's contribution to GDP, create jobs, and boosteconomic growth.●Government's Role: Improve the efficiency of production in agriculture, mining,manufacturing, and services.●Infrastructure Development: Develop infrastructure such as roads, railways, ports, andairports to facilitate market connectivity.●Sector-Specific Public Goods: Provide tailored public goods like quality certification forSMEs and marketing platforms.●Regulatory Environment: Simplify regulations and reduce bureaucratic hurdles to lowerbusiness costs and attract investments.●Labor Reforms: Implement reforms to make the labor market more flexible andencourage firms to invest in worker training and development.●Financial Inclusion: Enhance access to finance to support domestic demand andmobilize savings.Some CaveatsSome Caveatsrefer to the cautionary points or limitations that should be considered in thecontext of economic policies and strategies:●External Environment: The global economic environment is uncertain and may notsupport extensive export-led growth as it did in the past.
●Structural Challenges: India's structural issues, such as labor laws, land acquisitionproblems, and bureaucratic red tape, can impede the effectiveness of initiatives like"Make in India."●Policy Implementation: Effective policy implementation is crucial. Without efficientexecution, even well-designed policies can fail to achieve desired outcomes.●Inclusivity: Ensuring that growth benefits all sections of society is essential to avoidsocial unrest and promote sustainable development.Make for IndiaMake for Indiaemphasizes focusing on domestic markets rather than relying heavily onexports:●Domestic Demand: Given muted external demand, the emphasis is on catering to thevast internal market. This approach aims to drive growth by increasing domesticconsumption and investment.●Unified Market: Creating a national market through initiatives like the Goods andServices Tax (GST), which can reduce transaction costs and barriers between states,fostering a seamless internal market.●Urbanization and Rural Development: Balancing urban growth with rural developmentto ensure comprehensive economic progress. Investments in urban infrastructure andrural connectivity can stimulate both markets.●Consumer Preferences: Understanding and catering to the diverse consumer preferenceswithin India to drive demand for locally produced goods and services.Fiscal SpendingFiscal Spendinginvolves government expenditure aimed at stimulating economic growth:●Investment in Infrastructure: Building and upgrading infrastructure such as roads,railways, ports, and power supply to support industrial and economic activities.●Public Goods Provision: Ensuring the availability of public goods like education,healthcare, and sanitation which can enhance productivity and quality of life.●Social Safety Nets: Implementing programs to support the vulnerable sections of society,which can boost consumer confidence and spending.●Budget Discipline: Maintaining fiscal responsibility by controlling deficits and ensuringthat spending is productive and sustainable. Creating independent budget offices can helpin maintaining transparency and accountability.Financial Stability
Financial Stabilityrefers to maintaining a stable financial system that can withstand economicshocks:●Healthy Banking System: Ensuring banks have robust balance sheets and are well-capitalized to lend efficiently and manage risks effectively.●Inflation Control: Keeping inflation low and stable to maintain the purchasing power ofthe currency and ensure economic stability.●Regulatory Framework: Implementing a sound regulatory framework that monitorsfinancial institutions, prevents systemic risks, and promotes prudent lending practices.●Inclusive Finance: Promoting financial inclusion to ensure that all segments of societyhave access to banking and financial services, which can support domestic demand andinvestment.International FrameworkInternational Frameworkinvolves engaging with the global economic system whilesafeguarding national interests:●Trade Policies: Developing trade policies that open markets for Indian goods whileprotecting critical domestic industries from unfair competition.●Foreign Investment: Encouraging foreign direct investment (FDI) that brings in capital,technology, and managerial expertise, contributing to domestic economic growth.●Global Supply Chains: Integrating into global supply chains in a way that maximizesbenefits for the Indian economy, ensuring that India is not overly dependent on any singlemarket or supplier.●Diplomatic Engagement: Leveraging diplomatic channels to foster economiccooperation and resolve trade disputes amicably.●Multilateral Organizations: Actively participating in multilateral organizations like theWTO to shape global trade rules that are favorable to developing countries like India.ConclusionRaghuram Rajan's "Make in India, Largely for India" advocates a nuanced approach to economicdevelopment. It underscores the importance of focusing on domestic demand ("Make for India")to drive growth in a sustainable manner. Fiscal spending should be disciplined and focused onproductive investments in infrastructure and public goods. Financial stability is critical to ensurethat the financial system can support long-term growth without succumbing to crises. Finally,engaging with the international economic framework should be strategic, maximizing benefitswhile protecting national interests. This balanced approach aims to achieve robust and inclusiveeconomic growth for India.