What is India’s Economic Model? 

Many people ask me - what is economic philosophy of Indian government? It appears that many observers, especially economists steeped in conventional textbook ory, find some of our policies inexplicable even when y are clearly working. This is an attempt at a short explanation. 

First of all, most of India’s current economic policies are easily explained as “supply-side” in that y are oriented towards enhancing productive capacity of economy. This entails encouraging commerce, entrepreneurship, innovation, and investment; hence focus on infrastructure, ease-of-doing business, “creative destruction” and so on. large structural reforms of last dece - such as GST, Insolvency and Bankruptcy Code (IBC) etc - are all directed to this. This is not a blind belief in pure free markets. When needed government is willing to intervene in a targeted way, but only if it encourages entrepreneurial energy. Intervention that stalls creative destruction and innovation les to Ambassor car. 

Second, today’s policymakers believe that compounding GDP growth over long periods is key to prosperity. This means that macro-economic stability should never be compromised for a short-term spurt as this jeopardizes sustainability of process. inflation-targeting framework has been successful in bringing India’s “normal” inflation from 8-12% range to 4-6% range. Even in midst of Covid-19 crisis, this government did not sacrifice fiscal and monetary control. Keynesian demand management is useful for smooning cycles, but it is not real game. 

Third, some part of fiscal resources generated from growth must be transferred to very poorest sections of society in a targeted way. This concept of Antodaya is about helping last person in queue and not about trying to hold back rich. This is about removing absolute poverty and not about indulging in politics of envy. Thus, we have seen a large number of schemes ranging from building toilets and homes, to giving everyone an identity and a bank account. Those at bottom-of--pyramid need both a safety-net and a lder. 

All our policies can be understood from above three-sided framework. However, even as we look forward to becoming world’s third-largest economy by around 2027-28, we must recognize that we need to sustain high growth for next 25-30 years to take per capita incomes to a level where we can call ourselves a developed economy. Growth is not pre-ordained and requires that we continue to do reforms. Two big areas of future reform relate to judicial system and bureaucracy. cycle of reforms must dress se two areas.