Economic Survey 2018-19 presents a window for Narendra Modi to live his China dream

Presented a day ahe of budget by convention, Ecomic Survey is a techcratic review of state of ecomy. While budget is about political ecomy and carries a strong imprint of political realities of day, Survey is a blueprint free from constraints of next election, and hence charts a potential ideal path. one tabled by Finance Minister Nirmala Sitharaman in Parliament today, suggests a direction that if taken at its tide could deliver Prime Minister Narendra Modi his China dream. From his days as Chief Minister of Gujarat, Modi has shown an inclination for Chinese model of development partly shaped by his many visits to China scouting for investments and ideas for his Vibrant Gujarat summits. His formulation of troika of ‘Speed, Scale, and Skill’ as panacea for all that ails India’s development trajectory reflects those impressions. Setting up a separate ‘Skills-Ministry’ was one of his early decisions in first term, and schemes like Jan Dhan and Ujjwala have carried imprimatur of speed and scale in execution.

At root of China dream that has lasted four deces and more is an ecomy drawing in-exhaustively from domestic savings translating into national capital formation, and a society that has backed it with discipline of a military. Ecomic Survey speaks exactly of that as ‘key-driver’ to kickstart Indian ecomy and pull it back from stupor it has been in of late. For shifting of gears, Survey suggests some rical measures on industry and society, most sweeping of which is in small-scale sector. survey calls bluff of this segment of ecomy as holy cow of manufacturing and calls for phased withdrawal of incentives regime in favour of younger and larger firms. It also asks for unleashing of labour reforms that favour attaining of ‘speed and scale’ by entrepreneurs.

What passes off as small-scale sector accounts for roughly half of industrial firms in India yet provides only 13% of jobs. Against this much-maligned capital-intensive large-scale sector provides 25% of jobs in country, while accounting for only 6% of total firms in numbers. In terms of net value ded, large-scale accounts for 38% against a mere 4.7% of small-scale. On jobs front, survey says that those states in India which show flexibility of labour laws contribute more towards overall employment and capital productivity. aver number of workers per factory, capital per factory and ws per factory are higher in states with flexible labour laws than those with rigid socialist era rules on hiring and firing.

From a conservative ecomics perspective it is in fitness of things that writer of survey, Chief Ecomic visor KV Subramanian, comes from Chicago Booth School of Ecomics. Though this is t first time that someone has highlighted built-in failure mechanism in last relics of Nehruvian socialism. whole edifice of India’s liberalization journey has been based on deconstructing Nehru’s superstructure. While corruption and lack of capacity impaired productivity in large State enterprises, protections given to small-scale sector built inefficiencies into system. 2018-19 Survey provides a fresh opportunity to revert to reforms that Modi 2.0 should grab with both hands.

Yet, it is t going to be easy. Illiterate of Nehruvian trap, right-wing industry and labour organizations are w equal champions of old framework. If anything, more than decimated and irrelevant left, it is challenge from Rashtriya Swayamsevak Sangh (RSS) that Prime Minister Narendra Modi would have to contend with. In his stump speeches during general elections, Modi would call his first term a nuts-and-bolts job aimed at bringing nation out of UPA morass. His second term ideally should be about a Modi legacy. If that be case, he might listen to only political leer from recent history quoted in Ecomic Survey today – China’s reforms architect Deng Xiaoping: Feel stones and cross river. Over to budget speech.