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India needs land, labour, financial reforms: economic adviser
INDIA'S next government will have to bring in land, labour and financial sector reforms to improve the productivity of the manufacturing sector and boost economic growth, India's chief economic adviser said. "These are the critical areas, we need to work on," Krishnamurthy Subramanian told Reuters in an interview.
Several business leaders said that a delay in land acquisition for private factories, decades-old restrictive labour laws and higher borrowing costs discourage many investors who therefore prefer to build new plants in countries such as Vietnam, Thailand, and Bangladesh.
The share of manufacturing in the economy has grown just 1.5 percentage points in the last three years to 18 per cent, and good exports have shown little sign of a pick-up in the last five years.
India's economic growth rate has decelerated to a five-quarter low of 6.6 per cent in the last quarter of 2018, dragged down by lower growth in consumer demand and government spending, raising concerns among policymakers and politicians.
But brushing aside concerns about an economic slowdown, Mr Subramanian said that the present government's economic reforms have contributed to an average annual growth rate of 7.3 per cent over the past five years.
Mr Subramanian, who was a student of former Reserve Bank of India governor Raghuram Rajan at the University of Chicago Booth School of Business, was appointed as chief economic adviser by Prime Minister Narendra Modi last December for three years.
Mr Modi tried to push land and labour reforms after he took charge in 2014, but had to shelve them after strong opposition from political parties and labour unions.
Industry has for years sought approvals for easy acquisition of land at a cheap price for setting up factories, flexible labour laws to hire and fire workers, a subsidised social security network for employees, and lower interest costs for funding to compete with other countries.
Land costs have more than doubled over the past five years, and hiring costs have gone up significantly, hitting labour intensive sectors such as textile, leather and gems and jewellery, business leaders said.
The country faces an uphill task to create jobs and shift millions of unemployed and underemployed youth from the rural farm sector to urban areas.
As many as 75-100 million young people are expected to come onto the Indian labour market in the five-year term of the next government. A general election must be held by May.
As for low food prices, Mr Subrmanian said that increasing farm production is taking its toll on prices. "We have a population that is growing at less than one per cent, and the food is growing more than 3 per cent," he said referring to fall in prices of food items. "Because there is a surplus, the prices will go down," he said, adding that India's farm sector faced a real crisis and needed government intervention. REUTERS