The government has promised subsidies for so many things, but it does not have the revenues to fund them, says Shikha Dalmia, a senior policy analyst at Reason Foundation, a Los Angeles-based think tank.Dalmia says unless the poor get richer, the domestic market is going to be considerably stalled. India should be achieving 10 per cent growth rate as a matter of routine, she tells Faisal Kidwai in a phone interview.
Here are the excerpts:
Why is India's growth rate slowing down?
There were supposed to be next generation of reforms that investors, both abroad and domestically, have been waiting for a long time, but now liberalisation has stalled.
Another reason is the political paralysis. The rules to liberalise foreign investments are not great, rules to allow foreign investors in retail is still uncertain and then there are all kinds of other problems, such as diesel subsidies. The government has promised subsidies for so many things, but it does not have the revenues to fund them.
The tax system is horrendous and there does not seem to be any political party that seems to have the political clout needed to push the kinds of changes that are required. So, all of that is now catching up with the country.
You have said that liberalisation has benefitted the rich more than the poor. What went wrong?
If you look at sectors from where the reforms began - IT, telecom, airlines - these are industries basically patronised by the upper middle class or the rich. It's sort of expected as the rulers of any country come not from the lowest strata of society but upper middle or rich class. They understand problems of their own classes, so it's logical that they would push reforms in those sectors.
But liberalisation has not helped the lower strata. For instance, look at the plight of street vendors. The IT and telecom sectors were released from the shackles of the Licence Raj but street vendors, daily wage earners and rickshawalas still live under it. They are required to get all kinds of permits and since these permits are expensive these people are open to abuse and harassment, which prevents them from accumulating the kind of capital and savings they require to expand and improve their lot.
This is not to say that they have not benefitted from reforms at all. If the country grows at the top, there is going to be some trickle down of wealth and income because people on the lower end are going to get more business from the people on the upper end. But the lower end has not been empowered to improve its lot. They are still very much dependent on business from top. They cannot set up businesses, cannot accumulate the kind of capital that would acquire them to start a small business. The expansion of entrepreneurship is not possible for them.
That's another reason why economic
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