Economic Liberalisation in India - Ongoing Economic Challenges

Ongoing Economic Challenges

• Problems in the agricultural sector.
• Highly restrictive and complex labour laws.
• Inadequate infrastructure, which is often government monopoly.
• Inefficient public sector.
• Inflation in basic consumable goods.
• Increasing Gap Between the Lower and Upper Classes.
• Corruption
• High fiscal deficit
• Stagnant export and increasing Imports.

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OECD summarised the key reforms that are needed:

In labour markets, employment growth has been concentrated in firms that operate in sectors not covered by India's highly restrictive labour laws. In the formal sector, where these labour laws apply, employment has been falling and firms are becoming more capital intensive despite abundant low-cost labour. Labour market reform is essential to achieve a broader-based development and provide sufficient and higher productivity jobs for the growing labour force. In product markets, inefficient government procedures, particularly in some of the states, acts as a barrier to entrepreneurship and need to be improved. Public companies are generally less productive than private firms and the privatisation programme should be revitalised. A number of barriers to competition in financial markets and some of the infrastructure sectors, which are other constraints on growth, also need to be addressed. The indirect tax system needs to be simplified to create a true national market, while for direct taxes, the taxable base should be broadened and rates lowered. Public expenditure should be re-oriented towards infrastructure investment by reducing subsidies. Furthermore, social policies should be improved to better reach the poor and—given the importance of human capital—the education system also needs to be made more efficient.

— OECD