by Mitch Kokai
Senior Political Analyst, John Locke Foundation
One certainly gets the sense that the Indian government is moving in the right direction by relying on advice from University of Chicago economist Raghuram Rajan. Bloomberg Businessweek offers the details.
Rajan’s view of India’s problems, as stated in a number of withering speeches, is that corrupt politicians, officials, and middlemen have hobbled free markets by monopolizing licenses, government funds, infrastructure projects, and more. Despite India having “a ton of billionaires,” Rajan says that only 42,000 people report incomes of more than $180,000. “There are a large number of people who ought to be paying their taxes who are not,” he says, likening India’s business elite to Russian oligarchs. On March 13 he told Indian broadcaster New Delhi Television that India is overregulated, and that sick companies don’t die quickly enough. …
… Rajan’s solutions, which he laid out in the annual “Economic Survey” published in February, include cutting the number of regulations to reduce opportunities for corruption, tearing down trade barriers to allow more foreign competition, dismantling labor laws that stifle hiring, and overhauling the financial system to make it more responsive to ordinary customers. An important item on his agenda is to replace India’s mishmash of state and local taxes with a broad-based tax on goods and services.
Too many of India’s small businesses are stuck in the informal economy, with no access to capital to improve productivity and no protections for workers. Rajan, who won’t comment on Indian media reports that he will be the next central bank governor, says that a “second generation of reforms” to improve infrastructure, schools, and manufacturing is critical to ensuring long-term success.