Economic Measures Suggested by McKinsey
- 27 Aug 2020
- 4 min read
Why in News
Recently, the McKinsey Global Institute (MGI) has released a report titled 'India's turning point: An economic agenda to spur growth and jobs'.
- The report identifies a reform agenda that could be implemented in the next 12 to 18 months to increase productivity and create jobs.
- Data Analysis:
- Increasing Workforce: Given the increasing urbanisation and population trends, there will be 90 million additional workers in search of non-farm jobs by 2030.
- Triple Job Creation: To cater to that, India will have to triple job creation to 12 million gainful non-farm jobs per year from the 4 million achieved between 2013 to 2018.
- Required GDP Growth: The Gross Domestic Product (GDP), which is set to contract by over 5% in 2020-21, needs to go up to 8-8.5% per annum for the next decade to create the opportunities in the post Covid-19 era.
- Promising Sectors: Manufacturing and the construction sectors offer the most opportunities for economic growth and also for higher employment.
- Risk of Stagnation: The country risks a decade of stagnating incomes and quality of life if urgent steps are not taken to spur growth.
- Measures Suggested:
- Global Shift: Global trends such as digitization and automation, shifting supply chains, urbanization, rising incomes and demographic shifts, and a greater focus on sustainability, health, and safety can become the hallmarks of the post pandemic economy.
- Higher Productivity through Privatisation: Privatisation of 30 or so of the largest state-owned enterprises to potentially double their productivity.
- Government also had a focus on privatisation under the Aatmanirbhar Bharat Package.
- Sector Specific Focus: Framing sector-specific pro-growth policies to attract investment in manufacturing, real estate, agriculture, healthcare and retail.
- Labour Reforms: Creation of flexible labour markets for industry with better benefits and safety nets for workers.
- Improvement in Infrastructure: India needs to unlock supply in land markets to reduce land costs by 20-25%, enable efficient power distribution to reduce commercial and industrial tariffs by 20-25%; and improve the ease and reduce the cost of doing business.
- Going Big: India needs to triple its number of large firms having revenues of over USD 500 million.
- Efficient Financing: Streamlining fiscal resources can deliver USD 2.4 trillion in investment while boosting entrepreneurship by lowering the cost of capital for enterprises by about 3.5 percentage points.
- Measures are required to channel more household savings to capital markets, to reduce the cost of credit intermediation, and to streamline government finance.
- Bad Bank: Creation of a ‘bad bank’ can take care of the inoperative assets.
- Responsibility for Reforms: A bulk 60% of the reforms will have to be undertaken by states and the remaining 40% by the Centre.