Daily Editorial Analysis for 8th Sep 2021

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The economic reforms — looking back to look ahead

Why in News

The ongoing pandemic completely shook the Economy of India. It is the high time to chase the new dimensions of Economic Policy and focus need to be shift towards ‘Human Resource Capital (HRC)’.


  • Since the introduction of ‘Industrial Revolution in 1991’, Economic reforms of India always focus on the technical nature of the economy rather than the system, process and people.
  • During framing Economic policy, few primary drivers like, human capital, technology readiness, labour productivity, disposable income, capital expenditure, process innovation in setting up businesses, and institutional capacity, have always been neglected.

Analysis of Economic Growth of India

  • Human Resource Capital (HRC):
  • As per Global Human Capital Report, 2017, the HRC rank for India stands at 103, whereas Sri Lanka is at 70, China at 34, and South Korea at 27.
  • Reason behind the low HRC:
  • Lack of quality education,
  • Low skilled manpower and
  • Inadequacies in basic health care.
  • Gross Domestic Product (GDP):
  • As per the World Bank, there is low per capita GDP in India. India ranked 125th globally in terms of Purchasing Power Parity.
  • It directly links to low per capita family income.
  • Labour productivity in manufacturing:
  • According to the World Bank publication of 2018, Labour productivity in manufacturing of India is less than 10% of the advanced economies including Germany and South Korea, and is about 40% of China.
  • Low research and development expenditure:
  • Low research and development expenditure of India is 0.8% of GDP, whereas, South Korea (4.5%), China (2.1%) and Taiwan (3.3%).
  • As a result, it lowers the capacity for innovation in technologies and reduced ‘technology readiness’, especially for manufacturing.

Reasons for low Economic Growth in India

  • Labour Productivity:
  • The lack of HRC and low technology readiness have impacted labour productivity adversely.
  • In India, labour productivity in manufacturing is less than 10% of the advanced economies, which led unfavourable consequences for competitiveness, manufacturing growth, exports and economic growth.
  • Loss of creative energy of entrepreneurs:
  • Lack of capital expenditure and institutional capacity,
  • Inefficiency in business service processes,
  • Difficulties in acquiring land for businesses,
  • In efficient utilisation of economic infrastructure, and in providing business services, leading to a long time and more cost in setting up enterprises, resulting in a loss of creative energy of entrepreneurs.

Solutions to boost Economy of India

  • Need to focus on quality of business services, technology readiness, labour productivity and per capita income.
  • To attract large investment in manufacturing and advanced services, at a basic level, investment in human capital and technology is a prerequisite.
  • Raising HRC by enhancing public sector outlay to 8% of GDP, from current about 5%, for education, skill development and public health.
  • There is a need to work on strategies to enhance per capita income by more wages for workers through higher skills and enhancing minimum wages.
  • Policy reforms should lay an emphasis on process innovation and promote a business-centric approach to implementing pre-determined service quality levels (SQLs), to create a friendly ecosystem by having a state-of-the-art plug-and-play model for new enterprises.

Way Forward

  • The strategies adopted since the 1990s till now may not ensure adequate returns, and call for innovative approaches in public policymaking.
  • In sum, it necessitates a systemic approach, encompassing inter-connected basic factors of the economic system, for policy reforms for setting the economic fundamentals right, in order to unlock creativity and innovation in the economic system, raise the total factor productivity (TFP), or a measure of productive efficiency, and to achieve higher growth.


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