India has always been the most forward-looking economy of South Asia. Growth and Development, which have been the prerogative of developed economies in the region, have been relatively slow in India till the past five years or so. The slowdown was mainly caused by two factors: weakening of the Indian fiscal position due to slowing down of domestic growth and slowing down of investment demand as a result of the rising cost of living. Between these two factors, there has been a marked slowdown in the industrial sector, which accounts for around 25% of the total GDP. But this does not mean that industrial sector is completely bad for India's economy: if one looks at the bigger picture, things are looking rosy.
Policies related to economic growth in India have been hit by these two crucial factors: policies related to macroeconomics (the demand, supply and exchange policies) and policies related to microeconomics (the internal structure of the economy such as distribution of income and wealth, employment and prices, etc). Policy makers who have been dealing with the above mentioned macroeconomic issues have not been able to find a common solution to their problems, despite the introduction of the macro policy frameworks. This, coupled with the advent of the global recession, led to the growth of inflation in the country. With inflation, demand for goods and services weakens and with it, the potential growth rate. If demand continues to weaken, then the growth rates will begin to decline.
Economic policies, which are mainly directed towards providing support to businesses, are not helping much in this context. Since, the policies are focused more on infrastructural development, the infrastructures are yet to catch up with the demand. In short, growth in India depends a lot on the infrastructural infrastructures, which are lagging behind in most sectors of the economy.
However, structural changes alone cannot drive policy implementation. Ultimately, it will require a broad consensus at every level of the government. That means, only a majority of cabinet members need to agree upon a given policy. The majority of states also have some control over policy implementation. That means, there has to be a requirement for a super-legislature at the national level to push through needed reforms.
The super legislature has to be formed before any policy is framed. Once formed, it needs to scrutinize and push through changes in the policies. In other words, the policies have to be brought into force. Then again, that might not happen. In such a scenario, the state governments have no option but to rely on the center for support.
The center is itself struggling to bring structural changes in the policy framework. The recent recession has shaken the foundations of the major sector players. Even the corporate sector has suffered from adverse effects. State governments find it difficult to fulfill . . . . . . their responsibilities towards the reduction in the poverty lines.
The federal and state governments, with a few exceptions, are tending to adopt highly regressive policies, which are not capable of lifting the economy out of recession. The main reason for this is the difference in tariff structures between the states. Each state uses a different structure of indirect tax and indirect duty. The states with progressive taxation have higher rates than others. That's the reason why the Centre has been lagging behind in implementing reforms.
Economics of India has not been ignored by any political entity since independence. No political party has ever come out with a comprehensive economic policy program. Economics has been a major part of India's socio-economic development since ages. However, it's time that India's political parties finally realize the need for real change in the polities that are deeply entwined with the policies and practices of economic globalization.