Tough reforms needed to revive Indian manufacturing sector, Baker Institute expert says

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July 7, 2014

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David Ruth

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Jeff Falk

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Tough reforms needed to revive Indian manufacturing sector, Baker Institute expert says

HOUSTON – (July 7, 2014) – The government of newly elected Indian Prime Minister Narendra Modi this Thursday will announce its budget, an occasion where Modi will unveil most of his new economic policies.

Tough reforms are needed to overcome the challenges facing the Indian economy and to revive the critical Indian manufacturing sector, according to Russell Green, the Will Clayton Fellow in International Economics at Rice University’s Baker Institute for Public Policy and an adjunct assistant professor of economics at Rice.

He shares his perspective in a new Baker Institute issue brief, “Four Tough Reforms to Revive the Manufacturing Sector in India,” co-authored with Thomas McAuley, a research intern in the Baker Institute’s International Economics Program. Green, who served as the U.S. Treasury Department’s first financial attaché to India from 2008 to 2011, is available to comment on India’s economy and Modi’s reform efforts.

Green said India flourished as one of the world’s fastest-growing economies for much of the last decade. “However, the past four years have seen a dispiriting collapse of growth to less than 5 percent per year,” he said. “While not bad by global standards, it hurts in a country trying to make major advances in human development indicators like childhood malnutrition and poverty.”

The main reason for this slowdown is a total collapse of investment, Green said. “Two recent analyses by International Monetary Fund (IMF) economists indicate the slowdown is not due to normal business cycles or external factors,” he said. “Rather, the business climate, and in particular the impact of uncertainty about government policies, appears to have made a major contribution to this slowdown.”

Green said the new government must target four interrelated reforms to remove uncertainty: improve the business climate, improve infrastructure, reduce onerous labor regulations and carry out substantial institutional reforms in the government.

“Identifying important reforms is a relatively easy job in India,” Green said. “The challenge is in implementation. India may therefore face a watershed moment when a prime minister known for getting things done has an unusually strong political base from which to act. He has indicated that reviving manufacturing is a critical priority for his administration, and its earliest moves back this up. Finally, the demographic dividend of young workers presents perhaps the last good opportunity India will have to experience sustained, high economic growth, and it can only happen through expanding manufacturing. The new government has all the right pieces to enact the four tough reforms and reignite India’s economy.”

For more information or to interview Green, contact Jeff Falk, associate director of national media relations at Rice, at jfalk@rice.edu or 713-348-6775.

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Related materials:

Green biography: http://bakerinstitute.org/experts/russell-green.

Founded in 1993, Rice University’s Baker Institute ranks among the top 15 university-affiliated think tanks in the world. As a premier nonpartisan think tank, the institute conducts research on domestic and foreign policy issues with the goal of bridging the gap between the theory and practice of public policy. The institute’s strong track record of achievement reflects the work of its endowed fellows, Rice University faculty scholars and staff, coupled with its outreach to the Rice student body through fellow-taught classes — including a public policy course — and student leadership and internship programs. Learn more about the institute at www.bakerinstitute.org or on the institute’s blog, http://blogs.chron.com/bakerblog.

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