Govt should focus on infra, structural reforms for jobs: ADB's Mio Oka

India's economic growth has proven resilient post-COVID, even amidst global challenges, said Mio Oka

The next government should continue its focus on infrastructure development and structural reforms for more jobs and intensify efforts to become a leading exporter of manufactured products, MIO OKA, country director (India), Asian Development Bank (ADB), tells Ruchika Chitravanshi and Asit Ranjan Mishra in an email interview. Oka says as India’s long-term partner, the ADB is keen to support the government’s reform initiatives. Edited excerpts:

What are the near-term and medium-term growth challenges you anticipate India to face?

India’s economic growth has proved resilient after the pandemic even amidst global challenges. However, the global economic and geopolitical environment poses short-term risks. Any global supply shock leading to rising commodity prices could hinder the Reserve Bank of India’s (RBI’s) efforts to contain inflation at 4 per cent and impact growth. Additionally, climate change is a critical issue. Another major challenge is maximising India’s demographic dividend.

The Centre has received from the RBI almost double its dividend estimate. How do you think the next government should utilise the money — to push higher capex or reduce the fiscal deficit?

It’s important to note that the RBI’s dividends can be volatile and may not have a material fiscal impact over the medium term. Consequently, the Interim Budget, presented in February, prudently continued the post-pandemic approach to fiscal consolidation and increased capital spending. Additionally, April 2024 saw strong goods and services tax collection, reinforcing fiscal stability. Considering these developments, we can wait for the new government’s full Budget for any necessary revisions in the annual revenue targets, and consequent adjustments to expenditure and borrowing plans.

What are the areas of reforms the next government should focus on?

The government should continue its focus on infrastructure development and structural reforms for more jobs. Improving labour- and land-market efficiency is essential. The government’s consolidation of 29 central labour laws into four new labour codes in 2020-21 was a significant step towards these; it is imperative that states implement these new codes promptly. India should also intensify efforts to become a leading exporter of manufactured products and integrate into global value chains. Achieving success here, particularly via labour-intensive exports, will create jobs in the formal sector. Despite government progress in infrastructure and regulatory reforms, further policy action would be needed. These include simplifying tariff policies, enhancing trade and logistics infrastructure, and developing large-scale economic zones with competitive ecosystems. 

Equally crucial are policies to reduce carbon intensity in the economy, improve urban planning, and increase investment in health and education. These require sustained focus on governance and regulatory reforms, especially at the state level. As India’s long-term partner, the ADB is keen to support the government’s reform initiatives in the urban, energy, and health sectors, as well as policy frameworks for an industrial corridor, logistics development, and an integrated approach to industrialisation and urbanisation.

Do you think India’s debt level is cause for concern? What should be an ideal level of debt-GDP ratio for the Centre and states of India?

Instead of targeting a specific debt level, we would prefer to see the government aiming for a declining debt-GDP ratio. Continued improvement in revenue mobilisation will support aggressive fiscal consolidation.

Why has private capex not picked up despite significant capex push by the government?

Following the recovery from the pandemic, there was sufficient capacity to meet demand, leading to muted private investment. Geopolitical tensions, especially the Russian invasion of Ukraine, and rising input prices further dampened investor enthusiasm. In response, the government boosted infrastructure spending to stimulate demand. The government also took steps to improve the manufacturing ecosystem by improving logistics, streamlining business processes, and introducing an improved insolvency and bankruptcy framework to attract private investors. I feel these efforts are yielding results. The business outlook is improving, and capacity utilisation is rising. We are optimistic about a rebound in private investment across various industries in the current and next financial years, assuming macroeconomic stability. There is notable investment in renewable energy too.

How do you think India should deal with the employment challenge, given its burgeoning young workforce? 

It is crucial for the private sector to increase its demand for labour, while ensuring that workers receive the right education and skills. Further, we need to recognise the need for enhancing the female labour workforce participation through skilling and creating job opportunities as well as an enabling environment.

Worries about automation and artificial intelligence reducing labour demand seem too alarmist. History shows that the introduction of new technologies always generates new jobs and occupations.