The government needs to find a way to restore dynamism to an economy that has long been weak and has now been ravaged by the COVID-19 pandemic, former chief economic adviser Arvind Subramanian wrote in a paper.
"In particular, in view of the latest grim assessment of the banking system by the RBI, measures must be taken urgently to address the protracted and worsening Twin Balance Sheet problem, including revitalizing the IBC (Insolvency and Bankruptcy Code) which was one of the government’s major legislative achievements," Subramanian said in the paper.
In a paper titled The Economy and Budget: Diagnosis and Suggestions, co-authored with Josh Felman, Subramanian argued that the government can build on its strengths, by extending new welfarism to additional goods and services, while continuing to expand coverage of the goods and services it has already targeted.
"The dilemma, of course, is that new welfarism requires resources, which have become particularly scarce after the devastation of COVID – and which can only be generated by injecting dynamism back into the economy," the paper said.
The paper said that restoring dynamism requires improving the “software” of policy-making itself, the way policies are formulated, publicly articulated, and implemented. To do this, it requires ensuring data integrity, embracing transparency and a level playing field in policy decisions.
"Governing through consensus-building, compromise and patience; maintaining policy consistency; respecting and building institutions; and promoting rule of law. For only once this software is firmly in place, and backed up by soft power, will the private sector respond by investing in projects of the kind that will truly build the nation," the paper said.
The effort to continually improve this software will therefore perhaps be more important than the Budget itself, the paper noted.