Cut Subsidies to Boost Growth, US Treasury Secretary's Message for Jaitley
Ahead of the upcoming Union Budget, US Treasury Secretary Jack Lew made a pitch for cutting subsidies, which account for just 2 per cent of India's GDP. The suggestion comes at a time when the Modi government is struggling to raise resources needed to boost spending to jumpstart economic growth.
"Cutting back on subsidies and freeing up resources to invest in the future should make the economy both more efficient and build the foundation for future growth," Mr Lew told NDTV's Prashant Nair.
Finance Minister Arun Jaitley has previously said that he is in favour of subsidy rationalization. Mr Jaitley, however, maintains that elimination of subsidies in India, where one-third of the people are still living in poverty conditions, is neither possible nor desirable.
The Treasury Secretary also cautioned the government that it should not rely on "one solution" to create jobs; economic policies should be designed to encourage risk taking and entrepreneurship, he said.
"The economy as large as India's, with population as large as India has, there is going to be need for many different areas of economic growth. So there will be some growth in manufacturing that looks like large factories. There will be other things, where more entrepreneurs are doing start-ups that create the economic engine for the future," Mr Lew said.
The remarks come in the backdrop of the Modi's government's ambitious "Make in India" programme that aims to transform the country into a global manufacturing hub. The government believes that if the share of manufacturing sector goes up, millions of jobs could be created to cater to the young population.
There has been an intense debate whether focusing on manufacturing alone will yield results at a time when the global economy is in the midst of a prolonged slowdown and major economies are competing to devalue their currencies to boost exports.
Meanwhile, the Modi government's focus on reforms came in for praise. "I think there is a great deal of enthusiasm for the reform agenda that the Prime Minister has put forward," Mr Lew said.
The US treasury secretary also said the US will "push back very hard" against countries that target weaker exchange rates to gain an unfair trade advantage.
"There is a very big difference between countries that use domestic tools for domestic purposes, macroeconomic tools to grow their economy which is something that in the world community we have agreed to and we in the United States have used in QE for example," he said. "On the other hand, it is another thing to target your currencies for the purpose of gaining unfair trade advantage."