Concerns related to the “Washington Consensus” approach

Source: The post concerns related to the “Washington Consensus” approach has been created, based on the article “A new paradigm for creating jobs” published in “Business standard” on 29th June 2024

UPSC Syllabus Topic: GS Paper3- Economy

Context: The article discusses the need for India to shift its focus from solely aiming for GDP growth to actively creating jobs through state intervention and smart policies. It criticizes the reliance on free markets and suggests adopting strategies similar to East Asian countries to boost industrial growth and employment.

For detailed information on “Washington Consensus” read this article here

What are the concerns related to the “Washington Consensus” approach?

1. Limited Job Creation: Despite high GDP growth rates post-1991 reforms influenced by the “Washington Consensus,” job creation has been inadequate. The focus on free markets didn’t lead to the expected employment benefits.
2. Comparison with China: In 1991, India’s per capita income and technological status were similar to China’s. However, unlike India, China used state-driven policies for industrialization and export success, now being significantly ahead economically.
3. Market Forces Limitations: Relying solely on market forces has shown limitations, as seen in India’s underperformance in job creation compared to its potential and historical economic strategies.

What should be done?

1. Intervene in Currency Markets: Reserve Bank of India need to intervene in currency markets to prevent the appreciation of the real exchange rate, which harms domestic value addition and job creation.
2. Reduce Business Costs: Address high logistics costs, which are about 50% higher than those of competitors, and rationalize high diesel taxes that nearly double the highest GST rates.
3. Implement Sector-Specific Policies: Follow the successful example of the Production-Linked Incentive (PLI) scheme, which turned India into a significant manufacturing hub for Apple, creating approximately 150,000 jobs.
4. Identify labor-intensive sectors in manufacturing and services where India can compete globally. Governments can help firms create competitive advantages and attract foreign direct investment.
5. Implement sector-specific measures that yield results within two to three years. Use tools like concessional finance, cheap land, public investment, and import duty adjustments as needed.
6. Focus on a few sectors initially to achieve a critical mass and self-sustaining growth. Avoid spreading resources too thinly. Success in the domestic and export markets should move together.
7. Favor producers who create jobs and workers over consumers and traders. A balanced approach in the globalized economy is necessary for job creation and economic growth.

Question for practice:

Discuss the criticisms of India’s reliance on the “Washington Consensus” approach and propose alternative strategies for job creation and economic growth.