UNCTAD prescribes reversal of India's economic policy

United Nations Conference on Trade and Development (UNCTAD) has strongly come out against India’s export-oriented strategy for economic growth and made prescriptions which might require a reversal of current economic policies.

The UN agency, in its report for 2013, has suggested public spending and wage increase to boost domestic demand as an essential strategy.

“If wage growth follows the path of productivity growth, it will create sufficient domestic demand to fully employ the growing productive capacities of the economy without having to rely on continued export growth,” says the report.

In its analysis of the prevailing economic situation, the Trade and Development Report, 2013 of UNCTAD asks for rebalancing of domestic and external factors, “A strategy that places greater emphasis on domestic demand will need to aim at an appropriate balance between increases in household consumption, private investment and public expenditure.” 

The report suggests an increase in labour income as a measure to enhance domestic consumption. “Labour income is the most important source of household consumption, which generally accounts for between half and three quarters of aggregate demand, even in relatively poor countries and countries with a relatively large export sector.” The idea runs contrary to the economic policies being pursued in India where labour reforms are being sought for facilitating Foreign Direct Investments and stringent labour laws are being considered as an impediment to growth.

“In economies with fairly large formal sectors, the functioning of such an income policy could be enhanced by building institutions for collective bargaining and the introduction of legal minimum wages,” the report suggests.

UNCTAD also strongly supports policy of remunerative prices to farmers. “In countries with a large rural sector with many small producers, introducing mechanisms that ensure fair prices for agricultural producers – for instance by linking those prices to the overall productivity growth of the economy – would be another element of a strategy to increase domestic consumption, strengthen social cohesion and at the same time induce more productivity-enhancing investments.”