I wrote a piece for Mint on how structural policy reforms have a similar effect to technology-driven deflation. The thesis for this article came from a tweetstorm:
If your existing asset base achieves 30% output increase, you defer capex, recruitment. Essentially capacity has expanded without investing a single rupee. Capacity utilization was anyway depressed because of pre-2014 mess, now it is further reduced. 2/n pic.twitter.com/QPVMsmSDWi
— Rajeev Mantri (@RMantri) January 8, 2018
The effect is like that of technological deflation. On the surface it appears that nothing is happening, the numbers don’t capture the capacity created due to productivity enhancement. Below the surface, there has been a step jump. The waste has stopped. 4/4
— Rajeev Mantri (@RMantri) January 8, 2018
This is the political challenge of structural reform. The disruptive transition caused by reform means not all incumbents make it into the “new world”, just like technological changes invalidate some of the incumbents with new entrants taking their place. Those affected adversely – whether they are business and asset owners who become uncompetitive, or workers who lose their jobs – will not take kindly to being sidelined.