Sri Lanka has largely restored macroeconomic stability, but sustaining its recovery will depend on building domestic consensus for politically difficult structural reforms, according to former Planning Commission of India Deputy Chairman Montek Singh Ahluwalia.
Ahluwalia, an architect of India’s 1990s economic reforms, was speaking at the ‘India Calling’ forum organised by the Lanka India Business Association at the Taj Samudra in Colombo on Wednesday.
He argued that countries emerging from economic crises often mistake stabilisation for recovery, when it merely creates the conditions for the harder task of lifting long-term growth.
“So we need the stability, but we also need to get much closer to what is our real growth potential. That’s where structural reform comes in,” he said.
Reform inevitably becomes contentious because it redistributes costs and benefits, creating winners and losers even when overall growth rises, he said. That made internal debate essential, so measures were not seen as externally imposed. Ahluwalia said he had advised against abandoning the International Monetary Fund-supported programme during Sri Lanka’s election period, noting that smaller economies depend on the signals international institutions send to investors.
He identified private investment as the next test. “Most foreigners, when they’re looking at countries, are quite impressed with macro stability. I think you have that. Booming private investment. That you don’t have yet,” he said, adding that foreign direct investment tends to follow domestic capital because local firms are assumed to know the economy best.
Stressing he was not offering a blueprint, Ahluwalia urged policymakers to benchmark reforms against regional competitors such as Vietnam, Malaysia, Thailand and Indonesia, and against Indian states including Tamil Nadu, Karnataka, Telangana and Kerala. He flagged land access, labour regulation, ease of doing business, liveable cities and infrastructure financing as priority areas, and suggested greater use of public-private partnerships given limited fiscal space.
He also cautioned against favouring foreign investors over domestic firms, and warned political leaders that scrapping a previous administration’s projects was “a guarantee of not having private investors.”
