Managing transition is one of the most fascinating aspects of contemporary history—and this is not an easy task. The absence of any one-size-fits-all model makes it even more intriguing and the Indian economy is clearly a case in point.
During the last four years, the economy, measured by the gross domestic product (GDP) has clocked an average growth rate of 8.6 per cent. While this is no mean achievement, policy-makers cannot assume that tomorrow’s growth story will read like today.
According to a report released last weekend by the World Economic Forum’s Global Risk Network and the Confederation of Indian Industry (CII), the prospect of sustaining 8 to 10 per cent growth is achievable, but a number of basic challenges are acting as a handbrake on development and need to be addressed.
While it is well known that existing infrastructure in India is stretched to its upper limits and increased investment is required, there is also an urgent need for the government, the private sector and the civil society to collaborate on governance reforms to eliminate corruption and ensure equity in the provision of basic services (such as education, water and sanitation).
The economic fundamentals are in place, but political dynamics and the scope of structural reforms are more likely to shape the next chapter. The India@Risk 2007, a report published by the Global Risk Network of the World Economic Forum and released at the India Economic Summit, reveals the contours of the new challenges.
The report highlights six risks that confront India. These are classified under themes: Economic impact of demographic changes; loss of freshwater; economic shocks and oil peaks; globalisation vs protectionism; climate change and challenges to India’s growth; and infectious diseases.
The report concludes that for India “a country characterised by huge opportunities and ever-increasing regional and global interdependence” the imperative is for collective action to mitigate these shared risks. Ring-fencing is no longer an option, says the report.
“The six risks are intimately interlinked and generate many other threats to the Indian economy,” said Shamsher S Mehta, Director-General, Confederation of Indian Industry (CII), India.
“Along with national security, the three pillars of security—human, economic and physical—need to be raised to bring the economy to a position where the challenges can be met. The risks were identified because of their interconnectedness, which magnifies their impact,” Mehta said.
“While sustained 8 to 10 per cent growth for India is possible, it is not a given,” said Gareth Shepherd, who oversees Economic and Financial Risks in the Forum’s Global Risk Programme. “In the short term, three economic threats loom large: a rising rupee, an oil price shock and a collapse of asset prices (especially property or shares), triggered by a global re-appreciation of risk. In the medium and long term, risk mitigation should focus on building increased resilience via continued investment in basic infrastructure and education, as well as on inclusive growth, in order to reap the demographic dividend of a young, aspirational and growing populace.”
A key priority highlighted in the report is water. “There is no doubt that the current water situation in India will get much, much worse unless different approaches are taken. India needs to explore opportunities for further public-private partnerships and develop a flexible and collaborative process to shape appropriate water policies and speed up governance reform in this sector,” said Sylvia Lee, who oversees Environmental Risks in the Forum’s Global Risk Programme.
Ralph R Peterson, chairman and chief executive officer of US-based environmental engineering firm CH2M HILL believes: “Conserving water in India will come down to three Ps: pricing, political will and policy”.
Finance minister P Chidambaram said India’s competitive advantage will come from its ability to produce quality goods and services at lower cost, its nimbleness and ability to innovate, its diversity and its huge human asset—its demographic dividend.
“India can reap the benefit of its demographic dividend and avoid it turning into a demographic liability by ensuring that every child can access quality education and stay in school for at least 10 years,” Chidambaram said.
R M Abhyankar, former Ambassador of India to the European Union, said: “The threat the country faces today is not from the revolution of rising expectations but from the revolution of unfulfilled expectations”.
Gerard Lyons, Chief Economist and Group Head, Global Research, Standard Chartered, United Kingdom feels that India is seriously let down by its infrastructure and bureaucracy.
In a recent survey of global competitiveness, India slipped from 42 to 48 in a ranking of 131 economies, while China climbed from 35 to 34.
The WEF report echoed a similar opinion. “Much can be gained by removing constraints inherent in inefficient government bureaucracies, complex tax regulations and labour market rigidities,” it said.
Clearly, depending on who one is talking to, the risk perception varies. But there is little doubt that the India Growth Story is not one without twists and turns in the tale.