It is not as if the UPA government doesn’t know what to do — the solutions in the accompanying graphic are ideas that you don’t need an economics doctorate for, a 12th standard text would do just fine. Despite having the world’s most-educated prime minister, the country’s most politically-astute finance minister and a possible IMF chief heading the Planning Commission, the government has not been able to sustain global or domestic interest in the India story. On the contrary, it is taking for granted the three advantages that India has to finally make it to the middle-income group of nations, a classification that would put India in the league of China and Brazil from our current lower-middle income grade with Sudan and Pakistan as economic neighbours.
First, taking the much-celebrated expression of the past six years, demographic dividend, for granted. Sadly, it is beginning to look like a demographic time bomb, waiting to burst. We all know that by 2020, India, with an average age of 29 will be the youngest nation among Europe (49) and China (37). But will that necessarily translate into becoming a wealthier nation or will it wither away, as the post-war experience of African and West Asian countries has shown? The young need jobs, they harbour aspirations. And unless there is a network of opportunities for them to choose from, most will continue to live on less than $2 a day, as 850 million do today.
Second, taking India’s huge domestic market for granted. What is this market? At 60% of a trillion-dollar GDP, India’s consumption story is large, no doubt. But is it large enough to sustain a billion-strong population or interest global investors? “They are not looking at taxation,” finance minister Pranab Mukherjee said, referring to foreign investors when defending his retrospective amendment in Budget 2012. “They are looking at our large domestic market.” But foreign investors aside (we will come to them shortly), even domestic investors are rethinking India. Capital goods has shown a contraction in the index of industrial production, indicating that future growth and jobs are at risk.
Third, taking foreign capital for granted. When a government either doesn’t act or when it does, it goes into a rollback mode because it didn’t have the humility to engage with its political allies, the message to global investors gets fuzzy. And when a $2 billion retrospective amendment hits Vodafone, the potential risk of doing business in India gets heightened across the international financial pipelines. Today, when the risk that capital is willing to take is low, such messages won’t work. “It’s not like we have no options,” Morgan Stanley head of emerging market equities and global macro Ruchir Sharma said. “India needs to respect capital.”
Two years ago, Mukherjee told me that we can’t “take our high growth for granted”. Today, unfortunately, he seems to be doing just that. Sadly, the thought trail coming out of North Block veers around escapism — we are the world’s second-fastest growing economy, fragmented mandate prevents us from acting, Opposition stalls reforms and so on. The result: the GDP slowdown is because of everyone else. It’s time, the government gave this leisurely pastime a rethink.