For an economy that registered average annual growth of close to 9% during 2003 to 08 and largely withstood the 2008 global crisis, a sharp dip in growth to 5% levels has been a matter of concern. While even with such growth we may still rank in the outside world, but for ourselves this is a time for serious reflection. Because it is growth alone that will have a meaningful bearing on employment opportunities for our people.
Putting the economy back on track. (Illustration: Jayanto)
India is a young nation. We annually add 10-12 million people to the work force. If as a nation we fail to provide gainful employment opportunities, we risk damaging a fragile social cohesion that Growth becomes a brutal necessity, not just sheer desirability. This will also waste the demographic dividend that is India’s advantage over China and the West. So what holds us back? We have spent much time and effort in the last two years debating the prolonged pause in making and implementing effective policy. Issues of credibility, trust and accountability bubble over and somehow impact the spirit of enterprise. As a result investments have suffered.
Too little too late
Our government tried to improve the business climate with a flurry of decisions in the recent past. These have had some impact, but we need a consensus across our polity on the larger economic agenda if growth has to head back to the 8-9% mark. Let me highlight a few areas that merit attention.
First, on balance our reforms are seen to be reactive rather than proactive. Reforms are being conveniently flogged as being anti-poor when our and global experience has been really the opposite. Therefore it is important that the positive impact of reforms is appreciated widely across the nation. A larger, inclusive constituency for reforms is needed to return to growth. Political parties thus need to reach consensus on a wide range of issues in the near future if we are to get anywhere.
Second, to address social gaps the system has encouraged entitlements and a tendency to incur liabilities beyond rational means or indeed convert medium-term measures into long-term burdens. This puts pressure on the fisc and leads to non-natural inflation and resource redistribution starts affecting investment. One suggestion worth pondering over is to announce a sunset clause for every new scheme if at all introduced by government, and a sunset point for existing welfare schemes at which the scheme will be evaluated for its effectiveness and any need for extension. The need to keep the deficit down cannot be stressed enough.
Third, we have had greater success in liberalising product markets than factors of production. Be it land, labour or the capital market, we have a long way to go to ensure optimal management of these resources. Procedural reforms move ahead at a snail’s pace and this must change.
According to the World Bank’s latest report, India is ranked 134th out of 189 countries in Ease of Doing business. This clearly shows that investors, both domestic or foreign, have to spend undue time and energy in India on fundamentals and processes; these need to be rapidly benchmarked to global standards. Time and clarity need to be accorded due premium. For a country that is basically capital-starved, the existing scenario is untenable in the long run.
Lastly, we need to create sufficiently large capacities, keeping in mind requirements of both domestic and global markets. Be it infrastructure, agriculture production, supply of skilled manpower, availability of natural resources including land, or production in core industries, we have to plan on scaling up aggressively.
For the time being, India has dropped from the higher rungs of the growth ladder, but whether this is a temporary or lasting phenomenon is contingent upon how effectively we respond to the challenges. We can certainly emerge stronger, return to the 8-9% growth that the country needs and deserves if we take the right steps and government, business and civil society work in sync.
Sidharth Birla is president-elect, Federation of Indian Chambers of Commerce and Industry
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