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20 years on, job half done

india Updated: Jul 24, 2011 02:15 IST
Rajesh Mahapatra
Rajesh Mahapatra
Hindustan Times
Highlight Story

Circa 2031: India is the world's most populous nation; it is also among the world's fastest growing and has an economy that ranks third in size after China and the United States. Every fifth company on the Fortune 500 list hails from here and Indian scientists have given the world the next Google. There are no power cuts; every child is enrolled in a school and images of hunger and poverty are rarer than routine. There is at least one woman among three lawmakers; India and Pakistan are happy neighbours; and New Delhi has a permanent seat on the UN Security Council.

These are hopes and possibilities that many Indians dare to think today. But for the turning point on July 24, 1991, we would not be seeing the play of such aspirations.

On that day, forced by fast-depleting government coffers that threatened to turn the country into a sovereign defaulter India set off opening its heavily regulated economy to competition and foreign investment.

Twenty years on, the outcome is mixed. The nation's economic landscape has radically transformed, so has its standing in the world order. The prosperity earned by a 300 million-plus, and growing, middle class has made India a top destination for global investors and producers, but policy makers struggle to lift nearly 600 million people who live on less than $2 a day. Top companies of the world are jostling to grab the country's low-cost talent, but millions of children have no access to education. A revolution in the communication sector, primarily mobile telephony, has improved productivity and brought a new sense of empowerment to a large segment of the population, but millions still lack basic amenities such as electricity, healthcare, safe drinking water and good roads.

With increased prosperity, also came increased greed. Prime Minister Manmohan Singh is mired in allegations that he has failed to check corruption that has reached new heights and threaten to undo the very economic success story that he scripted 20 years ago as the country's finance minister.

The paradoxes are many, but these do not belittle some of the remarkable achievements of the past 20 years, based on which this country of 1.2 billion people can today dare to dream.

Looking back
"The one big thing that has happened is the unshackling of the spirit of Indian entrepreneurship," said Pronab Sen, principal advisor to the Planning Commission that frames longer term policies of the government.

The most dramatic impact of this has been in areas such as information technology and outsourcing, telecommunication, lifestyle and entertainment, aviation and automobiles.

Underlying this success is a structural shift in India's growth trajectory. After averaging around 6% through the 1990s, growth in the country's gross domestic product accelerated to 8.4% in 2003-4 and has since stayed around that level with the exception of 2008-09 when the world economy slumped.

Much of this acceleration came from the services sector, while the share of manufacturing in national income largely remained stagnant. Some call it a "chaotic model," others suggest it is a "unique experiment" that may not conform to conventional economic wisdom. Lately though, the brick and mortar industry is beginning to see action.

India's many futures
There is much optimism that India would emerge as a global player as did the other Asian giant, China, with its blazing economic success. The rationale behind this optimism stems from India's favourable demography, a large pool of low-cost, skilled labour, a stable democracy and a huge and diverse cache of entrepreneurs and indigenous companies.

If you leave aside the doomsayers and the overzealous, analysts predict two broad scenarios that may emerge for India's economy over the next couple of decades.

The one closer to the prevailing reality is that India will likely sustain high growth driven by exports and new enterprises at home, but the benefits are not shared equally. While poverty may reduce, the rich-poor divide will grow, so will disparities across regions.

A 2010 meeting of the Geneva-based World Economic Forum described such a possibility as a "Bolly World" scenario, in which "India's leaders are so dazzled by the immediate gains to be made in international markets that they fail to implement much needed domestic reforms."

In such a situation, "the initial economic success becomes unsustainable and domestic social and demographic pressures soon trigger an economic reversal." There could be backlashes too, as we are already seeing in some parts of the country with a growing Maoist insurgency and increasing land-related disputes such as the recent one in Noida.

In the other scenario, India is able to address the challenge of making growth inclusive. And the choices it makes to achieve that may leave the broader economy with a growth that is slower than what we have seen in recent years, said Sen at Planning Commission.

That's because to get a higher growth, we need higher investment and, therefore, higher savings. "But if we have to fight poverty we have to encourage consumption and that could mean we may have to settle for a lower growth rate."

Challenges ahead
India's future success hinges on its ability to take the country's fast growing pool of entrepreneurs up the scale, up the value chain. There are a lot of innovations happening in the country, but these get little institutional support. From judiciary to business regulators, institutions across the board need to be revamped and strengthened, if we were to harness the entrepreneurial potential of the country.

Inadequate infrastructure, both social and economic, remains a concern.

In a country, where nearly 60% of the population depends on agriculture we can't let a third of our farm produce rot because there aren't enough warehouses. If the farming population has to be included in the growth story, farm productivity must rise, which means farm research must get priority. Similarly, turning the demographic advantage - more than half of India's population is aged 25 years or less - into an economic dividend will depend on how we maintain and develop our educational excellence while making sure that increasing number of young people across the country are equipped with employable skills. All of these will call for significant increase in investment and intervention by the government.

Another dimension of inclusive growth would require balancing increased consumption with limited availability of natural resources. India may not, and need not, emulate China. As a Mckinsey report put it: "Considering that 80% of India of 2030 is yet to be built, the country may have a unique opportunity to pursue development while managing emissions growth, enhancing its energy security and creating a few world scale clean-technology industries."

The other concern stems from a leadership deficit that the country faces. In a 2010 survey conducted by the Hindustan Times, a majority of the respondents felt few of our leaders had the vision and ability to lead the country to the global high table. The recent spate of scandals involving auction of 2G spectrum and conduct of Commonwealth Games have heightened such concerns.

Then there are some factors that India can't influence much, but will be affected in pursuing its economic goals - namely terrorism and how the world engages India as it emerges as a global player.

What Next
There has been criticism that the pace of reforms in India has been tardy. Indian policy makers defend by saying the pace was calibrated in line with what India's democracy could handle. While both sides may have valid arguments, there is unanimity that the country needs a second big push to reforms.

The question is what will these reforms be about?

As Rajiv Kumar, the chief executive of the Federation of Indian Chambers of Commerce and Industry put it, "the reforms of the 1990s followed when the battle of ideas had been decisively won." Today, we do not see any such debate. It's time we kick off a battle of ideas on what the next wave of reforms will be.

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