To fix its economy, India must stop obsessing over China
Instead of obsessing over how to catch up with China, India should obsess about how to fix things so that its economy gets back on track. Now that we have China out of the way, Sanjoy Narayan gives four relatively quick fixes that the government could do.columns Updated: Sep 09, 2015 12:44 IST
In German, Schadenfreude means ‘the pleasure that is derived from the misfortune of others’. It can be aptly used to describe Indian reactions, official or otherwise, to China’s economic slowdown, its stockmarket meltdown and the yuan’s fall.
Top Indian officials, including those in charge of economic planning, have been quick to declare that a Chinese slowdown is a big opportunity for India, which, they say, can capture the export market that China may vacate; and if India can manage 8-9% growth, it can replace China as the driver for the global economy.
Another German word Fremdschämen means ‘the feeling of embarrassment on account of what others say or do’, something that such declarations can make you feel.
Comparing India’s economy to China’s, which Indians love to do, is quite ridiculous. Because frankly there’s no comparison. China’s GDP is $10.3 trillion or five times India’s; its annual per capita income is $7,588 or 4.5 times India’s; China’s forex reserves are at $3.9 trillion or more than 10 times India’s; and China’s exports at $2.34 trillion are seven times India’s. The truth is that China is way, way ahead of India, and no, it doesn’t matter whether our quarterly growth rate is momentarily higher than theirs. If we really want to benchmark India with China, here’s one uncomfortable comparison: China grew at 10% for 20 straight years since 1991; India managed 9% plus only for three years, 2005-08.
Instead of obsessing over how to catch up with China, India should obsess about how to fix things so that its economy gets back on track. Now that we have China out of the way, here are four relatively quick fixes that the government could do:
One. The Seventh Pay Commission will soon recommend salary and pension increases that will benefit 10 million government servants and their households. These hikes will be effective from January 1, 2016. The pay hike this time may range between 17 and 25%. It’s a recurring cost spike that hits the exchequer every decade but the flipside is this: If the government announces the hikes in advance, people will increase spending in anticipation; and that will be good for growth.
Two. Infrastructure should become the government’s emergency objective. Four out of 10 big projects, including power and roads, are delayed; the NDA government aims to build 30km of highways daily — three times what the UPA wanted but couldn’t do. If the economy has to grow, it can’t without adequate infrastructure. Besides, building infrastructure is highly labour-intensive and can generate jobs in millions.
Three. Parliament’s sessions have become confrontational and unproductive with law-making efforts thwarted by lack of consensus. The NDA government took nearly 10 months to pass the insurance Bill; the GST and land Bills are in a stalemate. India’s lawmakers have to set aside political posturing and agree to pass major Bills; to do that the overtures have to come from the government.
Four. Jobs are India’s biggest problem. Nearly 15 million new job seekers are added each year, much higher than the number of jobs that are created. Modi’s new slogan — Start-up India, Stand up India — could be effective here. All start-ups need not be of the tech variety. Most new job seekers are from villages where overcrowded farms are often the only source of livelihood. Funding small businesses for non-farm activities could change all that and make entrepreneurs out of India’s jobless youth. If one entrepreneur gets Rs 1 crore for a start-up that hires 10 youths, Rs 10,000 crore could generate employment for 100,000 people.
There will be scores of other things that India could do to get growth back: it could avoid policy flip-flops, such as what taxes foreign investors have to pay; or what declarations individual tax-payers have to make; and it could try to monsoon-proof the economy (where farm output accounts for just 14% of GDP but 50% of employment). But there’s one thing it shouldn’t do: make unreal predictions about how its economy will beat China’s.
(Sanjoy Narayan is the editor-in-chief of Hindustan Times. He tweets as @sanjoynarayan
First Published: Sep 05, 2015 22:07 IST