India on the Growth Turnpike

If India is to become a developed country, this decade has to see a concerted programme of social and economic actions. The time for doing has never been more right. Inclusion spoke to policymakers, economists, thinkers and doers to identify the key issues before the nation.

01 April, 2010 Special Reports, Economy
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Shankar Acharya

“By the end of the next decade we will be the world’s largest nation. We already are the world’s largest multi-cultural, multi-religious, multi-ethnic, multi-linguistic democracy. The success of the Indian experiment in nation building and in the social and economic empowerment of a billion people is vital for the very future of mankind in the 21st century.”

Manmohan Singh
Prime Minister of India

The story of a rising India has not only surprised the world but also captured its imagination. It is said that no other democracy has ever achieved levels of sustained economic growth comparable to India’s over the last two decades.

“Our recognition as a high-growth country has only happened in the last five years. What is, however, less appreciated is that we have grown at an average of more than 6 per cent for the last 30 years, not five years or seven year or ten years. This 30-year period will soon exceed the period when we had the so-called Hindu rate of growth. More importantly, all the reform process initiated since 1991 have really empowered the private sector. And, what is very important to all of us involved in that process is the incredible amount of change that has taken place in the country in the last 20 years,” says Rakesh Mohan, former Reserve Bank Deputy Governor and now a Consulting Professor at Stanford Centre for International Development.

Discerning a dramatic shift in the world’s economic balance of power, a US think-tank has projected that by 2050, India will become one of the three largest economies of the world along with the US and China.

“The knowledge and skill of our workforce will be a major determinant of India’s future rate of economic growth as well as the type and number of jobs we create.”

Shankar Acharya
Honorary Professor and Member, Board of Governors, ICRIER

Growing at a projected rate of 6.19 per cent between 2009 and 2050, India will grow most rapidly among the G-20 group of world’s leading economies making the Indian economy 97 per cent as large that of the US in terms of Purchasing Power Parity (PPP), say experts at the Carnegie Endowment for International Peace. In an article on “The G-20 in 2050?,” in the November 2009 issue of the International Economic Bulletin of the think-tank, they noted that in dollar terms, India’s GDP is expected to increase by 16 times from the current $1.1 trillion to $17.8 trillion by 2050.

As Vijay L Kelkar, former petroleum secretary and chairman of the 13th Finance Commission, said in a lecture in August 2009: “India is going to be the ‘next growth miracle’ of the global economy, and I do see that in the next decade or so, with ‘better governance and appropriate policies’, it can, in fact, become the fastest growing economy in the world.”

Changing Development Paradigm

Nandan Nilekani
Chairman, UIDAI

Today, India has a population of 1,162 million, projected to be 1,341 million by 2020. Will India’s true potential now be weighed down by the challenges it faces? The economics of need often dominates development debates. One of three Indians today cannot afford two square meals. Many are yet to be enrolled in a school or have dropped out. Poverty remains persistent and acute in large areas, confining India to the category of low-income economy. Transforming India into a developed nation implies that every citizen of the country lives well above the poverty line, their education and health is of a high standard, national security is assured, and its core competence in certain major areas enable production as well as export of quality goods competitively, bringing prosperity for all.

An essential requirement for envisioning India’s future in the coming decade is to recognise that the parameters which determine national development have changed in recent years and will change further in future. This will open up greater possibilities than ever before.

“The Unique Identification Number will bring in mobility, choice, transparency and accountability at the doorsteps of the common man.”

Nandan Nilekani, Chairman, UIDAI

A powerful set of forces is accelerating the speed of social change. They include a rapid rise in levels of education, high rates of technological innovation and application, ever faster and cheaper communication that dissolves physical and social barriers, greater availability and easier access to information, and the further opening up of markets.

These trends are representative of a relative shift in the engines that drive development from manufacturing to the services sector and from capital resources to human and knowledge resources. Technology, organisation, information, education and productive skills will, therefore, play a critically decisive role in governing the future course of development. For instance, the Unique Identification Number will bring in mobility, choice, transparency and accountability at the doorsteps of the common man, as UIDAI Chairman Nandan Nilekani says.

The growing influence of these factors, acting on the foundation of India’s increasingly dynamic and vibrant economic base, lend credence to the view that India can achieve and sustain higher than historical rates of economic growth in the coming decades. Finance minister Pranab Mukherjee said on the sidelines of the RBI-OECD workshop in Bangaluru recently that in line with the Central Statistical Organisation (CSO) projections, India is expected to grow between 8.25 per cent and 8.75 per cent during 2010- 2011. His optimism about India’s growth was also echoed by RBI Deputy Governor K C Chakrabarty, who said inflationary pressure would ease if two key factors – monsoon and global crude prices – are reasonably favourable.

Years between 2003 and 2008 saw the fastest period for any five year period in India’s history. The economy grew at close to 9 per cent, 8.8 per cent, in those five years before the global crisis, concurs Shankar Acharya, Honorary Professor and Member, Board of Governors, ICRIER.

R Chandrashekhar
Secretary, Department of Information Technology

The compounded effect of achieving the targeted annual GDP growth rate of 8 to 9 per cent over the next 10 years will result in a quadrupling of the real per capita income and almost eliminating the percentage of Indians living below the poverty line. This will raise India’s rank from around 11th in 2002 to 4th from the top in 2020 among 207 countries given in the World Development Report in terms of GDP. Further, in terms of per capita GDP measured in PPP, India’s rank will rise by a minimum of 53 ranks from 153 in 2002 to 100 by the year 2020. This means that India will move from a low income country to an upper middle income country. This is a very real possibility for us to seize upon and realise.

Arvind Panagariya, Professor of Economics at Columbia University recently wrote that while the shift to double-digit or even higher growth has so far not happened, something very close to it has indeed taken place. India clocked a steady annual average growth of 8.5 per cent for six years beginning in 2003-04 and ending in 2008-09. Even during the crisis year of 2008-09, the country pulled off an impressive 6.7 per cent growth and recovered in the second quarter of 2009- 10-the latest quarter for which we have the data-to 7.9 per cent. The country is almost certain to perform even better in the remaining two quarters of the financial year 2009-10.

“The role of information technology in areas like health and education is going to be one of the deciding factors of the decade.”

R Chandrashekhar
Secretary, Department of Information Technology

An important aspect of this impressive growth story is the phenomenal growth that some of the poorest states have experienced in recent years, argues Panagariya. Three of the bottom six states among the larger states have grown 8 per cent or more annually during 2003-04 to 2008-09. Rajasthan and Orissa have grown 9.4 per cent each and Bihar 8.4 per cent. Likewise, all three of the newest states, which were carved out of three of the poorest four larger states have grown at rates exceeding 9 per cent. India is not only pushing ahead full-speed on the growth turnpike but also carry all its partsbig and small and rich and poor-with it, says Panagariya.

A powerful set of forces is accelerating the speed of social change. They include a rapid rise in levels of education, high rates of technological innovation and application, ever faster and cheaper communication that dissolves physical and social barriers, greater availability and easier access to information, and the further opening up of markets.

Strengthen Social Linkages

But, there can be no sustained economic development without strong successes in both human development and economic growth. Development strategy therefore requires major public commitments to social sectors (especially health and education) and to improvements in the business environment in order to promote large-scale private investments needed for economic growth.

It is not difficult to identify the key challenges before us. What is disappointing is that the list given ahead is probably similar to that drawn up 10 years before, and 10 before. The challenge actually lies in the deliverables. But for the sake of record, the list is:

  • A targeted approach to bring millions of families above the poverty line.
  • Generation of nearly ten million of new employment opportunities per annum, especially for those in the lower income groups.
  • Eradication of illiteracy.
  • A concerted effort to raise primary and secondary enrolment rates and minimise dropouts.
  • Improved public health to reduce infant mortality and child malnutrition.
  • Massive investment in power generation, telecommunications and other physical and social infrastructure.
  • Accelerated acquisition of technology capabilities to raise productivity in agriculture, industry and services.
  • Becoming a more important player in the world economy in terms of both trade and investments.

With an upsurge in investment and robust macroeconomic fundamentals, the future outlook for India is distinctly upbeat. According to many commentators, India can unleash its full potential, provided it improves the infrastructure facilities, which are at present not sufficient to meet the growing demand of the economy. Failing to improve the country’s infrastructure will slow down India’s growth process. Therefore, a priority is rising to the challenge of maintaining and managing high growth through investment in infrastructure sector, among others.

Prime Minister’s Economic Advisor and former RBI Governor, C Rangarajan stresses the need to focus on increasing agriculture output and improving infrastructure, especially power, adding that what China adds in one year, India adds in five years. He also adds that in the coming years, we need to focus more on the governance, what can also be referred as reform of the government.

Rajan Swaroop
Executive Director, Enterprise Services, Bharti Airtel

In the last one-and-a-half decade, the software part of India’s physical infrastructure (like telecom, air and port services) has performed well, and this has not only helped the country to maintain a faster growth but also integrated the economy with the world market at a faster pace. At the same time, the hardware component of the country’s physical infrastructure (e.g. road, rail, power) grew comparatively slowly, thus negating the country’s development process.

Rajan Swaroop, Executive Director, Enterprise Services, Bharti Airtel, points that infrastructural development should maximise socio-economic contributions, and Public Private Partnerships (PPPs) have capability to bring in this contribution. “As such, PPPs should be designed to seek maximum output. Focus on the outcomes of a project has to be much wider and government should see benefits beyond the direct impact.”

India is building 20 km of road a day, which is 7,000 km a year and represents $50 billion worth of work in progress. The country also has the largest PPP programme in the world, in which it plans to invest $9 billion to improve airports, $12 billion to modernise ports and $130 billion in the power sector including transmission and distribution. But, let us not look only at physical infrastructure but at the social infrastructure as well. Whilst India celebrates its booming economy, the country also remains one of the most malnourished in the world today. According to a recent World Bank study on undernourished children in South Asia, neither economic growth nor food security is likely to be sufficient to lower the prevalence of malnutrition.

Infrastructural development should maximise socio-economic contributions, and publicprivate partnerships (PPPs) have capability to bring in this contribution.

Rajan Swaroop
Executive Director, Enterprise Services, Bharti Airtel

Stating that the level of malnutrition in India is nearly double that reported in sub- Saharan Africa, the World Bank said it is unlikely that the United Nations’ Millennium Development Goal of halving the incidence of underweight by 2015 will be met. Malnourishment rates are highest among scheduled tribes and scheduled castes. Child malnutrition in rural areas is also much higher.

Since 1980, the average living standards of Chinese and Indians have experienced a sustained and rapid rise. In one generation, India’s GDP per head rose by 230 per cent – a trend rate of 4 per cent a year. Martin Wolf, Chief Economic Commentator, Financial Times, (July 8, 2009) says this would seem a fine accomplishment if China’s had not increased by 1,090 percent – a trend rate of 8.7 percent. “Yet, even if India has lagged behind, the change has been large enough for aspiration to replace resignation as the ethos of a large and rising proportion of Indians.”

The compounded effect of achieving the targeted annual GDP growth rate of 8 to 9 per cent over the next 10 years will result in a quadrupling of the real per capita income and almost eliminating the percentage of Indians living below the poverty line. This will mean that India will move from a low income country to an upper middle income country. This is a very real possibility for us to seize upon and realise.

“The recent past offers at least four further reasons for optimism. First, the rate of growth has been accelerating: over the five years up to and including 2008, the average annual rate of economic growth was 8.7 per cent, up from 6.5 per cent in 1999. Second, gross domestic savings is up to 38 per cent of GDP in the financial year 2007-08. Third, India’s economy has globalised, with the ratio of trade in goods and services up to 51 per cent of GDP in the last quarter of 2008. This is not far behind China’s 59 per cent of GDP. Finally, the democratic political system, for all its frailties, works. Indian democracy is a wonder of the political world. The reelection of a Congress-led government is widely believed that this reflects a choice of competence over caste and secularism over sect,” writes Wolf.

“But if this country is to prosper it must create infrastructure, provide services, promote competition, protect property and offer justice.”

Take Technology to the Grassroots

In this context, the proposed Unique Identification Number or UID will play a key role. Nilekani says the UID will be a critical requirement for enabling identification of the marginalised. The UID would increase efficiency of spending in the social programmes as it will remove duplicates and ghost beneficiaries from the system. With more and more use of technology, all citizens will have same level of opportunities.

Importantly, as Nilekani highlighted, the UID is a national number and it will make authentication of a person possible across the length and breadth of the country. Thus, a migrant worker would find it easy to get identified and work anywhere in the country. For, employment or livelihood security is an essential and inseparable element of a comprehensive strategy for national food security.

Conversely, food security is an essential requirement for raising the productivity of India’s workforce to international levels. Major changes in economic policy and strategy will be needed to eliminate the current backlog of million unemployed jobseekers and assure employment opportunities for all additions to the labour force. At the same time, the total proportion of the workforce involved in agriculture is likely to decline, thus increasing the pressure for rapid multiplication of nonfarm employment opportunities.

High Employment Potential Sectors

  • Commercial Agriculture
  • Agro-Industry & Agri-Business
  • Afforestation for Pulp, Fuel & Power
  • Retail and Wholesale Trade
  • Tourism
  • Housing
  • Construction
  • Garment Industry
  • Other Small Scale & Medium Industries
  • IT & IT Enabled Services
  • Education
  • Health
  • Financial Services
  • Transport
  • Communications
  • Community Services

N K Singh, Rajya Sabha MP, emphasises that, “Therefore, agriculture needs to have much better linkages between farmers, prevent wastes, improve shelf life of the products; providing better penetration of retail to rural areas”.

The largest number of new jobs will be created by small and medium enterprises (SMEs), which contribute the vast majority of private sector jobs in more advanced economies such as the USA, Japan and Korea. International experience confirms that SMEs are better insulated from the external shocks, more resistant to the stresses, and more responsive to the demands of the fast-changing technology adoption, globalisation and entrepreneurial development. Employment has nearly tripled in India’s small and medium sector over the past 20 years. A repetition of this performance will generate an additional 150-200 million jobs by 2020. A comprehensive package of venture capital, credit, liberalisation of controls, technology, training, marketing and management measures is needed to ensure continuous expansion of this sector.

Education & Building Skills

Ravi Parthasarathy

Clearly, education has come up as the sector that could make or break India. India’s expected demographic dividend could rapidly turn into a demographic nightmare unless the country promptly addresses the many structural and systemic problems in its education and training system. And few would disagree that in order to continually clock a 9 per cent growth rate, India must dramatically improve both the quantity and quality of its skilled worker base. Strategies exist to exploit the demographic window of opportunity that India has today. But they need to be adopted and implemented. By 2025, India’s window of opportunity will close and a reversal might begin. Rising life expectancy and declining fertility will cause an almost threefold increase in the proportion of elderly by 2050.

The knowledge and skill of our workforce will be a major determinant of India’s future rate of economic growth as well as the type and number of jobs we create. “Skill building of the population is important. Then, there has to be demand for the skills,” said Shankar Acharya. A comprehensive strategy is needed to enhance the nation’s employable skills, including a cataloguing of the entire range of vocational skills required to support development, expansion of the nation’s system of vocational training institutes, widening of the range of vocational skills taught, and active involvement of the private sector in skill delivery.

Migration is a reality with 150 million migrating to urban centres every year. Thus there is a need to develop several smaller townships.

Ravi Parthasarathy
Chairman, IL&FS

Citing the example of IL&FS, Ravi Parthasarathy said that seeing the immense opportunity and need to train the Indian population, IL&FS opened 30 centres for skill development across the country. “These centres mainly aim to train the people living below poverty line. This initiative was started with the apparel industry and curriculum is also prepared and provided by the industry. As a result, the industry is taking interest in the whole process of skill development and guaranteeing jobs while also bearing the cost of the training,” he explained. The aim, he said, was to increase the numbers in the formal workforce of the country.

    Education Scenarios in 2020    
  1980 Actual 2000 Estimated 2020 Business as-Usual 2020 Best-case Scenario
Primary Enrolment (1-5) 80% 89% 100% 100%
Elementary Enrolment (1-8) 77% 79% 85% 100%
Secondary Enrolment (9-12) 30% 58% 75% 100%
Drop-out Rate (1-5) 54% 40% 20% 0%
Drop-out Rate (1-8) 73% 54% 35% 0%
Source: Garry Jacobs ” Vision 2020: Towards a Knowledge Society”, paper prepared for Planning Commission.

Expanding educational infrastructure, creating more centres of educational excellence and tapping into India’s rural economy is an obvious way forward. But in India the complexities go well beyond adequacy of resources. “The embedded social and equity considerations need to be resolved in a way that harmonises excellence with the compulsions of social inclusiveness,” says N K Singh.

The knowledge and skill of our workforce will be a major determinant of India’s future rate of economic growth as well as the type and number of jobs we create. Achieving 100 per cent enrolment of all children in the 6-14 year age group is an ambitious but achievable goal for 2020. This must be coupled with efforts to increase the quality and relevance of school curriculum to equip students not only with academic knowledge but also with the values and practical knowledge needed for success in life.

Achieving 100 per cent enrolment of all children in the 6 to 14 year age group is an ambitious but achievable goal for 2020. This must be coupled with efforts to increase the quality and relevance of school curriculum to equip students not only with academic knowledge but also with the values and practical knowledge needed for success in life.

Concurring with the need to focus on education, Ravi Venkatesan, Chairman, Microsoft Corporation India, also pointed to the need for greater technological intervention in the field of education so as to harness the demographic dividend the country has today.

The Urban-Rural Continuum

N K Singh
Member, Rajya Sabha

India’s urban population is expected to rise to 40 per cent of the total population by 2020, placing increasing strain on the country’s urban infrastructure. Future growth is likely to concentrate in and around 60 to 70 large cities having a population of one million or more. Decentralisation of municipal governance and greater reliance on institutional financing and capital markets for resource mobilisation are likely to increase the disparity between the larger and smaller urban centres. A satisfying outcome will depend on the formulation of effective public policies

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