COMMENTARY
By Rachid Benmessaoud and Dipak Dasgupta
Rachid Benmessaoud is the Acting Country Director for India
Dipak Dasgupta is the Lead Economist for The World Bank, New Delhi
NEW DELHI, 11 August 2008: What do the people of India want their country to be on its 75th anniversary in 2022?
An acknowledged economic powerhouse and a country at peace. A place where all citizens – no matter who they are or where they live – have equal opportunity to fulfill their aspirations and improve the quality of their lives.
And a vast sub-continent where mass poverty as we have known it has been finally eradicated. Are all these possible by 2022? Yes.
Indias impressive achievements in recent years, the confidence of its younger generation, and the potential of its institutions suggest that the next fifteen years may well be Indias to gain…or to lose.
India, like China, has the potential to compete with world leaders in any sphere. In fact, despite the noise and din of democracy – and sometimes because of it – India’s potential to achieve its ambitions remains strong. Where, then, should efforts be concentrated?
Foster rapid and inclusive growth
It is most important to sustain high and inclusive growth. Think of the difference that growth rates can make.
If growth were to accelerate to close to 10 percent per annum till 2022 and if it were broad-based, Indias GDP could quadruple to nearly 4 trillion US dollar (under some expected exchange rates and constant price assumptions). This would raise average Indian incomes to a little under 4.000 dollar (19.200 DKR) – comparable to Malaysias today and twice as high as Chinas now.
India could then banish the spectre of mass poverty and make the basics of good housing, health, nutrition, education and social safety nets available to virtually every household.
On the other hand, if the country only manages to sustain the more probable growth rate of 6 percent, it would take at least another 15 years to get there.
But, growth by itself is not enough. It is imperative to bring into the fold the millions of Indians whose lives have not been touched by the countrys recent strides. Bihar, Uttar Pradesh, Chhattisgarh, Jharkhand, all need to be fast and sustainably growing states.
Better management of the fragile resource base – water, energy, forests and minerals – will be central. Of prime importance is to focus on rural India, removing the many barriers to increasing farm yields and farmer incomes, providing better and more responsive services, and access to markets and diversified business opportunities.
With nearly two-thirds of the countrys working population living in the rural areas, does India have any other choice?
Generate more and better jobs
For growth to be inclusive, it is also vital to ensure a massive expansion of good jobs, outside the traditional low-productivity occupations and the informal sector.
To generate better-paying jobs, good labor regulations must be strengthened, and the strong vested interests that exist in many sectors, including in agriculture and manufacturing, be boldly countered. By not standing up to these interests, India is losing millions of good, labor-intensive jobs each year.
In addition, investment in all young people will give them the diverse vocational, technical and professional skills to reach their full potential, contributing massively to the nations growth. How else can India meet the overarching (enorme) aspirations of its growing cohort of young adults?
Exploit globalization to advantage
What else can India do to become a player of consequence on the world stage, in keeping with its enormous size?
Two key things: First, exploit the engines of global trade. Second, invite the best investment and technological know-how from the rest of the world.
India needs more trade in goods and services, and measures that enable greater global integration. Despite recent growth, Indias share of global exports of merchandise goods is still small – 1,1 percent for all goods, and 1,5 percent for agricultural goods in 2006. Even in the export of services where India has a much-acclaimed edge, its share in the world market is only around 1,3 percent.
Increased foreign direct investment (FDI) will also be crucial to expand Indias share in global trade, especially in manufactured goods and services. India can do much more to attract global firms and trade, as the costs of doing business in India are much too high and well-known.
Bureaucratic delays, discretionary approvals, regulatory bottlenecks, complex labor laws, state control over prices, a legal system with a huge backlog, and pervasive corruption, have deterred greater FDI in India.
Considerable headway is now being made, with FDI in plant and machinery in India increasing exponentially – from 74 million dollar in 1991 to 15 billion in 2007. Last year, India also attracted massive levels of portfolio flows, some $45 billion.
Paradoxically though – although much is made of foreign investment in the popular press – the entry of more foreign financing per se is not nearly as important for the country as it is made out to be.
India already has a high savings rate. And, foreign portfolio financing has a particular downside: that is, global capital flows are notoriously fickle, and “hot money” can enter and leave the country in swarms, exacerbating (og forværrer) the volatility of the financial world.
Where, then, can foreign investment truly benefit the country? There are three important areas where this needs to be encouraged.
First, FDI in state-of-the-art technology, markets and products can give the country the edge it needs to become a global manufacturing hub –similar to the edge it is already acquiring in the services sector.
Second, foreign firms can introduce much-needed investment in essential infrastructure such as ports, roads, telecommunications, and power, along with world-class construction standards.
And third, new skills can be sourced strategically to bring vital know-how for India to compete with world leaders. In fact, is not the headway made by Indian companies in the global arena in recent years proof enough that there is little reason to fear new competition from foreign investment?
Deliver better services and governance
But in the end, these measures will not have their desired impact unless the country simultaneously improves the provision of basic public services to the people.
Vast public resources – by some estimates close to a third of the countrys national income – are spent each year on the delivery of often poor public services. From the police, to the courts, to basic education, hospitals, power and other infrastructure – the country needs to find better ways of providing them.
This is going to be even more critical in the years to come, as faster growth generates more resources by way of taxes. How well this money is spent will be crucial in deciding whether India will achieve its aspirations by 2022 or not.
Importantly, decisions on the spending of public money need to be taken in a much more transparent manner.
The government needs to prioritize those things that are crucial and especially those which the private sector cannot or will not do – such as building rural roads and schools. And it needs to end those programs that are wasteful or serve to benefit only a few.
Public schemes need to be appraised on both effectiveness (are services being reliably and affordably delivered to the intended beneficiaries?) and accountability (are transparent mechanisms in place to ensure responsiveness to beneficiaries?)
Global best practice can help set performance benchmarks for evaluating public services – from how schools and health centers are run, to how cities are managed. If public services are to deliver to all, they cannot be run as entitlement programs for employees or hand-outs for a few.
Indeed, as the clock ticks by, much lies at stake for the lives of over a billion Indians. Reaching the peoples aspirations by 2022 is certainly within reach.
There is no hidden magic; only some basic rules and incentives. India has the capacity to deliver. Will there be the consensus and will?
Kilde: www.worldbank.org
