What if India’s economic achievement is also its biggest trap?
This thought hit me while chatting with a fund manager friend a couple of days ago, about the pace of reform.
Nowadays, we hear ad nauseam about India being the fastest-growing “large” economy. And this, despite the fierce headwinds from global economic crises.
It’s not just politicians and bureaucrats saying this! Analysts, fund managers, economists and industrialists also push the narrative. And of course, TV channel hosts.
India is expected to maintain growth of around 6.5% per year. This is faster than China and pretty much the rest of the world.
Our TV anchors remind us of this achievement every 27 minutes — usually sandwiched between a political shouting match, traumatic war pictures and ads for exterior paint.
I see two big problems with the emphasis on the “fastest growing” economy hype.
The first is that we’ve come to believe that 6.5% growth will happen regardless of what we do, or don’t do, or what others do or don’t do. After all, isn’t this a cosmic guarantee driven by demographics, a large working-age population and whatnot? We seem to think 6.5% is a birthright, like potholes, crowded trains or wrong-side driving. So why bother trying harder?
This is a dangerous assumption. In fact, given an increasingly unstable world, we should factor in more shocks. Many more!
The second problem is more insidious: we’ve lowered our standards to match a mediocre world. Sure, 6.5% looks great when everyone else is struggling, but this is like winning the walking race and believing you’re the marathon champ.
We ignore the fact that the tiger economies experienced long periods of extraordinary growth. Two decades of 10% growth powered South Korea and Japan, and China managed it for 30 years
However, we have become complacent, satisfied with 6.5%. Here’s what it will cost us:
With 6.5% growth till 2047, our GDP will quadruple in real terms. However, at 10%, we will be ~8 times larger in 2047. Effectively, the average Indian will be twice as rich, with an income of Rs 20 lakhs (at today’s prices). But at 6.5%, she will have to wait until 2069 to reach the same level!
Twice as large also means double budgets for defence, education, infra, health and everything else in between.
And if we question the “experts”, the global environment is the convenient scapegoat. De-globalisation, geopolitical tensions, trade wars, climate change – you name it, we blame everybody except the person in the mirror. It’s like blaming the monsoons for creating potholes.
In fact, given the geopolitical and trade headwinds, we should be trying even harder. Instead, we’re coasting like we’ve already won the race.
In the Modi government’s first term, numerous (and ambitious) reforms were kicked off. These include GST, Insolvency and Bankruptcy Code, RERA, Digital India and related initiatives like Jan Dhan, UPI and Aadhaar.
This was accompanied by high-impact initiatives to provide cooking gas, toilets and piped water in homes. Efforts were started to Make in India, create a “Swachh” Bharat, provide health insurance for all, reform the railways and enhance defence manufacturing. Infrastructure build-out also got a huge boost.
However, since then, the action seems to have slowed down. Some speculate that the failed attempt to pass the Farm Laws has made the government wary of tackling difficult problems.
To be fair, several reforms have been initiated after the first term, but these seem to have got bogged down:
- We privatised one airline successfully, then decided that was enough. And we are now fed the age-old bureaucratic logic that we will first make PSUs more profitable, so we can get better valuations.
- The New Education Policy was passed in 2020, but it took three years for UGC to come out with guidelines, and states are dragging their feet. The urgency to provide our kids with quality education appears less important than language politics.
- The new Labour Laws were passed, but implementation is stalled as State governments remain wary of upsetting unions, even if relaxed laws will actually boost employment.
- Judicial and public service reforms are nowhere in sight. Instead, politicians and judges seem to be indulging in a turf war that helps nobody. In the meantime, grandchildren sometimes end up inheriting the court case rather than the family property.
- Ease of doing business, Make in India, and digitisation of land records are moving at a glacial pace.
- The power sector is in a mess, and nobody knows how to fix it.
- Pollution in Delhi is now like an annual festival – it happens at the same time, and we perform the same rituals every year.
- Fertiliser and agricultural subsidies keep rising, and we’re unable to help our producers become competitive.
- And so on…
There are plenty of “urgent” reforms to be done, and I’m sure you will have your own “must-have” list.
Many, including Uday Kotak, believe the Trump tantrum is a great opportunity to push ahead with reform. I agree. Let’s not waste this crisis!
indianotes 
Leave a comment