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BW Businessworld

[email protected]: Still Room To Do More

India will turn 100 in 2047. Leading economists and thinkers debate about India’s political and economic past, present and the future

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It has been 70 years since India walked the path of freedom. Over the decades the country has seen it all — the Green Revolution, Emergency, the 1991 reforms, droughts, floods, demonetisation, GST — the good, the bad and even the ugly. BW Businessworld asked the country’s top thinkers what changes they would like to see when India turns 100 in 2047. More private sector involvement, strengthening the jobs sector, giving a push to the manufacturing sector, reexamining the agriculture sector, reforming the judiciary, preserving international relations and more importantly moving on with the times, is what we gleaned from this conversation. Edited excerpts:

Q. What does the report card of the last 70 years read like — have we done enough to make India an economic power?
GURCHARAN DAS: I can think of three milestones in the last 70 years. First being 1947, when we thought we got our freedom but we only got our political freedom because we became economically un-free with the socialist license public Raj (rule). Second milestone is the economic independence – while 1991 is a good date it actually began in the 1980s, it’s a story of incremental reforms and gradually those reforms added up to make us the second fastest growing economy and today maybe the fastest growing economy in the world.

Then, the third milestone came in 2014 because the Narendra Modi campaign in that year gave dignity to business and working in business and I call it middle-class dignity, which is going to be the driving force for the next 30 years.

S. GURUMURTHY: We lost the initial glorious decade 1950s when the world was looking at and to India. We played the ideological game of what we perceived to be for common good rather than geopolitical game of what was good for India. The pursuit of common good is the responsibility of global powers. We were no near being a global power then and still we pursued the ideological power game. Result, when China invaded India, Russia turned the other way and we had to turn to the US late, which had a military alliance with Pakistan. The next decade was a disaster with India losing a humiliating war with China. The 1965 war win was a consolation. Till we set right our food stocks through Green Revolution, we really did not have real freedom to act in a world where we hardly had a reliable friend. It was Indira Gandhi who first decided to play the power game with her victory over Pakistan and creation of Bangladesh in 1971 and by conducting the Pokhran I atom blast in 1974. The Janata Rule was a flicker of hope for India but the patchwork politics did not work. The huge majority that Rajiv Gandhi got in 1985 raised hopes of India’s rise to a global power. But caught in Bofors bribery charges Rajiv, who was really elected for life, lost power in five years. Thus, we lost the 1980s.

Then came the collapse of the state-led socialist structure of India and globalisation, which was an adjustment period for India from socialism to market-led paradigm. The 1990s was also a period of rise of native Indian nationalism — known as Hindu nationalism — and the decline of secular nationalism of Nehru. The real rise of India as a geopolitical power was under Atal Bihari Vajpayee who exploded the Pokhran hydrogen bomb and met the sanctions imposed by the West and the rest by invoking the Indian disapora’s sentiments and getting the India development bonds oversubscribed.

This act made the world look at India as an emerging power in which its diaspora for the first time began to feel proud to associate with the idea of India. That, together with the rise of Islamic terror, made India a relevant factor in the West and also in East with Russia and Japan. India’s rise to global stature, which should have begun in the 1950s, got delayed till the 1970s and stopped in mid-1970s and re-commenced only in the late 1990s. India missed five precious decades till 1997 except during the first half of the 1970s to ascend to its matching position in the world.  

JAGADISH SHETTIGAR: There is no doubt about India emerging as an economic power in the near future. Though we have wasted more than three decades trusting capabilities of the state machinery in leading developmental process, around mid-1980s, political leadership realised its mistakes in terms of economic governance strategy and started the liberalisation process.

Since 2014, we have been under a stable government with a strong leader committed to positive business environment. Many innovative measures have been initiated which should start yielding results within the next 10 years.

ABHIJIT SEN: Actually, India had done a lot but obviously we have not done enough. I mean, we are a long way from where we were, we are a much better country but we are behind a lot of other countries. Could we have done better? I am sure we could have. Could we have done worse? A lot of the other countries have done worse than us.

RAKESH MOHAN: I don’t think it will ever be possible to say that we have done enough. The three biggest weaknesses in what we have done and not done is health, education and agriculture. If we compare our achievements in terms of indices like average years of schooling, literacy and dropout rates, we are behind on almost all, from our peers. That is the key failing. It is very difficult to understand this in a democratic polity that something of a basic concern and interests to everyone in the country is not responded to in a democratic country.

It is also reflected in our low public expenditure and, of course, the poor quality of our public delivery system. There is now a great deal of pressure of privatising these things. Because of our poor experience of public delivery, we need to understand one basic factor. Any country whether the US, Europe, China, Japan, Korea, no country has done well without high quality public delivery of services, which is essentially relatively free, both education and health.
So, that is really something we have failed at. I don’t believe that we have correct policies even today. However, I do believe that much more thought is given on improvement of government public service delivery, especially in partnership with private sector. But there is no way that the invisible hand can deliver on services such as health and education. The same applies for agriculture. When China started reforming in the early 1980s, the first sector given priority was agriculture.

Q. Where are we headed in the next 30 years, going by the present indicators?
DAS: Well, we have still not recovered fully, we went up to 8 (rate of GDP growth) and even for many years we did close to 9. So, that recovery has started after 2014.  

Looking forward, given India’s fundamentals, we have to go back to 8 and only after reaching the growth rate of 8 or 9, we will be able to harness the demographic dividend. If we don’t produce a million jobs per month, we won’t be able to get the ‘kicker’. China has achieved it and enjoyed it.

Modi has promised three things: first, to bring down inflation, which has happened. Second was to curb corruption. High level corruption has come down but not the low level corruption and third was the creation of jobs, which he hasn’t been able to deliver as yet. This is difficult as jobs are disappearing from around the world, not only in manufacturing but also in services.

I am hopeful that the economy will pick up and, by 2030, we will double our income or even more than double. My point is that I don’t worry about the economic issue, and the economic issue that is going to hit the world will eventually hit us as well. Economically, we will become a middle-income society but I fear we will not go beyond that and get stuck in the middle income trap.

GURUMURTHY: As the National Intelligence Council of the US has prognosticated, India will rise to share power as one of the three world powers from around 2030 and, by 2050, India will probably be able to top China in economic terms. In the coming 30 years, the geopolitical and geoeconomic game will be played largely between India and China as it was up to 1700 CE.

SHETTIGAR: There is no doubt about India emerging as an economic power with tremendous clout in terms of market strength in the next 30 years. Already India has started enjoying a respectable place among the developed countries, thanks to the visionary and assertive leadership of Narendra Modi. The current government has come out with many innovative measures such as smart cities, bullet trains, Swachh Bharat Abhiyan along with improving ease of doing business. Besides, disruptive measures such as demonetisation, game changers such as GST and Insolvency and Bankruptcy Code will not only accelerate developmental process but also help in bringing transparency in the system.

SEN: Next 30 years… it depends a lot on what we do in the next five years. The current indicators don’t look good particularly compared to, let us say, the last 15-17 years. Basically, the world economy is much more sluggish now after 2009, than it was between 2000 and 2009. In a slow growing world, you simply can’t outdo China.

We need to be original and look at our real weaknesses. If we address issues in human resources, health, education and infrastructure, fiscal and trade deficits we will do fairly well in the next 30 years. In the sense that we will keep growing but it would become tougher to maintain this growth rate, we saw during 2004-2011. All this talk about overtaking China, the sort of growth rates we have, it would take us 30 years or maybe more.

MOHAN: It is quite feasible for us to now accelerate our growth rates from 7 to 10 per cent. But to do that, we need to be clearer in terms of public investment in infrastructure. We must understand that public sector itself requires investment with respect to capacity. So, to get to a higher growth rate, we have to take back the public investment level to nearly 40 per cent of the GDP to get to a 10 per cent growth rate.

Q. What specifics do we need to undertake if we are to become the world leader in the next 30 years; in economy, technology, strong institutions?
DAS: Well, I have just talked about the institutions; we need to reform the police, the judiciary and the bureaucracy. And if we don’t reform these, we will get stuck in the middle-class income trap. There is still a need of reforms for land, labour and capital. We certainly need a lot more privatisation.

GURUMURTHY: We need to identify a techno-economic model based on less or no carbon energy suited to the future and also for moderate consumption model unlike the over-consuming western model. India will have to leverage on its cultural and spiritual assets and strengthen the family-led social and health security instead of the government providing both.

SHETTIGAR: If we are really serious about emerging as an economic power, it is essential to remove procedural bottlenecks, which may mean relooking certain archaic laws such as labour laws, land acquisition, and judicial process. Agricultural reforms is a crucial process, which is yet to be touched in a meaningful way.
Emerging technologies such as artificial intelligence or cloud computing pose real challenges to the policy strategists. Similarly, external factors such as restrictive policy approach by the new regime in the US or slowdown in our major market destinations such as Eurozone or the Middle East would certainly demand change in our developmental strategy though ours is not an export-led growth. Looking at 30 years ahead would certainly caution India’s handling of Road-Belt-Initiative by China. If not handled carefully, this initiative by China may change the future course of action to the detriment of India.

Another major area that needs to be reformed is judiciary. Apart from the need for speeding up of judicial process, judicial activism often hampers development. It is high time the line of demarcation is highlighted among different pillars of democracy.

SEN: We have got a huge deficit on the trade side and we are trying to cure it with other remedies, which have an impact on the rest of the economy. How are we going to solve the deficit problem in the next 30 years? How are we going to get competitive?
We need to buckle up on manufacturing. The sector has done very well in the last 30 years but not enough. At some point, our obsession with services just got caught in the rush. That is also where the other problem comes in — jobs. Without manufacturing, we cannot have the sort of job creation we intend to have in the next 30 years.

MOHAN: If you succeed in growing by 8-10 per cent for the next 20 years, you would become a global leader automatically. To my mind, aspiration to become a global leader, is highly premature. You have a per capita income (PCI) of $1,600 right now. You cannot be a global leader with this PCI figure, poverty and the literacy rates.

Having said that, there is certainly the case that we are recognised more, we are more influential. Therefore, most important will be improvement in the capacity of almost all institutions. Our foreign ministry today is smaller than the Singapore ministry. To attain global leadership, we need to have much more depth in our institutions of all kinds.

Q. Have the political leadership and the economic leadership served the country well in the last 70 years?
DAS: We have to divide it into two parts: pre-1991, and then, from 1991 to today. Certainly the first period was economically a disaster and after 1991, the decision making has improved but it has been slowed by the fact that the market has not been made fully legitimate. With Modi coming, there was a hope that it would speed up and his approach is to work from the PMO rather than through the ministers but nevertheless there is over-reliance on the bureaucracy. He fixed the bureaucracy in Gujarat as he could reach the DM level but on a country level, it is difficult due to federalism.

SHETTIGAR: Often, experts complain that India missed the developmental opportunity as compared to China though we started at the same level 70 years ago. It is a debatable issue. First of all, China being an autocratic government, has got certain comparative advantages in terms of policy implementation. Being a democratic country, we have to take all stakeholders into confidence.

With regard to relevance of policy initiatives, one should give the benefit of doubt and move on. There may be odd instances of certain measures getting initiated under circumstantial pressure rather than economic logic. For instance, the Rehabilitation & Re-settlement Act, 2013 was a panic reaction of the UPA government in view of large scale resistance by farmers against the way different State governments proactively facilitated land acquisition for private SEZs.

With regard to major policy decisions, credit may be given first to the Narasimha Rao-led Congress government for initiating big-push economic reforms, which transformed quality of life. Second, the Vajpayee government for instilling confidence among people as a whole through nuclear explosion purely on indigenous technology and talents, which attracted attention of rest of the world. Third, the Narendra Modi-led NDA government for not only coming out with innovative ideas and strategy but also for creating the required ecosystem by bringing the neglected sections under the developmental agenda through measures such as the cash transfer scheme or access to cooking gas.

SEN: Let me begin by saying that both the political and economic leadership have been fairly good. Indian economists, the world over are considered good. Looking at India, again, as I have said, we have done well but not spectacularly. Other countries like China, for example, whose economists were never thought to be great, ended up doing better than us.

MOHAN: The economic leadership has benefited greatly from the continued stability. I do think that there is not enough depth of economic leadership now and we really need to strengthen the government not just now but for the next 25 years, in terms of economic technocracy.

Whether it is the transport ministry, the commerce ministry, the RBI, all of these need to be strengthened. In terms of domain expertise, we need to move away from the old continuing civil services system, where people enter the IAS, IPS and they get promoted in the ladder, moving from one job to another. That is just not good enough for the future.

We need to have domain experts, which don’t necessarily mean technical expertise. It does mean that people even with general background working in the same field for length of time. Similarly, without the governance of cities, there is no way we could achieve the kind of leadership we aspire globally.

Q. Has economic democracy been concomitant with political democracy in the country?
DAS: When growth takes place, then people get jobs, people get dignity and in the same way in democracy when people vote, they get dignity. If you see the condition of dalits (scheduled castes), I would say that political democracy gave them confidence but having a job is the ultimate thing that gives a human being dignity.

GURUMURTHY: A country as diverse as India cannot be ruled except by political democracy. Political democracy extends as economic democracy. There cannot be one without the other. Our socialist regime ignored economic democracy while it supported political democracy. The result was the weakening of the State and also the society. This is being gradually corrected since 1990s.

SHETTIGAR: Ideally it should be. Unfortunately, it has not been so, going by the track record during the last 70 years.

Q. How do you look at agriculture, manufacturing, services in the last 70 years? How do you look at their evolution in the next 30 years?
DAS: We can be proud about agriculture. After the Green Revolution and the arrival of hybrid seeds, state after state has become self-sufficient. In fact, in many areas, we are an exporter. However, there are too many controls especially the distribution area and the mandi system, which was supposed to protect the small guy, is a form of crony capitalism.

The other area where we need to work on is productivity. We have double the agri-able land of China but a third of the productivity of China. We need to implement scientific methods, which require both technology and capital and farmers should be able to lease their land, they can become equity shareholders.

The education system has been a great failure of all governments. The much touted RTE talked about everything from the size of classrooms to the size of toilets, but it forgot the purpose of sending children to the schools, which is learning. There is hardly any mention of outcomes.  

We could have been a very big manufacturing nation but what killed that was the License Raj and once you opened up to competition what killed it was the Inspector Raj. You did not get rid of the policemen who made the lives of business persons miserable. We over-regulated manufacturing. Fortunately, when it came to services, we forgot, and so, it is the case of India growing at night when the government sleeps.

We have been over-regulating in manufacturing and under-performing in health and education. Services boomed as they were not over-regulated and I worry about artificial intelligence coming and service sector losing jobs but I would still say that we have got time and the competitive advantage.
SHETTIGAR: In terms of contribution to overall GDP, minimisation from around 65 per cent in the 1950s to less than 20 per cent today, I think that is the right developmental strategy for agriculture. Unfortunately, that has not followed with proportionate fall in percentage of population relying on agriculture for livelihood resulting in surplus manpower.  

It is equally important to promote manufacturing sector by improving ease of doing business, which includes better infrastructure facility so that the sector may be in a position to generate desirable employment. Development of service sector, no doubt, reflects growth of basic economic activities — agriculture and manufacturing. That means there has to be a healthy ratio between the two. Otherwise, mere growth of service sector disproportionate to basic economies may mean creating a bubble.

SEN: Agriculture is expected to grow at 2-2.5 per cent continuously, which is  roughly enough. Manufacturing and services are the ones that are going to matter and we have got to ask what services we lack? IT is not a solution to all of them.

Manufacturing is the one we need to address. What we have been trying to do in the past few decades is to get the foreign investments. This time, we have called it, ‘Make in India’. The idea is that somebody else brings the capital, manufacture in India to sell elsewhere. This is really the China model. To some extent, there is sense in it but that sense is vastly diminished with the slowdown in the world economy and it will be even more diminished where we have Trump saying, ‘I am going to make USA great again’ — which means protectionism. So, in a slow growing world, if the big markets are shutting the doors then there is a problem with the old China model. In manufacturing, you have got to think other ways of doing things without shutting down like the idea of FDI and export market. But we must realise its limitations and focus manufacturing based on the domestic market.

MOHAN: We have just not paid enough attention to agriculture, across the governments in these 25 years. We have failed to understand the changes taking place in agriculture. As income increases, diets change. Wheat or rice is a very small portion of what we eat today. There is much more production and consumption of fruits, vegetables, eggs, fish etc. These are more complicated products and we just haven’t done much to R&D here. They require a more complex supply chain and more involvement of the private sector. We have to do much more R&D investment in manufacturing. We ought to incentivise the private sector. For services, the IT industry has again, under invested in the R&D. The world is changing and IT cannot remain a low-cost industry. We need far more invention and innovation.

Q. What have been the three biggest decisions of the last 70 years in the space of economic decision making?
GURUMURTHY: The opening of the Indian economy in 1992; Demonetisation in 2016; and the GST in 2017.

SHETTIGAR: The first major decision that transformed the entire track of economy was the big-push economic reforms in mid-1991. Second major decision was the decision to go for nuclear explosion in 1998 relying on domestic talent and technology.

The third major decision that is bound to be a game changer is the launching of GST.

SEN: Instead of talking about decision, I will talk about the turning point. The biggest turning point was Independence of India. We had an economy, which, till then, was growing at less than 1 per cent, and then, that economy moved to about 4 per cent immediately. By the mid-1970s, we were locking a 5 per cent growth with 20 per cent savings from a mere 7 per cent earlier. So the biggest thing is Independence.

The bad decisions came in late in the 1960s and the 1970s including the wars, but there were other decisions that were bad as well. Then, the 1980s was much better where the liberalisation process started. In 1991, we were forced to do things very quickly. In fact, in the 1990s, by and large, the growth remained the same.
The next big turn came in terms of growth rates in 2002-03 and then continued till 2011. Part of that had to do with the world economy, but was also to do with the policies in our country. We are now kind of drifting along the growth rate of 7 per cent, much below the 9 per cent we witnessed in 2007-08.
MOHAN: One, is the initial decision towards industrialisation in the 1950s. Two, is, of course, the 1991 reforms. Three, the associated decisions of 2000-01 on the national highway development project and the Gram Sarak Yojana to improve the infrastructure of the country.

Q. What has been the role of the private enterprise in India’s overall growth? What more can the State do to encourage private enterprises?
DAS: The private enterprise came to its own only after 1991. So, it has been the engine for growth, which could have started in 1951. There is a need for land and labour reforms. Even for capital reforms, we are still in the process. We need to wind down the public sector, especially banking; we need to create ease of doing business. I don’t think the Inspector Raj has ended in many states.

GURUMURTHY: The private sector corporate enterprises have not done as well as they should have. It is the non-corporate sector which has done well in terms of production exports and job creation. The State should focus on the non-corporate sector for job creation for which it has conceived the MUDRA finance plan but left it half implemented. Once the jobs are created and consumption and savings picks up in the non-corporate sector, which accounts for 90 per cent of jobs and 50 per cent of GDP, the organised government and private sectors will do very well.

SHETTIGAR: The government has rightly realised, though late, its role is limited to that of a facilitator. Proactive role in development can be done only by the private sector. The government should play a role of an umpire by strengthening regulatory mechanism.

SEN: The dynamism of the private sector is crucial for the economy. The private sector sometimes can do things much better than the public sector. Sometimes it doesn’t do the things that only the public sector does. Basically, the private sector is good at doing certain things but bad at certain other things, meaning that they don’t reach places which are difficult or costly to reach.

Having said that, the private sector is crucial and a lot of investment needs to come from it, especially in the manufacturing sector.

To encourage private enterprises, first, we need good infrastructure. We have something in place that oils the machine not just in terms of infrastructure but also in terms of quality of labour force. We need not have laws that make life difficult for enterprises. You will make laws, but not necessarily micro manage in a very strong sense. You have to have regulation in certain sectors more than in others.

MOHAN: The huge growth spurt of the 2000 was mainly led by the private enterprises and you could see that in the doubling of corporate investment rates. We cannot get 8-10 per cent growth, without most of the same coming from the private sector.

The government role that we talk about is to really facilitate the private sector and also understand that without proper government functioning, private sector cannot grow.

What we did in 1991, was to release and empower the private sector and do what it could do best. The sector responded with great enthusiasm. What we have not done, is empower the public sector with more competence and resources at the same time, so that the private sector can further prosper.

Can the right to food, health, education, and right to work become fundamental rights in the next 30 years, as India turns 100, in 2047? 
DAS: This ‘right’-based legislation is a good thing but it has got a bad name in our country. If ‘right to food’ means that you sell food at 10 per cent of the market rate to 70 per cent of Indians, like the food security act, it will be a disaster. So, it has to be done more intelligently.

Right to education needs great reform and needs to be much more outcome oriented, especially the government schools. We just need to improve the delivery of subsidies and with Aadhaar coming in, the chances of this happening have become fairer. For the direct benefit transfer, you have an Aadhaar-based system that will target much better, reduce the corruption and reduce the inefficiency.

GURUMURTHY: Making these fundamental rights will make the people State dependent. My view is that the society, and not the State, should become the primary drive of the economy.

SHETTIGAR: The right to food, health, education and later to find a means of living, is the birthright of every new born child. These rights need not be incorporated as fundamental rights. In a democratic process, political leadership understands the pressure of providing these facilities without which they cannot survive.

SEN: The ‘rights’ approach was brought in by the courts. It was the courts that gave judgements that bought back the rubric of right to life. In terms of policies, it was UPA that actually went on the ‘rights’ things in a big way with NREGA, RTI, Right to Education. Now, the components could change overtime but I sincerely hope that the idea that people have certain rights and that this is enshrined in law is important.

MOHAN: In a way, making these a right is a good idea to emphasise the importance of education, food, health. But I think what people are showing is that they don’t need the right to say, education. They are rather showing their willingness to spend for private education because public education is so poor. So you don’t need a right, people want it. So, you need to do much more to provide the same. No point of having a right if you can’t avail it.

Where will the role of the private enterprise in the country be, in the next 30 years?
DAS: The debate between the private and the public is not going to disappear but clearly the reality is that so many Indians have prospered.

GURUMURTHY: It will depend on what is the definition of private enterprise after 30 years. If the non-corporate and non-formal sector get formalised and corporatised by that time, I think India’s organised private sector will be the largest by that time in the world.

SHETTIGAR: In all probability, the private sector will play a dominant role in running the economy practically in almost all areas. The government will minimise its role to that of a facilitator through positive policy environment. It will be a watchdog or umpire having strong regulatory institutions. It will also look after law and order to the benefit of all.

SEN: In the future, I see great importance of our small scale sector. That’s where a lot of enterprise goes in and entrepreneurship comes from. How we treat them is going to be the key to the future of next 30 years. We haven’t treated them very well till now. As far as the large corporates go, Indian or foreign, they behave more or less in a particular way and what happens to the world markets will govern their investment decisions.

MOHAN: The role will be extremely strong. You cannot achieve those ambitious growth rates without private enterprises. After all, the public investment is a small portion of the total investment.

Any concluding thoughts on when India turns 100 (in 2047) and where we are in 2017, when India turns 70?
DAS: India at 100 will definitely be one of the top 3 economies. If we continue to reform, improve education, improve governance, and the reforms we have talked about, we will clearly be a much better country to live in. We will not only have high growth, we will not only be a middle-class society, but we will also be a free country unlike China, about China, one doesn’t know what would happen.

Let us hope the conditions in the world remain peaceful, there is no war. The fact is that the economies and the demographics will catch up. So, the vibrant economies would be India and China and US and if  the US stops getting immigrants, then it will also turn like Europe and Japan and stop growing.

GURUMURTHY: By that time, unlike the English educated Indians of today, most of whom have no great pride about India and its philosophy and culture, the progenies of today’s English educated Indians will be doubtless proud of India as the world would be respecting India far more than it did in the past and it does now.

SHETTIGAR: By 2047, in all likelihood, India may be in competition with the US to take over the second position that is, next to China. Being a member of the super economic power club and a democratic country, it may join hands with the US to provide leadership to rest of the democratic countries.


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