India's Growth Environment Scores (GES) are very low and India scores below the other three BRIC nations, and is currently ranked 110 out of a set of 181 countries assigned GES scores.
If India were able to undertake the necessary reforms, it could raise its growth potential by as much as 2.8% per annum, placing it in a very strong position to deliver an impressive growth.
Below are the changes India must make to be number 1.
1. Improved governance.
India’s governance problems overarch all its other problems.Without
1. better governance,
2. delivery systems
3. effective implementation
India will find it difficult to educate its citizens, build infrastructure, increase agricultural
productivity, and ensure that the fruits of economic growth are well-distributed.
Governance problems stem from the increasing inability of the
government and public institutions to deliver public services in the face of
rising expectations. A large gap between physical access to services and the
quality of services provided is leading to a citizen satisfaction gap.
The major problems in India in Governance are
Accountability of politicians to the voters is weak because there is little
connection between the citizens’ vote and the provision of services such as
roads, water, education and health-care, as myriad factors affect electoral
outcome. There is thus little incentive for even a well-meaning politician to
improve services.
Citizens do not organise to demand better services. The politics of caste
and other identity politics work so that the benefits of winning elections is
not to improve services but to control access to jobs or contracts.
The role of the state is blurred as both a regulator to ensure adequate
services and a producer of services. When the umpire is also the player, then
there is little incentive to improve delivery.
Citizens do not have the ability to hold service providers to account, as
the latter do not depend on them for financing.
2. Raise Basic Educational Achievement
Many international observers tend to see education as one of India’s biggestadvantages. This is primarily because they tend to meet only the best and the
brightest. It is the case that India has a large number of highly educated people.
But it has a population of 1.1bn and probably the highest absolute numbers
anywhere globally receiving hardly any education.
GES scores include a variable for education. We measure the average
number of years of secondary education. Some might argue for a more
sophisticated measure, but there is evidence that the amount of time spent
receiving secondary education is important for economic growth and
productivity. India scores poorly relative to the other BRICs, and even below
the average of all emerging market countries.
It is important that India improves the amount and quantity of money spent, and that the
quality is improved.
Without hundreds of millions of Indian citizens receiving a better basic
(elementary and secondary) education, it will be virtually impossible for India
to achieve its ‘dream’ potential.
According to the US State Department, the literacy rate in India
remains at a low 61%. The government is, of course, aware of the challenges,
and has repeatedly made commitments to a radical improvement, including a
plan to ensure 100% school enrolment by 2010.
According to data, half the 200mn primary school age children are unable to read or
write. Eleven out of 100 children don’t enter school, another 35 drop out before
completing 4-5 years of schooling, and another 30 drop out before reaching
grade VIII. Less than half of those remaining finish their senior school.
Ultimately it will be the role of the Government to ensure that India can raise
educational standards. Without it, India will remain the country with potential.
3. Increase Quality and Quantity of Universities
It will be shocking to know that around 2.5mn graduates emerge each year from universities
and colleges. Indeed, in some parts of the world, there are growing fears of an Indian ‘brain-takeover’ due to the large number of Indian graduates. Many leading international financial
firms and technology companies abound with Indian talent that has benefited
from higher education. However, again this ‘contradiction’ also partly reflects
numbers. India’s domestic needs are large. To emphasise the point once more,
between 2000 and 2020, India’s population is projected to grow by as much as
the total current population of the US.
India plans to quadruple the number of its universities in the next ten years —an
admirable goal and a huge challenge (National Knowledge Commission has proposed an increase in the number of universities from 350 today to 1,500 by 2016).
Its goal should also probably be that at least 20 of these are the world’s best. Shanghai University has become recognised as the authoritative voice on leading universities. Its latest ranking does not show a single Indian university in the top 300.
Leading foreign universities are eager to ‘expand’ into India, either by developing an Indian campus or tying up with local entities that already exist.
Many foreign educational establishments see very difficult ‘barriers to entry’ into the local market.
As with other sectors, this needs to change.
Foreign (especially the best) universities should be warmly welcomed.
4. Control Inflation: Why Not Have Inflation Targeting?
Formal Inflation Targeting (IT) should become a centrepiece of a clearer, more defined and credible
medium-term framework for macroeconomic stability.
As part of this, there should be greater independence for the Reserve Bank of India (RBI)
and the abolishment of all FX controls.
IT has given major benefits to a broad variety of countries, ranging from ‘developed’ countries (such as New Zealand, Sweden and the UK) to ‘developing’ ones (such as Brazil, Korea and South Africa).
For India, there are probably broader powerful benefits.
For a country gripped with corruption and bureaucracy, it is probably impossible for
India’s huge and diverse population to ‘know’ what economic policy is trying
to achieve.
A credible and strongly respected IT could help change that overnight, at least for economic policy.
5. Introduce a Credible Fiscal Policy: A Medium-Term Strategy
India’s gross fiscal deficit remains one of the highest in the world and, recently,
government liabilities have been increasing at an alarming rate.
36.6 % from Capital Receipts which effectively means loans from the market and International banks like the International Monetary Fund.
Recent large debt-waiver for farmers, a big wage hike for civil servants, increasing fertiliser and oil
subsidies, and higher exemptions on income tax. At such high levels, government borrowing crowds out private-sector credit, keeps interest rates high, adds to already high government debt, and becomes a key source of macro vulnerability.
Expenditures are directed less towards productive investment—especially in
much-needed areas such as health, education and infrastructure, which could
enhance growth—but rather on wages and subsidies.
These do not improve
long-term growth potential.
One example places this in context:
India’s central government subsidy on food, oil and fertiliser is equivalent to the entire
collection on income tax.
(Although this could be slightly misleading as statistics often are.
The fact that there are only 35 million tax payers in India should shock you as we are facing the tax burden of the entire country.
http://www.business-standard.com/article/economy-policy/salaried-taxpayers-may-be-spared-filing-returns-111011900016_1.html)
When compared to the US this is what the chart looked like :
When compared to the US this is what the chart looked like :
A medium-term strategy for fiscal policy, which reduces the overall deficit to a sustainable level, is critical for India.
PS :
Heavy borrowing has been done from "Goldman Sachs : Global Economics Paper No: 169"
If you want to read the entire paper
Goldman Sachs : Ten Things for India to Achieve its 2050 Potential
Another blog I really like is :
OneMint
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