Samanvay 2008, the B-fest of DoMS, IIT Madras started off on a high note with the inauguration of the event and the keynote talk by the chief guest Mr. Gurcharan Das. Though he has held esteemed positions in many organizations, he is best known as the author of the book ‘India Unbound’ and as a feature columnist in the Sunday Times of India.
Mr. Gurcharan Das talked about the new emerging India - the opportunities and the challenges that lie ahead of it in the 21st century. Although India still has a long way to go, he was hopeful that India will find its glory once again. He started off by describing the basic qualities of good CEOs. He stressed on how important it was to be humble, and at the same time be determined and ambitious. Though it may sound like a paradox, if one thinks about it, it is a very rare combination but one which will ensure success.
He then talked about the story of India’s growth and explained the factors which contributed to this rapid rise. Some of the important factors include the increase in GDP growth, slow down in population growth, rise in literacy levels, rise of the middle class and decline in the poverty rate. The rising investment and productivity levels also contributed a lot to this growth. When the middle class will form 50% of the total population, there will be a tipping point of sorts as far as the politico-economic situation of the country is concerned.
One important thing to remember is that even though the story of a country’s growth is common, the model for India has been unique. The drivers of growth in India have been different compared to other countries. While the growth of SE Asian countries was based mainly on export, manufacturing and investment, India has a strong domestic consumption and its strength lies in the service industry. He explained that the world needs another big consuming economy and India can nicely slip into that role. The benefits of a domestic-led model are obvious. It has insulated the country from the volatility in the global markets. However, according to some, India seems to have skipped the industrial revolution and has jumped directly from the agricultural age to the information age.
There are many reasons for India’s success. A few of them include having a strong list of globally competitive and competent companies. Some of them include Reliance, Ranbaxy, Infosys, Tata Motors, Bharti, ICICI etc. These are companies which ‘other countries would die for.’ Also the vibrant private sector space has led to the decrease in the number of bad loans to less than even 2% while China has around 20% bad loans.
On the other hand, however he said that the public space is not fully developed. Although we have a dynamic democracy and a free, lively media and press, poor governance is still a serious problem. This included not only the corruption in the government, but also apathy in the education and health sectors. One out of every four teachers does not show up, and out of those who show up one out of two doesn’t teach. The same is the situation in hospitals. The government companies and institutions unfortunately still run on ‘rishvat’ and ‘sifarish’ rather than growth and excellence. He also said that there is a problem with the way populist subsidies are announced and implemented. Populist subsidies in themselves are not a problem if the money actually gets to the right people. Currently there is also a lack of money to put into infrastructure development. China invests 6 times more than India into infrastructure. This is an area where India lacks China by a large margin and India will have to quickly address this issue in order to become a world-class economy.
Another interesting development which has happened in the country in the last 3 decades was the relation between the public institutions and growth in the country. Thirty years ago, India had an enviable bureaucracy, judiciary and a police system. But the growth was very slow. Now the growth has accelerated to a better level while the institutions have eroded in value. So an important question which needs to be asked is whether India is rising despite the State and what possibly can be done about it. One more important question to answer would be what then explains India’s economic success? One reason could be that even slow reforms do add up. Once the middle class forms a considerable part of the population, the reforms are also likely to speed up. Another important factor is the liberalization of the young minds. He explained with a story from his book as to how even a small boy in a tea-stall in a village aspires to become rich and famous like Bill Gates. This ‘decolonization’ of the mind, he said, will go a long way in helping India reach the peak. Also losing the inhibitions of using a ‘foreign’ language like English will definitely contribute in a global economy where English has become the language of trade and of business.
Mr. Das stressed that for every country there is a specific sector which contributes to a major part of the growth and becomes a source of competitive advantage over other countries. For Britain it was textiles, for India it is the knowledge economy.
Looking forward, the expected growth rate will be around 7-8% because he felt that democracy will not permit more than 8% growth. Coupled with a 1.5% popln. growth, India will reach a per capita income equal to that of US by 2066. The economy is on autopilot and it will require an event on the scale of a nuclear war to stop the engine. The big story of the 21st century is not 9/11 or terrorism but the rise of India and China in the global scene. The Theory of Convergence will further ensure the bridging of the gap. A major reason why this convergence hasn’t happened in the last 50 years and is happening now is globalization. Economies of developed and developing countries are now linked.
He also talked about the demographic dividend and the doubling of the labour force in the next 20 years. This coupled with higher savings and investment rates will translate into higher GDP growth. This demographic advantage will ensure that India’s growth will be more long term than that of China.
Again reverting to the topic of the importance of the middle class, he said that by 2040, the middle class will form 50% of the population. This will ensure that the political power centres in the country will start listening to this huge and powerful group of people and thus there will be a change in governance patterns. While looking at the factors which contribute to high growth, it was also important to list out those factors which could stunt the growth of India in the coming years. Some of them are fiscal deficit, weak infrastructure, bad governance etc. He said that India desperately needed a second Green Revolution. Other sectors which need a lot of improvement include the power sector and labour.
So the bottom line is that the Indian prosperity is on autopilot and it would require nothing less than an Act of God to stop the juggernaut. The government sector cannot be ignored. Governance reform will take its time but can be expected to speed up. Human capital will continue to expand based on private initiative and will play a major role in driving the economy.