Defining developments

Everybody will have his own list of the defining events or developments during the year just gone by. Here is our take on two things that 2006 will be remembered for on the economic and business front. First, this was the year when it finally sank into the collective consciousness that the economy can and will continue to grow at over 8 per cent a year. With the first half of 2006-07 clocking in at over 9 per cent, even the most sceptical observers are starting to change their tune. Not that their scepticism mattered much as far as the people with money to invest were concerned. They obviously know a good thing when they see one and, over the last year, voted decisively with their cheque books. This was not just by way of buying shares in successful Indian companies, which they have been doing for some years now. Direct investment flows also rose significantly during the year, and no area of activity in the financial sector is as vibrant as private equity, whose very objective is to spot winners among small companies before they go public.

All these are indications of growing acceptance among the global investment community of the robustness and dependability of the Indian growth model. So what if we still trail China in the growth race? India is now an unchallenged No. 2 and, importantly, doing it with the full reign of democracy and civil rights. It is heartening to see this confidence finding its way into policy formulation, with the National Development Council endorsing a goal of GDP growth of 9 per cent per year during the 11th Plan. Of course, having come to terms with this new level of performance, the country should be aware of the stress that it will inevitably impose on the system, in terms of infrastructural bottlenecks, the environment and the need for social safety nets. But these are challenges that any rapidly growing economy has to deal with and there is no reason why India should not do so, too.

The other defining development is the acceptance of the limits of what the public sector can do in trying to satisfy the needs of a fast-growing economy. In domain after domain, the resistance to private entry into previously public monopolies is breaking down as everybody begins to appreciate the costs of inaction. The Mumbai and Delhi airports have been a major breakthrough. The Special Economic Zone (SEZ) model represents an entirely new level of dependence on private investment to provide basic infrastructure facilities and services to producers. In this, as in other endeavours, success breeds more success. Visible improvements in the quality of service provision by the private sector are critical to consolidating this development so as to address the many bottlenecks that remain. However, the experience with privatisation gained during the year illustrates, in a variety of ways, that the public sector cannot simply step aside and allow commerce to prevail. The state remains a critical player in so many aspects, from ensuring that land acquisition is done fairly and transparently to monitoring and enforcing supply contracts and beyond this to a whole host of public policy objectives. Again, these are challenges that the system will have to deal with. For now, 2006 is the year in which the collective mindset seems to have changed from "private vs. public" to "private and public".