<b>Jayanta Roy:</b> Why India needs a 10% growth rate

India's current per capita income is less than a third of Thailand's, and less than a sixth of Malaysia's

The NITI Aayog is working on a vision paper which probably will cover all aspects of development. Simultaneously, it should produce a “development perspectives” paper outlining the steps that need to be taken for India to move by 2025 from a Low Middle Income Country to a High Middle Income Country (HMIC), in terms of GDP per capita, ease of doing business and key social indicators.
 
The paper should outline steps needed to implement reforms in the social sectors and to achieve a sustained growth of 10 per cent or more. There is no way to achieve this target without sustained high export growth, which is mostly ignored by current Indian policy makers. The NITI Aayog needs to put exports in the forefront.

 
India will need, at a minimum, 10 per cent growth to catch up with Malaysia and Thailand by 2025. Its current per capita income ($1,582) is less than half of Indonesia’s, less than a third of Thailand’s, and less than a sixth of Malaysia’s. With a sustained average growth rate of eight per cent a year, India will take until 2025 to reach Indonesia’s current level of per capita income, 2032 to reach Thailand’s level, 2036 to catch up with China, and 2039 to match Malaysia. A growth rate of 10 per cent or higher is a must.
 

India also should be in a position to match these countries in key social indicators. India has the worst youth literacy rate as a percentage of population among all its middle-income emerging-country peers. While all other countries are close to 100 per cent, India languishes 10 percentage points behind. India’s net enrolment ratio for primary education is comparable with the same peer group (high nineties). Yet, education outcomes remain pathetic, essentially pointing to the colossal failure of the state-run primary education system.

 
With an extremely low ratio of hospital beds per 1000 population (0.7), India fares abysmally in terms of health infrastructure in relation not only to its middle class comparators (China 3.8), but also regional peer Sri Lanka (3.6). This points to a crisis of health infrastructure. Given that the health crisis remains the single biggest factor behind huge unplanned expenditures, it reinforces the poverty trap for families on the margin.

 
The public health crisis is further exacerbated by consistent failures in sanitation and hygiene infrastructure, and enduring high rates of malnutrition. India’s performance in terms of access to proper sanitation (39.6 per cent of population) lags behind not just middle class comparators (96 per cent in Malaysia), but regional peers such as Sri Lanka (95 per cent) and Bangladesh (60.6 per cent). Lack of access to proper sanitation in turn is directly co-related to high incidence of certain diseases, and magnifies India’s public health failure. India again fares abysmally among children with anaemia, which is a good proxy for malnutrition.

 
India fares poorly in terms of its ranking in trading across borders (143). It is far below all the middle-income comparators in Asia (Thailand 56), who are its main competitors for investment in export-oriented manufacturing. Without radical improvements, such as a ranking in the top 50 by 2025, the “Make in India” strategy will remain limited to getting a few big ticket investments fuelled largely by the prime minister’s personal drive and persuasion.
 
India’s time required to export, at more than three times that of Malaysia and Thailand, shows that despite reforms, India has some way to go. This same attitude has ensured that India is ranked a low 172 in terms of ease of paying taxes, and 155 in ease of starting a business, way behind most of the Asian and other middle-income comparators. The “Start Up India” initiative is unlikely to be successful with such poor governance standards in critical areas of doing and starting a business.

 
To achieve high, sustained, inclusive growth, India must rapidly regain its lost export momentum. India’s export of goods and services accounts for a global share of 2.02 per cent. To put it in perspective, South Korea’s share is 3.03 per cent. India would need a sustained growth rate of 10 per cent a year until 2020 to reach South Korea’s level (assuming global growth in trade is around 2.5 per cent a year). To achieve a five per cent share of global trade, India would need to sustain the 10 per cent growth rate until 2027.

India’s size, demographics, and economic resources make it a natural candidate for the role of a major global economic player. Preventing this from happening is a lack of an outward-oriented mindset in both government and industry. However, exposure to international competition and participation in global production networks are the only way to ensure sustainable growth through achieving both domestic and international competitiveness.

 
Trade reforms that India urgently needs to address to achieve high GDP growth are: Connecting India’s manufacturing to regional and global supply chains to drive exports and employment; diversification of professional services beyond IT and ITES to widen export earnings from services; and a focused 21st century regionalism to gain much wider market access. 
 
The NITI Aayog, headed by the prime minister, and with an internationally reputed trade economist as its vice-chairman, should ensure that an export drive features prominently in its vision paper. The PM needs to scale up trade and investment, pushing what he did in Gujarat as its chief minister. 

 
The writer was formerly economic advisor to the commerce ministry