Recent reports suggest India’s economy is likely to grow by 8.6 per cent this fiscal and perhaps as much as nine per cent in the next one. This growth rate is spectacular, especially in the context of current political dispensation and near-absence of any major economic reform for many years at a stretch. Hence, it is not surprising that at least on the economic front, optimists far outnumber the pessimists and there is almost a universal consensus that India is destined to grow at or around 8 per cent per annum in this decade and then even beyond. Anyone daring to question this premise is dismissed derisively by the wise men who profess to be able to read the tea leaves of the Indian (and global) economy. The beleaguered UPA II, fighting seemingly losing battles on many fronts, is only too happy to take refuge behind this one particular statistic (GDP growth rate) to somehow convey the message that this growth could not have happened if its vision and its policies were not pragmatic and growth-oriented. The optimists second this view in their own way, and have now begun to believe that with Bihar and a few other perennial laggards kicking in with some solid growth, the economy will get further growth momentum.
Unfortunately, to the pessimists (including new converts like me), the economy could be just trundling ahead on a wing and a prayer. Each percentage point of economic growth is exacerbating the current and impending resource crunch in every area. A high growth trajectory, on a base of $1,500 billion or so, makes unprecedented demands on resources such as land, energy, water, trained manpower, sanitation, healthcare, food, environment and mass transport. India’s challenges magnify in the backdrop of its already huge population, which continues to add 17 million to 18 million more Indians each year implying an addition of another 175 million to 180 million in the next 10 years alone.
Unfortunately, most in the government and then their many advisors and others in various think tanks seem to be merely looking at the past to project the future demand on such resources. The government is entirely missing out on accurately dimensioning the magnitude of the challenge India faces in this coming decade. For instance, shifting of one person (in a joint family household) from agriculture to a job in manufacturing or the services sector creates a manifold increase in infrastructure required to support this job (office and residential space, energy, sanitation, water, and transportation are just some of the few dimensions). Increasing enrolment of Indians in schools, colleges and institutions of higher education/vocational learning creates similar multiplier impact on physical infrastructure needs. Higher per capita incomes lead to higher per capita consumption of not only food and clothing but of every other category of consumption, creating humongous additional demand. In any other economy, this would have been a reason for great excitement since this demand would have created sustained high levels of investment and a virtuous cycle of steady growth. Unfortunately, in our case, we are not geared to expand supply ahead or in sync with the creation of this demand.
The country has suffered enormously owing to the huge deficit in vision of its leaders and in their ability to forecast future demand in just about every sphere. The deficit in modernisation and expansion of capacity of road network, airports, ports, urban transport, education, healthcare and sanitation has already been visible for years. The deficit in food and drinking water is now beginning to show up ominously. Inflation in consumer prices is already taking its toll on middle- and low-income households. In the near future, inflation will severely threaten India’s manufacturing and services sector with runaway increases in prices of all basic business-building blocks that include raw material costs, blue and white collar salaries, cost of factory / office space, logistics costs and costs of business transactions. At the beginning of the nineties, India’s economy was marked by “low cost, low productivity” but the initial burst of economic reforms unleashed hope, entrepreneurship and energy that first made the economy a “low-cost, medium-productivity” and then a “medium-cost, medium-productivity”. Left unheeded, this could soon make Indian manufacturing (and services) a “high-cost, stagnant-productivity” one, stalling India’s growth and stoking inflation further.
Unless the government comes up with fresh visionary, wide-ranging and bold reforms, the fundamental competitiveness of the Indian economy could get eroded very seriously. The Budget next week will give some indication of how committed the current government is to securing India’s future.
