Bibek Debroy: Choosers should not be beggars

India, not just the Indian economy, seems to have passed through a point of inflection around 2003 and none of us really knows why this has happened.

What changed in India towards the end of the Tenth Five Year Plan (2002-07)? Take the real rate of GDP growth. From 2003-04, this has increased from an average trend of 6.5 per cent to 8 per cent, although economists will argue about whether this is cyclical or structural. Economists will also mention assorted reasons why this jacking up should have happened "" increase in savings and investment rates (including foreign savings), decline in capital or output ratio, sectoral shift from agriculture to services, higher growth in export of goods and services, demographic dividend and easier and cheaper access to debt and equity capital. The last is relevant not just for enterprises, but also consumers. If one uses bank deposit rates as an indicator, we even had negative real rates of interest and India became a capital exporting country, although because of hikes in global oil prices, those current account surpluses didn't last. To bolster this capital and interest rate argument, one can hark back to 1994-95 through 1996-97 and suggest that had interest rates not been hiked, that take-off would have lasted and not petered out. To the list of reasons, one can add the National Highway Development Programme (NHDP), stimulating demand, as well as improving road connectivity.

All these arguments are plausible. But as someone pointed out to me recently, these are incremental and gradual changes. They might explain a gradual stepping up of growth, but not the almost abrupt jacking up in 2003. Most people have now forgotten Rangarajan's August 2001 report on the state of India's statistics. If one reads that, one can venture to suggest that CSO's advanced, quick and provisional estimates are like lies, damned lies and statistics. However, this can't be a serious argument. Among developing countries, India has a reasonably good system of statistics and national income accounts and no deliberate cooking of data is involved, except some sleight of hand in budget numbers. Yes, there is a time-lag issue and we only get firm GDP figures 18 months down the line. But this isn't just about GDP. You find a similar revolutionary break in school enrolment figures also, despite problems about drop-outs and retention, quality and unequal access across gender, caste, class, religion and region. It is tempting to ascribe this success to the Sarva Shiksha Abhiyan (SSA). However, every ingredient of SSA has been around since at least 1993, when the District Primary Education Programme (DPEP) was launched. What explains the sharp drop in number of out-of-school children from around 2003? The drop from 40 million to five million is nothing short of phenomenal.

Is it that laggard and medium-level states have begun to catch up, both in economic and social indicators, replicating what Karnataka, Kerala and West Bengal achieved in the 1990s? Why is it that consumer markets (FMCG and consumer durables) have now exploded in smaller towns rather than in metros? The power situation hasn't improved. Other than income growth and prosperity, did improvements in road connectivity, telephone (pre-paid) connections and satellite television have something to do with this, not just as manifestations of consumption expenditure, but in terms of dissemination of information, facilitating access to markets and as enabling tools? Or is it the case that we are unable to fathom what a relatively young population does to entrepreneurship? There is anecdotal evidence on what Right to Information Acts and civil society vigilance have done to accountability and transparency of public expenditure. Have improvements been driven by Mohan Bhargavas, some of whom are indeed returning non-residents, and a clear change in focus on the part of external donors? After all, contrary to what a Cabinet Minister recently said, India is no longer wandering around with a begging bowl in its hands.

The aid to trade switch was a fallout of the 1990s, the easing of the food constraint having happened earlier. The 1990s removed the foreign exchange constraint and in the last few years, the capital constraint has also eased. In mathematics, a term known as the point of inflection is used, signifying a change in the curve's shape. India, not just the Indian economy, seems to have passed through a point of inflection around 2003 and I don't think we really know why this has happened and why there is much greater confidence and pride on the part of Indians and Indian enterprises. The answers aren't purely economic, nor are they always tangible. What is odd is that this change, unlike in some other countries, hasn't been triggered by charismatic leadership of any kind. If anything, political leadership fails to acknowledge or understand the transformation. Witness the afore-mentioned Cabinet Minister's suggestion that beggars cannot be choosers, when the rest of India believes that choosers (as India now is) should not be beggars. To paraphrase John Kennedy, the torch needs to pass to a new generation of Indian leadership. Otherwise, that point of inflection will pass. India cannot be the flavour of the month based on possible potential alone. The switch from potential energy to kinetic energy also requires a facilitating policy environment and that continues to be a hurdle. That's the reason we don't understand why India has taken off.