The public-private divide

The Economist, a magazine reputed for its special features on countries and global issues, among other things, recently published one on Indian business. Following up on the broad themes it had developed in its wider survey of the Indian economy three years ago, the series of articles comprising the report highlight the very significant achievements of Indian business as a whole, both in the services and manufacturing sectors against a backdrop of generally positive, albeit painfully slow, changes in economic policy. But, as the question mark in the cover blurb of the issue "Can India fly?" suggests, there are a number of large and rather obvious threats to the sustainability of this performance. The overall assessment of the report is that, while Indian business has both the capability and the motivation to succeed on the global stage, it needs critical support on a variety of fronts from the government, enough of which it unfortunately is not getting.

Both the arguments and the illustrations in support of them presented in the report will be irritatingly familiar to Indian readers. The Indian business media has been belabouring the main constraints highlighted in the report, infrastructure and labour market rigidities, for several years now. For a government besieged by compulsions of political survival, it is easy to point to the rather impressive performance of the economy over the last three years and argue that these alleged constraints are not really dampening the growth momentum. But, as the report, as also several commentators in these pages, argues, from the perspective of individual businesses, the burden of the unfinished reform agenda is very real and very heavy. A rather telling commentary on the UPA government's convoluted attempts to tackle the unemployment problem through the rural employment guarantee scheme is the reference to the Confederation of Indian Textile Industry's offer to the government to provide 150 days of employment (the guarantee is for 100 days) to workers every year, as long as they were free to lay them off for the rest of the year. In instance after instance, whether in the textiles or engineering sectors, or, for that matter, IT and ITES, the legacy of stalled reforms, inadequate public investment in both infrastructure and education, and diversionary politics comes screaming through.

But, Indian readers are not the target audience for the report. As more and more foreigners begin to look seriously at investing in India, the rosy macroeconomic glow will inevitably make way for a closer scrutiny of the pallor beneath. Good macroeconomics may induce investors to consider investing here, but to get them to make long-term commitments requires effective solutions to the problems highlighted in the report and others. This report will reinforce the message that the government of India is increasingly out of sync with the capabilities of the Indian people and the opportunities that the global economy offers them. This message is all the more significant in the context of the recent volatility in the stock market, which has seen foreign investors beating a general retreat from emerging markets. Reports like this will certainly not contribute to their quick re-entry into India. The last straw, of course, is domestic producers taking advantage of liberal outward investment allowances to set up facilities in countries, which offer a much better investment environment. A wake-up call, if there ever was one.