The Telegraph
Since 1st March, 1999
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- Euphoria should not blind India to what is necessary for development

At a recent conference on globalization the discussion was focussed on the “how” rather than the “what” or “why” issues that had dominated the subject until recently. The success stories of Indian companies that had begun to look at the world as the market and the new opportunities in areas in which Indian companies could leverage their competences to become globally competitive, were presented and discussed. There was a perceptible air of euphoria among the audience of distinguished corporate experts, academics and students. India had made it. “We have arrived in the global economy. This will be the decade of India. No one can beat us”. Such sentiments could be heard over tea and lunch.

Of course it is highly premature to voice many of these sentiments. A handful of Indian companies have become quality and cost leaders and made significant thrusts into global markets. The world is recognizing the contribution of Indian-origin doctors, nurses, engineers, information technology professionals, managers, scientists, academics and many others who have been working outside India for many years. Their numbers have reached critical mass, many have reached dizzy heights in their newly adopted countries and the visibility of Indians in these countries have made for wide recognition of Indian capability.

The Indian proficiency in English, ability to learn new skills quickly, originality in approach to problems, and much lower costs if employed in India than similar professionals in say, the United States of America, allied to the new ability because of information technology to detach work from physical presence at a location have enhanced their acceptance and success. In some product areas like pharmaceuticals, automotive ancillaries, precision engineering and so on, Indian companies have been very successful overseas. Some are buying up companies overseas or setting up offices and factories there. They are truly aiming at a global and not only an Indian market.

But there are many more both in the organized and almost universally in the unorganized sector, that have made little headway in improving quality, productivity and costs. There is the critical agricultural sector that is stagnating at low levels of productivity thanks to poor public investment in rural infrastructure, distorted pricing policies for inputs and outputs and excessive population pressure on land because of lack of alternative non-farm occupations.

Employment growth of 2.7 per cent per annum in 1983-94 declined to 1.07 per cent in 1994-2000. There was near stagnation in agricultural employment. Despite growth in services like trade, tourism, transport, communications, financial and social services, the overall employment growth halved. The share of casual in total employment continues to rise. Poverty measures show a decline from 36 per cent to 26.1 per cent between 1994 and 2000. But there are still 320 million people who are so poor that they cannot afford two square meals a day. A large part of the economy and population remains outside the wonderful developments that we are celebrating.

What are these features that we are celebrating' Some people say that we have reached developed country status because like the most developed countries, the service sector dominates at 52 per cent of the gross domestic product. This should actually cause serious concern, not rejoicing. Given the low levels of consumption by a vast number of people, it is the real economy of physical production from agriculture and industry that should dominate for many years, not decline as they have been doing.

International recognition for the quality of Indian workers and professionals will help more human exports and greater inward remittances as well as investment in India to take advantage of the low costs of these brains. This is not going to transform the lives of the majority. It will benefit a few urban educated professionals and the people who supply the goods and services that they buy.

Soaring foreign exchange reserves reflect the decline in the American economy and the inward flows of moneys kept abroad by Indian businessmen. They are bringing it back because India is more reliable now than it was, the rupee is strong and the new laws on defaulting borrowers make it imperative that they settle their debts for fear of losing their enterprises in India. Yes, exports are picking up but not by much. So are investment inflows especially into stock markets, but these are volatile and could slow down as quickly.

Do booming stock markets and the improving rupee value to the dollar mean that we now have sustainable development and will soon eradicate poverty and unemployment' These are at best good signals. We have a long way to go before the “good” factors like improved productivity, lower costs, better quality and so on, infect the rest of industry and economy. Low interest rates, better management of working capital, economy and efficiency measures that were forced on industries by severe competition and poor demand growth since 1995, and some export growth, have made for better industrial growth this year. But this industrial growth is on the low base of industrial performance last year and is a statistical mirage until we show similar percentages next year as well.

Let us also not get carried away by the 7 per cent GDP growth forecast made by many for this year. A good monsoon has pushed up agricultural growth this year and it may cross 9 per cent. Drought conditions last year kept the growth at almost static levels. Hence even with a good monsoon we cannot expect the agricultural growth next year to be much more than the usual 2 to 3 per cent. That means a loss in overall GDP growth of 1.5 to 2 per cent. To keep GDP growth at 7 per cent, industrial production must rise by an additional 6 per cent or so over the current year. There is as yet no sign of this momentum.

The golden quadrilateral roads project generated employment and demand. It visibly improved infrastructure. But power supply remains poor, railways are wholly un-commercial, water is a serious problem both for agriculture and household use, schools and health care for the poor are neglected, communal peace is fragile, red tape and bureaucracy impose needless hurdles and delays, criminals increasingly become politicians, and corruption is endemic. When these improve, growth can become consistent. Are people really bothered about corruption' Allegations against Jayalalithaa, Mayavati, Mulayam Singh, Sharad Pawar and many lesser figures at national, state and local levels do not yet seem to have hurt most of them in elections.

For a fundamental change to sustainable high growth we must have substantial improvement in primary equity issues, acceleration of capital goods production and imports, large increases in public investment in rural roads, storage, transportation, water recharging and salinity control. We need much greater emphasis on competence than inheritance in managing companies. We must see transparent corporate governance. We need to see increases in investment in rail, road, civil aviation, power, urban water and sanitation and such other investments with economic and social multiplier effects. We also need fundamental policy changes in subsidy policies, agricultural pricing, disinvestments and onerous taxation (as on petroleum products and electricity) so that the present distorted price signals for investment are reversed. There is little sign of these happening soon.

That is not to say that India will not shine but it is not shining as yet. The president is right when he says we must not be defeatist but become winners. To be winners we need more than just attitude. With vision we must have detailed plans and competent execution.

The prime minister, Atal Bihari Vajpayee, has changed the idea of India. Everyone recognizes that when he leaves office, any successor will have to deal with a policy framework that has transformed India from what it was under 40 years of Congress and leftist rule. But much remains to be done. It must be done fast if growth is to get momentum. We cannot afford to allow euphoria to cloud our clarity in seeing what must be done at every level in society.

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