India - the lost decades and the road ahead
Infrastructure development, be it physical (roads, ports, railway) or human (education, health services) is finally being recognised as the key bottleneck towards the sustainable long term growth of Indian economy . Unfortunately there still doesn't seem to be a consensus about the beneficial effects of rapid economic growth on the over all well being of the populace and more importantly to raise significant sections of the population out of dire poverty. I would like to give a more regional and pan Asian perspective to the importance of having a directed policy for wealth creation rather than getting worked up about more innovative (and pernicious) ways of wealth distribution through licenses, reservations and needless restrictions on trade and investment.
Fortunately the lessons from round the world on poverty alleviation are pretty unambiguous: high investment leading to high growth rate fostered by closer integration with the world economy which helps in adopting the best technology practices. But that is achievable only so long as we tame the vested interests within the country who push for short term gains of their close community at the expense of the larger population.. Regardless of what the right and left wing extremists want to portray the enemies of a prosperous Indian state are to a large extent within our borders than outside it - and I am not talking about criminal elements but vested anachronistic economic powers whose benefit lies in keeping the country shackled.
Below are some numbers which could be highly illuminating as to how badly we have missed the growth train and how our so called highly enlightened political process which we take immense pride in has kept the country impoverished, democracy notwithstanding. The numbers tell the story by themselves. At the end of 1950 Korea had absolutely no industry, a country devastated by first Japanese occupation and then civil war, illiteracy was rampant and agriculture was sole livelihood of more than 80% of the population. In contrast India in 1950 had a solid industrial base (from the WWII supply )better than any Asian country, a working bureaucracy, (believe it or not) one of the bigger foreign exchange reserves, working universities etc. etc. Look at us now S Korea is a member of the OECD (club of developed economies), an economy larger than ours (with no natural resources, 1/20 of land mass and 1/25 population size), human development index of 0.912 (vs 0.611). Lest some of us may invoke some cultural arguments the cultures couldn't be more similar; a place of continuous civilization of 3000 years, high population density, traditional hierarchical society with myriad customs and the corruption which goes along with it. And this growth is despite several military coups, fledgling democratic structures and lack of independent foreign policy due to constant US presence is what makes it even more remarkable. For that matter even Japan was not very different in industry capability at the beginning of 1950 and I am not even venturing to make a comparison with Japan.
Fortunately the lessons from round the world on poverty alleviation are pretty unambiguous: high investment leading to high growth rate fostered by closer integration with the world economy which helps in adopting the best technology practices. But that is achievable only so long as we tame the vested interests within the country who push for short term gains of their close community at the expense of the larger population.. Regardless of what the right and left wing extremists want to portray the enemies of a prosperous Indian state are to a large extent within our borders than outside it - and I am not talking about criminal elements but vested anachronistic economic powers whose benefit lies in keeping the country shackled.
Below are some numbers which could be highly illuminating as to how badly we have missed the growth train and how our so called highly enlightened political process which we take immense pride in has kept the country impoverished, democracy notwithstanding. The numbers tell the story by themselves. At the end of 1950 Korea had absolutely no industry, a country devastated by first Japanese occupation and then civil war, illiteracy was rampant and agriculture was sole livelihood of more than 80% of the population. In contrast India in 1950 had a solid industrial base (from the WWII supply )better than any Asian country, a working bureaucracy, (believe it or not) one of the bigger foreign exchange reserves, working universities etc. etc. Look at us now S Korea is a member of the OECD (club of developed economies), an economy larger than ours (with no natural resources, 1/20 of land mass and 1/25 population size), human development index of 0.912 (vs 0.611). Lest some of us may invoke some cultural arguments the cultures couldn't be more similar; a place of continuous civilization of 3000 years, high population density, traditional hierarchical society with myriad customs and the corruption which goes along with it. And this growth is despite several military coups, fledgling democratic structures and lack of independent foreign policy due to constant US presence is what makes it even more remarkable. For that matter even Japan was not very different in industry capability at the beginning of 1950 and I am not even venturing to make a comparison with Japan.
India
| Year | 1960 1975 | 1980 | 1985 | 1990 | 1995 | 2000 | 2002 |
| GDP per capita (PPP-dollar) | 430 | 630 | 960 | 1 380 | 1 830 | 2 420 | 2 670 |
| Year | 1960 1975 | 1980 | 1985 | 1990 | 1995 | 2000 | 2002 |
| GDP per capita (PPP-dollar) | 337 1 310 | 2 440 | 4 320 | 7 400 | 11 450 | 15 220 | 16 950 |
An even better comparison would be India vs China which will put to rest the doubters that we can't simply grow fast because of complexities due to our size. This is despite the upheavals during the Mao era which was an unmitigated disaster leading to ~30 million deaths in the 1960s and destroying the industry and educational infrastructure of the country.
Per capita GDP (PPP) India
1965 1980 2000
927 1160 2480
Per capita GDP (PPP) China
1973 1980 2000
The comparison could go on and on with Malaysia, Thailand, Philippines even Sri lanka whose citizens are better off than average Indians despite those countries facing equivalently or more severe problems than us. Enough of ranting and raving .... but in the context the conclusions are clear; the malaise afflicting our nation is woolly headed policy making which is hostage to well intentioned but mis directed and obsolete models at best or being hostage to pernicious vested interests at worst. These conclusions were clear and repeated ad infinitum in academic circles since 1970 but unfortunately our political and bureaucratic class was only too busy protecting their interest at the expense of the common people.
The biggest policy disaster in my opinion is the import substitution model and paranoia about external trade. The sparkling growth numbers above in S Korea and China were achieved by large trade ~70% of GDP while Indian share was around 10 - 20 %. Corresponding investment rates >40 % to India's 20 % of GDP. Trade fosters competition, adoption of new technology, improving efficiency. Competition creates need for infrastructure which in turn fosters employment in industry rather than agriculture held hostage to natural vagaries. Discounting the IT sector (whose contribution is quite small compared to the hype), even now our primary exports are leather, gems, jewelery and iron ore! Unless this sector is broadened to industrial products, automobiles, textiles, consumer goods, electronics there would be no scope for employing the 60% agricultural labour force. And if 60% of working population is held hostage to monsoon vagaries then we could kiss the hopes for poverty eradication a goodbye. Regardless of what the rabid left and the likes of arundhati roy and medha patkar make us believe, there is no way agriculture growth can be sustained at 4% year on year basis infinitely to provide employment to the burgeoning rural population, unless we make a concerted effort for transferring the surplus labour to industrial sectors.The sooner we are out of Utopian day dream of sylvan village life romanticism the better it is for the country's progress out of 50 years of economic doldrums.
The consensus is clear. We need to take hard decisions to ensure industrial revival at national scale. Effective rehabilitation and forgive me but suppressing the militant vigilantism from the likes of Mamata Banerjee (politicians whose only aim is to reflexively oppose any progressive or regressive govt policy). There should be hard growth targets for state govt.s down to city and local governing bodies. Fuzzy woolly headed resource allocation should be done away with and resources should be directed to places which effectively utilise it. The welfare arm and the development arms of govt. should be truly separated. Mixing up welfare with development has led to the cesspool of corruption that is so evident in public infrastructure projects. The govt should actively encourage private enterprise (not just the small scale ones but even the likes of TATA and Birlas). Too long has these two important arms are playing adversarial roles for national loss. At the end of the day a successful professional conglomerate is lot more useful to the people of the country in terms of employment than millions of state propped and politician owned bankrupt small scale industries.
Of course all this would be lost if we as people (even the highly educated ones at that) don't appreciate the hard choices that all this entails and keep getting fooled by populist agendas on which elections are decided like Rs 2/kg rice, free electricity, free TV, x% reservation in jobs, vague exhortations to garibi hatao (with no followup to financially empower people), nuclear chest beating then kargil, pakistani honeymoon followed by raving about aar paar ki ladhai, white mania or colonial paranoia and mandal mandir hysteria.. The unfortunate tragedy of Indian democracy (regardless of the backslapping we slavishly lap up from the western media) is the lack of debate on real issues and how the superficial ones tend to be overplayed leading to election of idiots who eventually manned the commanding heights of our state driven economy. Honesty, objectivity and commitment to nation building has been the first casualty in the process. At least in the past we could forgive the politicians for their folly as though if not in action but intention they had the national welfare in the mind, but of late the cynical and brazen manipulation of caste, language, religion for political gains has stripped the political class of the veneer of justification. This eventually would be the biggest threat to the progress of our nation. Let's hope that this forum in its small way could lead a cause for change in the right direction.
The biggest policy disaster in my opinion is the import substitution model and paranoia about external trade. The sparkling growth numbers above in S Korea and China were achieved by large trade ~70% of GDP while Indian share was around 10 - 20 %. Corresponding investment rates >40 % to India's 20 % of GDP. Trade fosters competition, adoption of new technology, improving efficiency. Competition creates need for infrastructure which in turn fosters employment in industry rather than agriculture held hostage to natural vagaries. Discounting the IT sector (whose contribution is quite small compared to the hype), even now our primary exports are leather, gems, jewelery and iron ore! Unless this sector is broadened to industrial products, automobiles, textiles, consumer goods, electronics there would be no scope for employing the 60% agricultural labour force. And if 60% of working population is held hostage to monsoon vagaries then we could kiss the hopes for poverty eradication a goodbye. Regardless of what the rabid left and the likes of arundhati roy and medha patkar make us believe, there is no way agriculture growth can be sustained at 4% year on year basis infinitely to provide employment to the burgeoning rural population, unless we make a concerted effort for transferring the surplus labour to industrial sectors.The sooner we are out of Utopian day dream of sylvan village life romanticism the better it is for the country's progress out of 50 years of economic doldrums.
The consensus is clear. We need to take hard decisions to ensure industrial revival at national scale. Effective rehabilitation and forgive me but suppressing the militant vigilantism from the likes of Mamata Banerjee (politicians whose only aim is to reflexively oppose any progressive or regressive govt policy). There should be hard growth targets for state govt.s down to city and local governing bodies. Fuzzy woolly headed resource allocation should be done away with and resources should be directed to places which effectively utilise it. The welfare arm and the development arms of govt. should be truly separated. Mixing up welfare with development has led to the cesspool of corruption that is so evident in public infrastructure projects. The govt should actively encourage private enterprise (not just the small scale ones but even the likes of TATA and Birlas). Too long has these two important arms are playing adversarial roles for national loss. At the end of the day a successful professional conglomerate is lot more useful to the people of the country in terms of employment than millions of state propped and politician owned bankrupt small scale industries.
Of course all this would be lost if we as people (even the highly educated ones at that) don't appreciate the hard choices that all this entails and keep getting fooled by populist agendas on which elections are decided like Rs 2/kg rice, free electricity, free TV, x% reservation in jobs, vague exhortations to garibi hatao (with no followup to financially empower people), nuclear chest beating then kargil, pakistani honeymoon followed by raving about aar paar ki ladhai, white mania or colonial paranoia and mandal mandir hysteria.. The unfortunate tragedy of Indian democracy (regardless of the backslapping we slavishly lap up from the western media) is the lack of debate on real issues and how the superficial ones tend to be overplayed leading to election of idiots who eventually manned the commanding heights of our state driven economy. Honesty, objectivity and commitment to nation building has been the first casualty in the process. At least in the past we could forgive the politicians for their folly as though if not in action but intention they had the national welfare in the mind, but of late the cynical and brazen manipulation of caste, language, religion for political gains has stripped the political class of the veneer of justification. This eventually would be the biggest threat to the progress of our nation. Let's hope that this forum in its small way could lead a cause for change in the right direction.
posted by abecedarian @ 4:00 AM
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