INDIA: Begging Bowl Gives Way To Growth Hub

Global Geopolitics Net Sites / IDN

BY PRAKASH JOSHI

IDN-InDepthNews Service

NEW DELHI (IDN) — It‘s a far cry from the days when India‘s finance ministers hopped from one western capital to another wielding begging bowls. The fact that the Indian economy grew at a respectable rate of 6.7 percent in 2008-2009 and is poised for at least 6.5 percent expansion in 2009-2010 is a source of just pride to government leaders and captains of industry.

Before the global crisis started playing havoc, India‘s growth rate had accelerated from 5.6 percent in the 1980s to an average of nearly 9 percent in the five-year period preceding the financial meltdown.

Because of this remarkable achievement India is receiving kudos from economic experts around the world. "India has become a positive brand," says Klaus Schwab, founder and executive chairman of World Economic Forum (WEF) based in Switzerland.

"This not only has to do with its economic growth but also the entrepreneurial spirit of the country," he points adding that India could be a role model, especially in light of the challenges of the global economic situation.

Such remarks are being showered at the 25th India Economic Summit organised by WEF under the forward-looking title ‘India’s Next Generation Growth’. This year’s summit Nov. 8-10 has set a new record for total participation with over 800 leaders from industry, government, civil society and academia from over 40 countries.

Prime Minister Manmohan Singh told them Nov. 8 that India is aiming for "rapid and inclusive growth" and looks to the future with confidence. He said that India is committed to "fast and inclusive growth" that will provide productive employment for young people and raise living standards in rural areas across the country.

To realize India’s potential for faster growth, he described an ambitious programme of investment in all of the key infrastructure sectors — power, roads, ports, airports, telecommunications, irrigation and urban infrastructure — and pointed to the large role for private investment in helping India achieve its target.

"In many areas, we are pursuing a strategy of private-public partnerships," he added. "Our policy will be guided by the desire to make India even more attractive for foreign direct investment. We are particularly keen to rationalize and simplify procedures so as to create an investor-friendly environment."

To fulfil the government’s commitment to achieve inclusive growth, Singh said he would expand government expenditure in critical social sectors, especially health and education, including upgrading the skills of India’s workforce.

Complementing the prime minister’s remarks, Montek S. Ahluwalia, Deputy Chairman, Planning Commission of India said: "There are inherent strengths on the supply side that make it possible for India to grow, which implies we can handle the constraints. The most important constraint is infrastructure. But India has all that is needed to take off."

Ahluwalia explained the government’s policy of inclusive growth: "You cannot see a growth story unless it means something for the vast majority of the people, which is why we are talking about inclusive growth." He said that the recent expansion to all states of the 2005 National Rural Employment Guarantee Act (NREG) "provides a floor to incomes in the lowest end of the economic spectrum".

NREG is an Indian job guarantee scheme that provides a legal guarantee for 100 days of employment in every financial year to adult members of any rural household willing to do public work-related unskilled manual work at the statutory minimum wage of 100 rupees per day.

But India faces many challenges if it is to become a leading global economy. Critical reforms in business infrastructure and administrative processes are needed to keep growth on track. There are still legal hurdles, high costs of doing business and the question of whether India can address its skills deficit. Significant public investment is needed to boost the ailing agricultural sector, which today accounts for one-quarter of India’s economy.

"Changes are taking place that will make India very attractive to foreign investors," said Ahluwalia. He predicted that progress in education reform would ensure "a significant difference" in the quality of the labour force in the next five to six years.

Both the prime minister and Ahluwalia were addressing issues that were uppermost in the minds of economic experts from international finance and development institutions.

India came through the crisis in "a very good way" compared to others and there is promise in the country’s reforms aimed at attracting foreign direct investment, admitted Lars H. Thunell, Executive Vice-President and Chief Executive Officer, International Finance Corporation (IFC) — a member of the World Bank group that provides investments and advisory services to build the private sector in developing countries.

However, he pointed out that supporting the SME (small and medium enterprise) sector is crucial to creating jobs and realising market opportunities. "There are huge market opportunities in countries like India. There is a new middle class coming up and there is purchasing power at the bottom of the pyramid."

At the same time, effective models of public-private partnership are needed to address obstacles to higher growth and efficiency. Such partnerships are particularly critical in physical infrastructure, which will boost India’s appeal to foreign investors.

Rajat M. Nag, Managing Director-General, Asian Development Bank, Manila, said that the key to India’s sustained growth is governance and implementation. "There is enough money, but the laws that are there must be implemented more efficiently and effectively," he said. "Over the long run, the [sustained] 9 percent growth rate is feasible and it is plausible, but it is not ordained. [However] we believe that India in one generation — 30 years from now — will be an affluent society."

However, India must expand its financial sector if it is to consistently achieve 9 percent growth, advised Kalpana Morparia, Chief Executive Officer, J. P. Morgan, India. She reminded participants that 40 percent of the current bank network is in rural India and covers just 6 prcent of villages. The country must "think far more innovatively" about leveraging technology platforms. "Let’s not talk about a branch in every village, but a branch in the back pocket of every individual [or in every woman's sari]," she said. (IDN-InDepthNews/09.11.09)

Copyright © 2009 IDN-InDepthNews Service

This article may not be republished, broadcast, framed, or redistributed without the written permission the original author or copyright holder.