The subject of this seminar is ‘What India Needs’ and I have been asked to provide an answer as to what India needs from the economic perspective.

I consider myself a passionate student of economics. Even though some people would call it a dismal science, I understand it as an art of making things happen, providing a mechanism so that over a period of time the standard of living of more and more people is improved.

Ideal is not always Feasible

What needs to be done ideally is, by and large, known to everybody. But there is always a gap between what is “ideal” and what is “feasible”. Ideally, many would like the Indian economy to grow by, say, 9%. Why? Because at this rate of growth our per capita income would double within 10 years. It took Great Britain nearly 57 years to double its per capita income; it took the United States about 37 years and Japan 15 years. But it took China less than 10 years to double its per capita income. And China did it twice over in the last two decades, when the GDP increased by more than 10% per year. In our case, it has not, happened. And ours is a socialist, democratic republic, and a mixed economy, as opposed to the Chinese People’s Republic, a communist government, which has now become a ‘socialist market economy’ since 1978.

A lot of things have happened in our country. For example, today we can manufacture goods ranging from a safety pin to a missile, but we cannot manufacture many of our industrial products competitively, which could be sold in the global market at a competitive price.
A realistic perception must be based on a feasible rate of growth and it has to be more than what it is today. I will try to present a feasible perspective.

Some Hard Facts

Ours is a vast country, we do not have just one single language, and we use the same colonial language to communicate amongst ourselves. There are 18 languages listed in the Constitution, 1,652 mother tongues spoken across the country. Every 1.5 seconds a child is born. The moment a child is born, it is hungry. It consumes things till its death. Unless every child that is born and becomes a man or a woman produces things which have a value more than what he or she consumes, he or she is not an asset, but a liability. They need opportunities to enter the employment and income stream of the economy. This is not easy to create.

About 44% of Indians cannot spend even one dollar a day (on PPP basis) on their basic necessities. Thus, almost half a billion people are very poor. Besides, 43% adult Indians are illiterates. The overall distribution of income is highly skewed, with 46% of the income/consumption coming from the top 10% of Indians, while 10% of those who are the poorest, contributing only 8%.

We started with a model - a mixed economy. Initially, it was all right. But this mixed economy turned into a public sector dominated economy. It kept India in its grip for almost four decades till it was thrown out in 1991 when market oriented economic reforms were introduced.

Today, after 12 years of economic reforms, the Indian economy has changed beyond recognition. The country’s corporate sector today is totally different from what it was earlier. Today, the forces of competition, determine the destiny of Indian industry and the Indian economy.

I think we are living through “the best of times and the worst of times”. The best of times is that the glass is half full and it will get full over a period of time. The worst of times is the fact that we continue to hang on to our colonial past in terms of administrative systems and procedures. Recently, I had to go to a government office to obtain a simple Domicile Certificate needed for my son’s admission to the medical college. To get this done, I had to take two weeks’ leave! In the last four years, I have never had a holiday - but I had to take 2 weeks leave - spending most of it in a Borivali court to chase papers because there was a deadline to catch.

It is unlikely that there would be a qualitative change in our kind of governance in the near future. There is a lot of talk about improved corporate governance, but there is little to talk about improvements in the political and administrative governance of the country. So as not to give an impression that I am being pessimistic I would say that the “countervailing forces” that Mr. Moddie so passionately advocated are slowly emerging. Internally, from within the society, things are happening which are going to compel the government to bring in qualitative improvement – over a period of time.

First Hesitant Steps

In the 1980s Mrs. Indira Gandhi took some half-hearted steps in the direction of liberalization during her second term as Prime Minister particularly in the area of Import-Export policies. And then, in the late ‘80s, under Rajiv Gandhi, some further steps were undertaken towards liberalization, particularly in telecommunications. In those days to make a trunk call to Calcutta, I had to come all the way from Andheri to the Central Telegraph Office, Hutatma Chowk. Today, it is possible for anyone from any corner of India, even the remotest and most secluded corner, to find a public call office, a STD-ISD booth.

There are many such small steps, which are coming through in a small way with the initiative of the people, which give impetus to a higher rate of growth, and will ultimately compel the government to decentralise governance, both at the Union, and the States level - down to the village panchayat level.

Higher Growth Rate

So things are happening and my perspective is an optimistic one. From a rate of growth in the 1980s of 5.5%, the overall rate of growth of GDP has increased to 6.1% during the post-reform years. The population growth has come down from 2.5% to 1.9% now, so the differential between the overall GDP and the per capita growth has also decreased. Now everybody is talking about a 7% plus rate of growth. What is so special about this? What is special is that anything that grows by 7.2% for ten years, doubles the growth rate. This means that the overall GDP needs to grow by 9% to double our per capita income. Is this feasible? Can India’s GDP grow by 9%, 10% or 16% as some people say? I think at this stage, such a high and sustained growth rate is beyond the dream sequence. What is feasible is 7% plus rate of growth of GDP, which eventually will double per capita income in 15 years. This is the Indian elephantine rate of growth. If 7.5% rate of growth is achieved on an average during the next five years, the economy will be elevated to a higher level. It will be feasible to have 9% growth thereafter.

We need to restructure industry to make it more productive and globally competitive. When we do this, employment goes down. Studies done by us reveal that after the reforms were introduced, overall total factory productivity, labour productivity and capital productivity of Indian industry have increased compared to the pre-reform years. When it comes to the top 50 private sector companies, total factory productivity, labour productivity and capital productivity have improved at a bigger scale compared to overall industry figures.

Growth and Unemployment

What happens when there is a growth in productivity, particularly relating to labour is that less people can do a better job more efficiently, and value addition for employees is increased. But what happens to those who either could not get a job or lose their existing job? There is a need here to introduce a policy compact on those industries and services (eg. tourism) having the advantage of forward and backward and high employment elasticity.

The unemployment situation is grave. We are told that some 50 million Indian citizens are un-employed. The fact of the matter is that there are no dependable statistics on the number of unemployed. You will not find it in any of the Plan documents. There are no reliable figures. But the fact of large-scale unemployment is real and needs urgent attention. During the 1980s the overall GDP growth was 5.5% per year and employment growth was over 2%. During the 1990s, the GDP was 6.1% per year, but employment growth was less than 1%. How to convert the jobless high growth into a growth with job? Mercifully, some mechanisms are being worked out by the Planning Commission.

Agriculture is the Key

Let us turn to agriculture: its growth is the key to achieve sustainable higher rates of growth in the country. Agriculture’s contribution to the GDP came down from about 56% in the 1950s and is about 25% today. According to the 2001 Census, 67% of our population and 54% of the total work force depends on agriculture, one way or the other. But the rate of growth in agriculture oscillates wildly. The growth rate of agriculture (as a component of the GDP) moves up to 9.6% in one year; in the next year it comes down to a negative 2.4%; in the third year it moves up to over 5%, then remains flat at less than 1% for 2 years. Last year (2002-03) was a drought year, and, as a result, the overall rate of growth of industry and GDP came down.

What happens here? One incremental percentage growth in agriculture leads to an incremental income generation of Rs.10,000 crores in the hands of the farmers. Let’s assume 1/3rd of that would be used for the repayment of debts, which the farmer might have incurred. The remaining 7,500 crores of rupees are incremental disposable income of the farmers. It will come into the market. Small things like toothpaste, chappals, clothes, food items, small everyday needs will be purchased. And this huge demand gives a push to industry. This incremental rate of growth from agriculture to industry will be reflected in raising the overall GDP growth.

The point is that if we can activate agriculture, we find that we have created the pace of growth for the economy. There is a high correlation between agricultural growth and both industrial and overall economic growth. The Chinese reforms started from agriculture. In 1978 the huge command economy of Chinese agriculture was abandoned through one simple order. China is a command economy even today, in terms of political governance because it is not a democratic state. But its economy has become “socialist-market” economy.

“Excessive Pluralism”

In India it is an over-pluralistic kind of democracy in which everybody will give two or three different opinions, depending on where they are speaking from. When a government is being run by 24 political parties, it is extremely difficult to take the initiative on any thing. The Supreme Court’s ruling stalling the disinvestment of the oil companies saw one minister dancing with joy, while another was depressed. The fact is that in a competitive environment we have got to work as a team. But the composition of the governing team at the centre is so diverse that it is anything but a team. Privatisation is a done thing all over the world. The Chinese are doing it vigorously. It is pointless to be anguished about it because we have to accept the fact that a few things cannot be done here so easily. We have to reckon with the system rigidities, we have to live with. At the same time, trying hard to smoothen the rough edges.

The issue is not the funding, capital or money, but the simple fact of managerial decision making in the area of applied economics.

WTO

Finally, a few words about the WTO imperatives. The WTO repre-sents a kind of global reality considerably influencing competition in trade, investment etc. The 148 members of the WTO contribute over 98% of the world exports. Commu-nist China worked for 14 long years to become a member of WTO and was admitted last year at the Ministerial Round held in Doha in September 2001. I was witness to the joyous scenes with a large contingent of media people from China, celebrating the fact that eventually China made it to the WTO.

And in our country on the same day, our minister made a presentation almost trying to destruct the process of globalisation! In our country, even today, people say let us walk out of WTO. It is very easy to get out of the WTO. Our government can write a half page application addressed to the General Council of the WTO, that we want out and we are out! Thereafter, we Indians can freely enjoy the music of adversarial competitive world trade. To transact with the rest of the world, we will have to have a large number of bilateral agreements. 148 member countries multiplied by 38, which is the number of major WTO agreements, gives us a number 5,624, i.e. so many transactions or bilateral agreements will have to be done in doing trade with the rest of the world.

But the WTO provides the opportunity of having a multilateral umbrella which is transparent, based on the agreements, negotiated and agreed upon by all signatory member countries, which gives facilities to the developing country over a period of time to be integrated with the WTO system. At the same time, the rich countries, in WTO parlance, the Quad countries (United States, EU, Japan and Canada) are the big boys of international business, who call the shots. But since Doha, and now Cancun, despite its failure, the voice of the developing countries has become a force to reckon with. It has to be heard because WTO is a unique forum with one member one vote, unlike the IMF or World Bank.

Here, a single member, every member whether it is Bangladesh, or the United States, has only one vote. Even if one member from a tiny nation says ‘No, I don’t want it’, everything has to stop. So, this is a mechanism available to us, and it is up to us how we use this mechanism to further our own interests.

We need to take a positive stance at negotiations based on the principles of liberal economics and try to take advantage of multilateral trade and investment opportunities as well as face the challenges of competition.

(An abbreviated and edited version of a talk delivered on September 27, 2003 at St. Xaviers College, Mumbai).

Mr. Jiban K. Mukhopadhyay, is Economic Adviser, Tata Services Limited.