Can India grow faster? The Economist's perspective

The Economist had a special report on the Indian economy recently. It has all sorts of interesting facts and it's written in the easy, readable style one associates with the Economist. At the end of the day, there are only a couple of things one wants to know. What rate of growth can one expect of the Indian economyin the years ahead? What do we do to sustain growth at a brisk pace?

The Economist notes that growth in the decade of NDA rule has been 5.6 per cent, below the overall rate of 6 per cent during the three decades of reforms. It is, of course, true that the slowing down of the Indian economy had to do with the overall slowing down of the global economy during this period, notably during the pandemic. The journal doesn't give a precise projection but it seems to think that sustained growth of 6 per cent should be okay- and even that could prove a challenge. We in India now hope for something closer to 7 per cent.

As to what is to be done to sustain a growth rate of 6 per cent or so, I picked up the following, none of which is novel. I give my comments alongside the idea:

• Boost tax to gdp ratio.: How do we do this when we have been narrowing, instead of broadening the tax base, by raising the threshold for income tax and cutting corporate tax steeply?
• More divestment: Rarely in the past several decades has the divestment target been met. The present government had a huge parliamentary majority, yet found it difficult to accelerate divestment. That is the political reality which cannot be changed easily.
• Cut agricultural subsidies: The Economist grants this is a political minefield. So it is. Even keeping subsidies from growing from the present level would be an achievement
• Better centre-state relations to push through reforms in education, labour, etc. Perhaps, the only answer is to have the same government at the centre and the states. That is, perhaps, part of the motivation for the one nation-one election idea but this is not going to happen quickly. 
• Devolve more powers to the local administration: Political decentralisation, brought about by the forces of democracy, is sought to be countered by growing economic centralisation. Ceding more powers to the local level or to the states is at odds with the perceived need for a strong centre to hold the country together. India, unlike the US, is not a union of states with the states relinquishing powers in favour of the centre. It is a union that has allowed powers to flow to the states but with a distinct tilt in favour of the centre.

That's about it- and there's nothing in the list that lends itself to ready accomplishment. The only possible inference is that we should be happy to grow at 6-7 per cent instead of seeking hard to accelerate it to 8 per cent or more. There is, perhaps, a greater need now to address the question of equity or growing inequalities within the country and to focus more on human development indicators such as life expectancy, infant mortality, literacy rates, etc. 

Rising inequality is not just an ethical issue or an issue of containing tensions within our society, it is also about recognising that inquality is limiting the possibilities for consumption growth and hence the overall growth rate. As for human development indicators, we need to worry that our indicators are worse than those of many in South Asia including Bangladesh, Sri Lanka and Nepal.

Let the overall growth rate be. It's time to focus on the quality of life of Aam Aadmi.

 

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