Why no progress ?


Here is the scenario:

Out of all the BRICS countries (Brazil, Russia, India, China and South Africa), India has been having the best GDP growth rate of around 7.5% (or higher than 7%) over the past few quarters. Brazil has fallen by the wayside, Russia is having insurmountable economic issues in the face of sanctions, China’s growth is decelerating and South Africa is in deep trouble. Only India seems to be the bright spot, and this has been acknowledged by the International Monetary Fund and other economic agencies.

But India is in a funny situation. Jobs are not getting created in a country which requires to place nearly 10M [yes, you read that right, it is 10 Million] new jobs every year, to satisfy the aspirations of the youth coming into the workstream. Agriculture is no longer an economic engine, the government is pushing manufacturing as its “Make in India” campaign apparently gathers steam. However, is India in good economic shape ?

Not at all.

There has been many analyses in the international media, some praise India’s commitment towards economic growth objectives, and some point out the inefficiencies in the economy which remain unaddressed. The Reserve Bank of India continues to maintain a watchful oversight of economic developments, and has kept the interest rates on a tight leash though the inflation has no reared its ugly head again. With all that, the economic story is still not a positive one.

India needs infrastructure to be urgently enhanced. It needs to pass several laws in the Parliament, and these are being held hostage by the acrimonious relationship that exists between Mr Modi’s Bhartiya Janata Party (BJP) and Mrs Sonia Gandhi’s Congress Party. The BJP has been losing State Elections, and that has not been good news for Mr Modi’s reforms-oriented agenda for the country.

But then, India is a democracy, and democratic institutions have to be upheld. There is no shortcuts possible.

The other major issue is that the Government’s economic progress has been halted in its tracks by the heavy distractions caused by student agitations in Hyderabad, New Delhi and many other parts of the country. Mr Modi could have taken a vociferous position and could have significantly reduced the negative impact of the talk on intolerance shown by government ministers and officials towards the student community. But he has still not spoken, and that is not good news. Whenever students are able to band together on a polarizing issue, the government will get into trouble. It has happened in the past to Congress Party-led governments, and it is happening now.

Given that Mr Modi is very politically savvy, he needs to resolve the simmering tensions and achieve a truce with the students. It is not appropriate to keep quiet when student leaders are beaten up by party functionaries, and the police chooses not to intervene, even if the venue of the attacks is the Delhi High Court premises !

India always has had multiple and serious issues to contend with. It is not like Singapore, or Malaysia, or Hong Kong. The magnitude of the issues to be tackled by India is huge, and cannot be compared with other countries. Hence, it is critical for the government to quickly resolve festering issues and move on. What is very important for India and the Indian Citizens is economic progress. There is no point in wondering why there is jobless growth. There is no concerted plan to drive jobs for graduating students.

India needs close to a 10% GDP growth rate for the next 3 decades, to reach a first world status. By 2030, it should be the third largest economy in the world with 1.5B citizens, the most populous in the world. For a GDP per Capita of USD 10,000 by 2030, it should be a USD 15T economy. Currently, it is just over USD 2.2T in size (almost similar to the ASEAN economic size, which is USD 2.4T).

Long way to go, but everyone’s focus should be on achieving economic growth and creating new jobs. Government should stay the course and drive the reforms agenda aggressively. All else can be sorted out or can wait.

Cheers,

Vijay Srinivasan

28th February 2016

 

 

 

 

 

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