Dominic Barton, the global managing director of McKinsey, gave an excellent interview in December 2013, highlighting India’s problems. Among other things, he mentioned two notable ones. One, India has the potential to grow at 10% or more (real GDP growth). Two, corruption is an issue that comes up for discussion more in respect of Russia than India. For India, it is misgovernance that haunts the nation. This was during the last days of the UPA-2 government. I could not agree more to both the views.
In Russia, corruption is rampant, and disconcerting, because the country has massive valuable natural resources. For instance, it is virtually the mafia that runs the oil and gas businesses, leaving little for the government. India, on the contrary, has a peculiar problem. We do not produce enough crude and edible oil, necessitating huge expenditure on imports of these commodities. We have one of the largest coal reserves in the world, but still need to import it largely because Coal India has not been a reliable supplier. We do have excess cotton, but instead of adding value and building a textile industry, we export the stuff. Same goes for iron ore.
Now, let us consider the textile business for a while. A few years back, Faisalabad, in Pakistan, used to be a textile hub. Then came the bane of the industry – power cuts. The industry started to die, and millions were unemployed within months. Business shifted to more efficient Bangladesh. Back home in India, Tirupur, a well-known textile cluster, faced a similar story. Power shortages turned the business unviable, small power loom owners faced extinction, and to add insult to injury, strict norms on water treatment spelt doom for the industry. India, however, was wiser and nimbler than Pakistan. Industry shifted to Gujarat, a power surplus state that arranged for a common water treatment facility for the cluster, saving on capital expenditure for small and medium enterprises. That, I think, is what India needs.
Indians are hardworking and entrepreneurs, what most just need is just the right amount of state support. Lesser the regulations and barriers between state and business, the better. E-governance, therefore, is what India needs. Ask a businessman who used to waste one man-day in procuring a straightforward sales tax form. Now, he downloads it from the government website and focuses on better things. The gradual shift of citizen-government interaction to mobile applications (such as Umang) and websites is a welcome change. Corruption breeds because layers separate the citizen from government records, creating ranks and files of agents. Here is where the Japanese concept of quality comes in – don’t take post-facto action, stem corruption before it arises. While an anti-corruption body is required, there is little good in closing the stable door after the horse has bolted.
The other reason why India cannot afford corruption (and a corrupt government) is because, let me put it honestly, we as a country do not have enough money that can be embezzled. While I do agree that our forex reserves have grown to over USD 590 billion from USD 304 billion at end-March 2014, our fiscal deficit is still estimated at 6.5% of GDP in fiscal 2021, which is significantly higher than Baa-rated peers. The Augean stables that are our State DISCOMs (distribution companies) still need to be cleaned for the debt lurking there. Same holds true for FCI (Food Corporation of India). There are food subsidies that need to be maintained as a safety net for the ultra-poor, not to mention the support prices to farmers that have become a political necessity. And then there are massive interest payments (over 30% of Government revenue) that we need to meet just because we borrowed thoughtlessly in the past.
It is in this context that PM (Prime Minister) Modi’s recent speech in the Parliament speech, pointing out the role that the private sector has to play, is so important. The Modi years have been a welcome change from the corruption marred term of UPA-2, so the corruption related concerns are largely taken care of. The focus now is on wealth creation.
In a world where the global economy has been witnessing a structural downturn for quite some time now, Our GDP growth rate too has tapered down to the same pace as already developed Asian economies like Malaysia, and we are saving little for asset creation. India is in the precarious position of an ageing man whose income is reducing as he grows weak and has no assets to feed him when he hits the hospital bed. Therefore, what we need is sustainable GDP growth, and then ensure that our coffers, once filled, are not looted again. Growing at 10% is extremely feasible, as Mr Barton said, so let us gain the lost ground first. More than 150 million Indians will need jobs in the next ten years, we created just 52 million over 2005-2012.
As a CRISIL report pointed out, we need to revive our manufacturing sector, or else 12 million people will have to shift to low-end, farm employment for feeding themselves. The recent farm laws aim to address the problem of low farm incomes, which have been artificially supported by MSPs (minimum support prices). The impetus, however, has to come from manufacturing. PM Modi has had a track record of achieving it in Gujarat. Can we now repeat the feat as a nation? A business-friendly government led by PM Modi combined with a low-corruption regime is the best shot we have got.
 Moody’s: Budget provides broad support; fiscal consolidation prospects still weak (3 Feb 2021)