India is completing the largest democratic exercise in the world, or indeed in history. More than 800 million voters elect their representatives to Parliament, and to a new government for the 16th time since 1952. This historic transition of political power is largely peaceful, and testimony to the resilience of democratic processes of the nation. This is also a milestone year as the World Bank has confirmed that India is now the third-largest economy in the world, measured in international dollars adjusted for purchasing power. Its rank has jumped up seven places in the last 10 years.
India is home to 18 percent of humanity, and contributes about 6 percent of global GDP. Due to its demography, it will remain one of the youngest nations in the world for decades to come. The youth of India represents ambition, aspiration, creativity, skills, and also a growing challenge of creating livelihoods. The world has been moving at a slower pace since the financial crisis of 2008. Asia’s traditional export engine too has slowed down, putting a question mark on whether an export-led growth strategy will succeed. Countries in Asia will henceforth need to look at boosting domestic consumption to drive growth. India’s economic growth also slowed down to below 5 percent in the recent past.
In a global environment of continued slowdown, volatile prices and currencies and investment uncertainty, India’s new government will face enormous challenges. We need to quickly move back to a higher growth rate, contain inflationary forces, upscale infrastructure and focus on massive job creation. All this is to be achieved in a democratic framework and within the limits of fiscal sustainability.
The incoming government would do well to categorise its priorities into two buckets, of short- and medium-term. The former could be translated into a 100-day programme, and the latter could spell out a five-year strategic vision and action plan. All priorities should be governed by the principles of innovation, efficiency, inclusiveness and sustainability.
Innovation is the very basis of all growth and development. Efficiency implies frugality in the use of resources, minimisation of costs, and optimality in assigning resources to requirements.
Inclusiveness means aiming for the benefit of the maximum number of people. It also means special attention is given to those who are underprivileged in society. Finally, sustainability requires that India’s development path is such that it does not deplete resources to the extent that future generations become vulnerable. It means consciously choosing a growth path that is less energy-intensive, and more conservation-oriented.
Five focus areas
Any economy of a billion people will obviously face a multitude of challenges. In the case of India, the following five broad areas need greater focus and priority from the new government: (a) Food and agriculture; (b) manufacturing and skill building; (c) fiscal consolidation; (d) financial deepening; and (e) sustainable growth.
Food inflation has been high in the past few years. This is unprecedented, and its causes could be external as well as internal. Inflation was particularly persistent in protein items like milk, eggs and pulses. This was probably because of higher demand, due to changing consumption patterns. It was also due to stagnant supply growth. Pervasive food inflation also reflected demand supply imbalance and supply chain inefficiencies. Hence it is imperative to increase agriculture and food supply rapidly, with a combination of increased farm productivity, reduced cultivation risk to the farmer, better transportation and logistics, reduced supply chain inefficiency, and removal of unnecessary regulatory shackles. There is a great deal of disintermediation possible in the links between farmers and the end consumers.
The share of manufacturing in India’s GDP is stuck at 15 percent for the past two decades. The National Manufacturing Policy aims at increasing this to 25 percent in the next 10 years. Large-scale job creation to cater to India’s youth bulge needs a big push in manufacturing. The decline in the Chinese workforce, and their rising wages, offers a unique opportunity to India. But exploiting this requires upgrading infrastructure, improving the ease of doing business, reducing bureaucratic controls and, most importantly, providing human capital. The latter needs skill-building and training, itself a potential growth industry, where the private sector can play a crucial role. For skills and training we need an ecosystem of vocational institutes with autonomy, flexible curricula and tuition fees, and learning programmes customised to employer needs. We often find that college curricula lag what current trends demand. That feedback loop must be closed. We might also need to incentivise such vocational education with generous student loans. Trained workers are part of the aggregate human capital of the nation.