The World Economic Forum India 2012 meet held in Gurgaon was significant not just for India but for the rest of the world as well. More than 700 business leaders from 43 countries took part.
The discussions involved several concerns. As Europe continues to face a massive liquidity crunch – barring Germany – it is looking towards BRICS nations: Brazil, Russia, India, China, South Africa, and perhaps Turkey. A major worry is that India may grow at the slowest rate in a decade, surely below 6%. A slump in industrial activity because of slow policy-making and the global slowdown, along with a drought, has affected its performance this fiscal year.
Any policy watcher knows about the negative impact of UPA-I and UPA-II’s populist reforms. Schemes like MNREGA, well-meaning in terms of poverty alleviation but unwise in its focus on ‘non-asset building’ earthworks, have burdened the exchequer. Tax collection has gone up by 36 per cent between 2008 and 2012. But expenditure has shot up by almost 400 per cent in the corresponding period. The widening gap between outflow and inflow has led to very high inflation. Write-offs of corporate loans and debts (some estimates put it at upwards of $150 billion) have also contributed to the mounting fiscal deficit.
Even when India had a high growth rate, it was hardly growth with justice. Also, the country is yet to move beyond first generation structural reform. While the 1991 liberalization had a well-defined blueprint, a well-articulated roadmap since then is yet to emerge. Growth isn’t inclusive with expensive schemes being floated to benefit the poor and the underprivileged, thereby contributing to fiscal deficit and enhancing inflation further.
According to David Thomlinson, Global Head at Accenture, UK, a young and vibrant population is a critical mass in the process of growth. However, India needs improvement on the infrastructure front. “I will specify power, water and transportation. I also think education needs to get less traditional and get more skill-oriented and I believe broadband penetration along with the spread of hand-held computing will show the way.”
The government has kick-started the process of skills development. The National Skills Development Corporation aims at training 10 million people every month to achieve the goal of training hundreds of million people by 2015. The plan to connect 250,000 village Panchayats by broadband will be beneficial. India Inc. wants to engage with rural India, not out of empathy or greatness but because it stands to gain. MNREGA’s focus must be shifted from earthworks to more asset-building exercises.
The Forum noted that corruption can hurt India economically and also in terms of perception abroad. Eighty per cent of this involves petty corruption, an upwards revision of salaries will salvage money lost through corruption and improve India’s image as a clean place for doing business. Then there is collusive corruption in which corporate houses and government officials join hands to avoid paying actual taxes.
The government is contemplating grants of new licences to banks. The infrastructure development fund savings schemes are doing well. The government is talking to sovereign wealth funds for the $1 trillion required for the infrastructure sector.
For the Indian growth story to re-emerge, populist measures by the rulers must end. Land acquisition process and environmental clearance processes need to be reworked, keeping all sensitivities in mind, labour market reforms brought in, along with corporate governance regulations, GST, and Direct Tax Code.
