That India has tremendous economic potential is without doubt. Till the early 17th Century, India’s contribution to the global GDP was as large as that of China, and the two were the largest economies in the world. However, China now contributes 15 per cent of the global GDP, while India’s contribution is a relatively modest 2.8 per cent. It’s also a fact that India produces some of the finest engineers, doctors, CEOs and other professionals for the rest of the world. It is also an indisputable fact that India’s population, it’s young demographics comprising a talented workforce and it’s fast-growing consumers, is equal to that of China’s and is likely to go beyond that of China, in a few years.
Thus, because of these favourable attributes, it’s given that India will carry on growing steadily at over six per cent plus over the next decade. However, the benchmarks for India are, and should be much higher, for us to emulate the Chinese economic miracle. To be anything close to great, India will have to do a China, i.e. a 10 per cent plus growth rate for over ten years, something that China enjoyed in the 2000-2010 period. That is the benchmark against which India’s performance should be judged. After all, beating low expectations is no beating, merely self-adulation.
The growth of any country is not an isolated metric, but something that is a function of institutional, global and cultural factors that are strongly influenced by policy and political leadership. To succeed, the following variables are key for India, a strong political leadership with vision and consistency, a robust financial system, a conducive global environment – economically and geopolitically, rule of law that is non-preferential and fair and that instils strong property rights and respect for contracts, an entrepreneurial community that is high on ‘animal spirits’ and is willing to take risks, an educated and skilled workforce that is ready to step up the potential of the economy and finally, social fairness and mobility.
The mandate that Prime Minister Narendra Modi’s government got in the parliamentary elections in 2014 was a landmark (the first government to have achieved absolute majority after 20 years) and there were high expectations for reform, governance and improving the growth trajectory of the economy. The economy is in the cusp of an acceleration and whilst some factors are working in India’s favour, we are encountering challenges in others.
Prime Minister Modi is a strong leader, which is accepted by even his strongest critics. He has led landmark policies, such as the introduction of the GST and digitalisation of subsidies. Many policies, such as the GST, are still at the early stages of implementation and their full positive impact on the economy will only be visible over the next few years. Despite rising NPAs in some parts of the economy, the Indian financial system is solvent and ready to fund the next stage of India’s economic expansion. The global environment is strong, with all major economies growing synchronously for the first time post the global financial crisis. The rising trade wars between countries is alarming, but not overly worrying at this stage.
However, the biggest challenge for India lies in the micro and not the macro. The Indian entrepreneurial community, which is the backbone of employment and capacity addition, is wallowing in financial stress and low confidence. Job creation, is partly because of technology, but largely because for entrepreneurs, financial stress has been weaker than desired.
Achieving the 10 per cent growth in ten years that India aspires for, will require synchronised efforts from the government and the private sector. In the first instance, the government will have to lead with large expansionary projects and spending, revive confidence in the economy, which will then inspire the private sector to do the same and enable it to get back on its feet. The Indian entrepreneur wants to be part of the Indian growth story and has been its key driver in the past, but has been under stress in recent times. This needs to be addressed to unleash the full potential of the economy.
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