Saturday, June 20, 2009

India at 62: Great Potential, even greater problems

We are well past 60 years of our existence and we have enough reasons to celebrate the achievements we have made in these years. Not too long ago, we were known as land of snake charmers and regarded as the epitome of third world. Now we are ranked in top-10 world’s largest economies. Today India is recognized as having a tremendous potential for becoming a global economic player. India has gained worldwide attention as one of the fastest growing markets and a respected, responsible democracy. According to a Goldman Sach report, India is going to “sustain its breakneck growth for the foreseeable future”, and going to become world’s second largest economy in 2050. There are many other respectable reports which also predict similar bullish outlook. But isn’t having the potential and actually achieving it is two different things? And this is where the biggest challenges lie for India.

India has enormous problems especially in the areas of poverty. We talk of calling ourselves global economic prowess, when 60 percent of people don’t get a square meal. The World Bank estimates that 456 million Indians (42% of the total population) live under the global poverty line of $1.25 per day (PPP). This means that a third of the global poor now reside in India. According to a report released by the Indian government, nearly half of the country’s small children are malnourished. Unemployment rate is 7.2%. The per-capita income rate, literacy level and other key human development indicators also lag behind many other developing nations, including those in sub-Saharan Africa. The cost of healthcare is spiraling, government spending on healthcare is shrinking and the impact on the poor is catastrophic. Only 15% of the Rs 1,500 billion healthcare sector is publicly financed. As a result, the public health system is on the brink of collapse. National data reveals that 50% of the bottom quintile sold assets or took loans to access hospital care. There is huge shortage of basic amenities like electricity and drinking water. Power shortages and blackouts are common throughout the country. The deteriorating condition of road and rail networks, as well as port facilities, hampers the continuing rapid growth. Economic losses from congestion and poor roads alone are as high as $6 billion a year, figure by government agency. India's gross fiscal deficit remains one of the highest in the world. The Confederation of Indian Industry estimates that more than $330-billion needs to be spent on infrastructure over the next five years to boost the country's competitiveness. The overall government deficit stood at just under 6% in fiscal year 2008. In fiscal year 2009, this may accelerate to above 7%. At such high levels, government borrowing crowds out private-sector credit, keeps interest rates high, adds to already high government debt, and becomes a key source of macro vulnerability. 60% of the labor force is employed in agriculture, which contributes less than 1% of overall growth. India’s economic boom has been powered disproportionately by a world-class technology sector that requires only a comparatively small number of highly skilled workers. Even as the economy soars, overall job creation has not kept pace with the growth of the working-age population, which is projected to expand by 70 million people over the next five years. Most of India’s rural population is young and illiterate, lack adequate access to educational service; they do not possess the skills necessary to compete in the global economy.

With all these problems staring us in the face we say that we are going to become an economic super power? Are we living in a fool's paradise?
You may not be reading the above statistics for the first time. Also, the solution is not easy, but we have to start somewhere. India needs to realize its potential. It’s economic performance in recent years gives some reason for optimism. Fortunately, after decades of underinvestment and political inertia, India's political leadership has awakened to the magnitude of the infrastructure crisis. A handful of major projects have been completed; others are moving forward. Mr Manmohan Singh, is promising a 100-days Marshall Plan-scale effort. But think practically, is it possible to get things on track in 100 days. However, we lack is not policies but the will of our law makers to execute them. We have seen instances where funds either remain non utilized or get siphon off. Policies are made without looking at the feasibility of execution.
Will the current government be able to turn things, atleast, on track? Let's wait and watch.