Samir K Barua
India has surprised not just the world but also itself with GDP growth of over 7.5% per year over the last several years. The achievement is remarkable in the backdrop of often incoherent and inconsistent policies that are a part and parcel of a vibrant democracy that faces pulls and pressures from different quarters. In the limited and insufficient space allotted to me I propose to float a few straws in the wind to explain this improbable phenomenon and look ahead at what is in store for us as a nation and what we need do to ensure that we build on a great platform that has been set up for us.
The biggest strength of the Indian economy has been the immense diversity of its manufacturing and service sectors. Think of any business and we as a nation are in it. This ensures that the impact of even calamitous developments such as a significant rise in the price of crude or unexpectedly quick appreciation of the rupee on the economy as a whole is moderated . At the macro level, the impact of the rising crude prices has been softened by the appreciating rupee. At the micro level, while the rupee appreciation has negatively impacted several sectors, there is a whole range of businesses that have benefited from the rupee appreciation.
The diversity of the industrial base has helped us time and again to deal with adverse developments that have hit less diversified economies hard. The second strength of the economy is that it is significantly driven by domestic consumption. The external sector is not yet as important as it is for some of the East Asian countries. Being a poor and populous country, India would continue to be a nation where underownership of consumer goods would prevail for decades. The consumption demand within the country can ensure that the economy would continue to expand in the foreseeable future if we ensure that the fruits of economic growth percolate down the income ladder.
The large and ever growing consumer base for manufactured products and services would ensure that the performance of the economy would remain relatively insular to performance of other economies in the world. This has and would continue to help India in moderation of impact on its economy to downturn in the global economy.
The third major strength is Indian entrepreneurship that is being slowly but decisively unchained over the last two decades. The rise of a relatively new set of entrepreneurs vis-à-vis the well established business houses in the last two decades clearly indicates that the corporate sector is undergoing dramatic changes in terms of relative wealth and power of the old and the new.
The mushrooming growth of first generation entrepreneurs, most of who have grown up in a liberalising economic era, is a stupendous development for the nation that was starved of risktaking entrepreneurs. This new breed of ambitious entrepreneurs is setting the terms on which it would like to deal with the world. As a more self-confident India emerges from the attitude and actions of these young entrepreneurs, the entire nation would benefit in the form of higher economic growth.
As the above key factors and other enabling factors play themselves out there is every reason to believe that the rate of economic growth can continue over the next two decades. Yes, there could be minor temporary setbacks and growth rates may falter for a year or two, but the direction is quite clearly up.
The major challenge the nation faces today however comes from a different quarter — the increasingly skewed distribution of the benefits of economic growth. The ever rising disparity between the wealth and income of the rich and the poor in urban India and even more importantly, the rising disparity in wealth and income between urban and rural India, has the potential of disrupting the congenial social atmosphere needed for sustained economic growth.
India has always lived and continues to live in its villages . The farmers’ suicides across the country are a poignant reminder of the urgent need to address the issue of the agricultural sector and the rural poor. The fruits of economic development have simply failed to reach the hinterland of the nation where more than 70% of people still reside. Inclusive growth can not remain just a buzz word in the well appointed discussion rooms of the elites and the ruling class.
The time is well past when we should have acted as a nation in ensuring that the needs of the poor, in particular that of the agriculturists and the rural poor, are addressed. This is no longer an emotive issue, but has become an issue that needs to be addressed for sustained economic growth. The social tension and strife that such increasing economic disparity between the haves and the have-nots can create has the potential of derailing the wonderful emerging growth story of India.
The government alone cannot be expected to be able to deal with the situation. The corporate sector must put its might behind a genuine effort to create a more equitable society . The leaders of the corporate world must come together and formulate concrete plans to address the issue — it is in their long term interest. And if such public private partnership can indeed be formed with the honest effort towards ‘inclusive growth’ then not even the almighty can stop India from taking its rightful place as the greatest democracy in the world.
The author is the director, Indian Institute of Management Ahmedabad
India has surprised not just the world but also itself with GDP growth of over 7.5% per year over the last several years. The achievement is remarkable in the backdrop of often incoherent and inconsistent policies that are a part and parcel of a vibrant democracy that faces pulls and pressures from different quarters. In the limited and insufficient space allotted to me I propose to float a few straws in the wind to explain this improbable phenomenon and look ahead at what is in store for us as a nation and what we need do to ensure that we build on a great platform that has been set up for us.
The biggest strength of the Indian economy has been the immense diversity of its manufacturing and service sectors. Think of any business and we as a nation are in it. This ensures that the impact of even calamitous developments such as a significant rise in the price of crude or unexpectedly quick appreciation of the rupee on the economy as a whole is moderated . At the macro level, the impact of the rising crude prices has been softened by the appreciating rupee. At the micro level, while the rupee appreciation has negatively impacted several sectors, there is a whole range of businesses that have benefited from the rupee appreciation.
The diversity of the industrial base has helped us time and again to deal with adverse developments that have hit less diversified economies hard. The second strength of the economy is that it is significantly driven by domestic consumption. The external sector is not yet as important as it is for some of the East Asian countries. Being a poor and populous country, India would continue to be a nation where underownership of consumer goods would prevail for decades. The consumption demand within the country can ensure that the economy would continue to expand in the foreseeable future if we ensure that the fruits of economic growth percolate down the income ladder.
The large and ever growing consumer base for manufactured products and services would ensure that the performance of the economy would remain relatively insular to performance of other economies in the world. This has and would continue to help India in moderation of impact on its economy to downturn in the global economy.
The third major strength is Indian entrepreneurship that is being slowly but decisively unchained over the last two decades. The rise of a relatively new set of entrepreneurs vis-à-vis the well established business houses in the last two decades clearly indicates that the corporate sector is undergoing dramatic changes in terms of relative wealth and power of the old and the new.
The mushrooming growth of first generation entrepreneurs, most of who have grown up in a liberalising economic era, is a stupendous development for the nation that was starved of risktaking entrepreneurs. This new breed of ambitious entrepreneurs is setting the terms on which it would like to deal with the world. As a more self-confident India emerges from the attitude and actions of these young entrepreneurs, the entire nation would benefit in the form of higher economic growth.
As the above key factors and other enabling factors play themselves out there is every reason to believe that the rate of economic growth can continue over the next two decades. Yes, there could be minor temporary setbacks and growth rates may falter for a year or two, but the direction is quite clearly up.
The major challenge the nation faces today however comes from a different quarter — the increasingly skewed distribution of the benefits of economic growth. The ever rising disparity between the wealth and income of the rich and the poor in urban India and even more importantly, the rising disparity in wealth and income between urban and rural India, has the potential of disrupting the congenial social atmosphere needed for sustained economic growth.
India has always lived and continues to live in its villages . The farmers’ suicides across the country are a poignant reminder of the urgent need to address the issue of the agricultural sector and the rural poor. The fruits of economic development have simply failed to reach the hinterland of the nation where more than 70% of people still reside. Inclusive growth can not remain just a buzz word in the well appointed discussion rooms of the elites and the ruling class.
The time is well past when we should have acted as a nation in ensuring that the needs of the poor, in particular that of the agriculturists and the rural poor, are addressed. This is no longer an emotive issue, but has become an issue that needs to be addressed for sustained economic growth. The social tension and strife that such increasing economic disparity between the haves and the have-nots can create has the potential of derailing the wonderful emerging growth story of India.
The government alone cannot be expected to be able to deal with the situation. The corporate sector must put its might behind a genuine effort to create a more equitable society . The leaders of the corporate world must come together and formulate concrete plans to address the issue — it is in their long term interest. And if such public private partnership can indeed be formed with the honest effort towards ‘inclusive growth’ then not even the almighty can stop India from taking its rightful place as the greatest democracy in the world.
The author is the director, Indian Institute of Management Ahmedabad
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