Craving for better growth

Updated: Feb 15 2014, 10:11am hrs
Any new government will serve India well by focusing on the following five pointsguarantee of equal opportunities, not outcomes; better delivery of public goods and services; economic management; privatisation of public assets and, efficient distribution systems.

Our five-point agenda will help the government to meet the rising aspirations of Indian citizens. Indian citizens have amply expressed their desire for better governance, cleaner governments and better economic performance. The political class and governments cannot rely on politics of entitlements and social identity alone to derive their political legitimacy. They would have to deliver more in the form of economic and social freedom. The aspirations of Indian citizens, especially young Indians, have moved beyond issues that were relevant a generation ago.

In this respect, we believe future governments need to focus on a few areas only. These include external and internal security, fiscal management and social infrastructure. India's smart private sector and teeming entrepreneurs (from old farmers to young e-commerce leaders) can address India's economic and social challenges if the government creates an enabling environment for investment and sustainable growth.

The right platform for change

India is fortunate that it has a vibrant democracy, which will allow for peaceful means of dissent and change. We discuss two key positives of India's political system here.

There's power in democracygood governance and democracy can co-exist. We see India's democratic system bringing about better governance that could remove impediments to faster growth. Economic liberalisation holds the key to India's economic success. We believe India's democracy and demographics will force economic liberalisation as Indian citizens demand better governance and performance from the political system.

If India is to establish itself as one of the great democracies of the world and serve as a role model of emerging and aspiring democracies, it needs to show that a country with democracy as its political system can also be a successful economy. Over the past few decades, only a handful of countries have joined the extant ranks of developed economies. The US and European nations developed based on a combination of industrialisation and imperialism. The political system was perhaps less relevant for economic development in the 18th and 19th centuries when only few countries could participate in industrial liberalisation. However, all these economies practised some form of capitalism and encouraged private enterprise.

The role of democracy in the economic development of a country has been questioned over the past few decades, given the failure of new democracies (post independence in Asian countries and in the 1940s-70s in African countries) to develop economically. Most countries that evolved into developed economies and/or demonstrated rapid economic progress over the past 4-6 decades followed an autocratic model for growth with governments playing a key role in directing resources and largely controlling the economy. Many of them had dictatorships or single-party political systems.

India is among the few countries that has followed democracy since its independence. At times, democracy has been blamed for India's weak economic performance relative to that of other Asian economies over the past few decades. We would attribute India's weaker performance to the quality of governance rather than its choice of political system.

Demographics will force changesthere is demand for change. We are enthused by the change in the discourse in elections and politics over the past few months. Indian citizens and voters are demanding better governance, higher accountability and better performance on economic and social measures from their elected representatives. In our view, the political class would do well to pay heed and respond to the rising aspirations and expectations of Indians. Political parties and politicians unable to appreciate the changed reality face political oblivion.

Recent elections have shown that Indian citizens and voters are hungry for change-change in terms of better economic management and governance. They are no longer concerned with economic and social entitlements that are, of have been, patchily and sporadically distributed by the political class. They want consistent economic performance and the ability to meet their enhanced aspirations for a better lifehigher economic and social status, better delivery of public goods and services, assurance of the basic amenities of live (education, electricity, food, health, security, transport and water) and an economic system that provides sufficient opportunities in terms of employment, financial security and growth.

We expected these changes to occur over the next 5-7 years but we have been pleasantly surprised by the pace of change over the past few months. In our October 24, 2013 report, 'Party time or no party time', we discussed two key trends that would drive changes towards better governancea rising number of people seeking employment and a rising number of middle-and high-income households. Both of these seem to be on course.

Excerpted from Kotak Institutional Equities India Strategy report

Sanjeev Prasad, Akhilesh Tilotia & Suvodeep Rakshit

The authors are with Kotak Institutional Equities Research