India has a hugely “unfulfilled potential” and is uniquely positioned to “recast the global narrative”, requiring 8-10 per cent growth rate over 20 years so as to reduce the per capita income gap with the likes of China, Singapore Deputy Prime Minister Tharman Shanmugaratnam said today.
Calling for bold economic reforms, he said: “India has to move with urgency to achieve its potential. 8-10 per cent growth rate is not a luxury, it will merely get India about 70 per cent of per capita income of China in 20 years time.”
Delivering the first lecture of government’s think tank NITI Aayog on the theme of ‘Transforming India’, he said: “India has two and half time lower per capita income than China. India can achieve this.”
He added: “India has the largest unfulfilled potential of any country I know in the world and it needs urgency to achieve that. Reforms are underway. India leads the world in some areas like world the first digital identification infrastructure in Aadhaar.”
He further said that the country is uniquely positioned to recast the global narrative, to achieve broad based prosperity through deeper strategic interaction with the global economy.
“India needs to growth at 8-10 per cent over next 20 years if it is to create jobs for youthful population, if it is to reduce tremendous under-employment and if it is to achieve inclusive growth including significant shift of people from low level income group to middle income group which is what China achieved,” he said.
According to Shanmugaratnam, India is in a position different from that of China and is uniquely positioned to recast the global narrative because of an open society that has constitutional democracy with a diverse population.
He said that Indian can show, how it is possible with an open society and open an economy to achieve not just rapid growth but inclusive growth.
Suggesting measures to achieve 8-10 per cent growth, he said: “This potential is fully within reach. But it cannot be achieved without significant changes. It cannot be achieve with current day policies. It requires Prime Minister Modi just said, ‘rapid transformation not gradual evolution’.”
It requires bold and accelerated changes to free the economy and invest in people, he added.
Shanmugaratnam said the challenge is less about ideology than about legacy, that comes from the weight of rules and laws of the bureaucracy and vested interests in society. There is a need to tackle the legacy decisively to fulfill India’s potential.
It doesn’t need smaller ambition in government but it needs a different ambition in government, he said.
“Put globally, India over-intervened in its economy and under invested in social and human capital. It has over reached itself in regulating its economy but it has under invested in social and human capital and to achieve its full potential it will therefore have to do less in some area and have to do a lot more in other areas,” he said.
Shanmugaratnam said India has to withdraw from its own role of the state, economic regulation and ownership that restrains private investment and job creation and also preserves incumbent, existing players at the cost to new ones.
“But it not just about we do lesser, it is about what we do more.
The new ambition has to inspire the state. India has to invest in social mobility and maximising the skill ability of its people as PM also highlighted,” he added.
India has to invest in exclusive housing and cities… invest in infrastructure through public and private infrastructure and it has to invest in new world economy, innovative capabilities, investment in ecosystem, he said. “Reform, Transform and Perform should be the mantra. There is need for much greater urgency and urgency does not come naturally in politics anywhere in the world and particularly in large societies.
“The problems are…because the solutions have been repeated postponed and problems are allowed grow larger in the workforce, skill, in pension,” he said.For any given level of demand, even in the world which is growing slowly, one can either have high exports and high imports or low exports and low imports, he added.
“But the big difference between high exports and high imports is this discipline of dynamism, the content learning which comes with interacting with the world and it is a learning where India will not just be a follower, but has the potential to be a leader in many fields,” he added.
He further said: “India has come a long way in opening its economy in the last 25 years, but it needs a much more concerted approach in the next phase of its journey. That is why ‘Made in India’ has to be ‘Made in India for the World’.”
Shanmugaratnam said however that going for some increase in exports in one area and substituting for imports in another area. It does not work that way anymore.
He said the way production is being organised in the world, the global value chains, there is a deep interaction between exports and imports in every production process and domestic supply as well.
Citing example, he said: “You take China. After China entered the WTO in 2001, brought down import tariffs. But, the import tariffs were brought down the result was a paradoxical one. Chinese exports ended up having more domestic content as a result of this liberalisation.”
One, because of a whole new set of domestic suppliers were able to take advantage of cheaper, better quality imports in order to supply competitively to the exporters, he said.
“Opening up to the world and a deeper strategic interaction with the world is not a zero-sum game… At its heart its about constant learning, constant innovation, takes productivity up and takes income up,” Shanmugaratnam noted.
Sun Pharma has 70 per cent of its revenues from outside India. It produces in 26 countries, although it is anchored in India, that is the new game of competitiveness, to be globalised and to be a leader, he noted.
“But we have to spread this culture for the largest and most successful firms to the rest of the economy. It exists in many hues in India. Take medical care. You have one of the highest quality medical care, at a fraction of the cost of the advanced world,” Shanmugaratnam suggested.
Saying that economists sometimes talk about trade growing slowly relative to global GDP, he said this is because oil prices have come down and commodity prices have come down. In real terms, trade continues to grow faster than the world GDP.
“And you take out the fact that China was previously over-investing and now has to consolidate. If we take out that part, all the more the underlying trend of trade is that it is still a source of dynamism for the world economy,” he added.
He further said that prospects of integrating the economies in Asia are still an unfulfilled task. Between South East Asia or ASEAN or China, there is a high degree of interaction, but between India and China and between India and ASEAN there is a need for much deeper interaction.
“There is tremendous opportunity to develop stronger links in both exports and imports. Remember, Asia is the biggest source of future demand in the global economy. We have to take advantage of it,” he said.