The I in BRIC

The Financial Express
Posted: 2008-06-23 21:57:46+05:30 IST
Updated: Jun 23, 2008 at 2157 hrs IST

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The investment bank, Goldman Sachs, has been bullish on India for a while now, ever since the famous BRIC report. In a new paper, the bank’s researchers have now laid out ten specific things that India needs to do to become 40 times its current economic size by 2050. At first glance, the list seems to state the obvious. But in a country like India, plagued by policy inertia, it is often necessary to keep repeating the obvious for there to be an impact. The list recommends: improving governance mainly through decentralisation and right to information; the need to raise basic education; improve quality and quantity of universities; credible fiscal policy, which would enhance the effectiveness of monetary policy; liberalisation of financial markets; improving agricultural productivity; and improving infrastructure, both in financing and delivery. These suggestions have been stated by many an expert and by the government itself—the knowledge commission has been making valuable suggestions on reforming education, various government-appointed committees have examined changes for agriculture and the financial sector, and the government is committed to fiscal reform.

Perhaps what is stated less often in popular discourse but emphasised in this new report is the need for explicit inflation targeting, increased trade with neighbours and the need to improve the quality of the environment. These three suggestions stand out from the remaining seven. The time is ripe for India to give RBI formal independence and adopt a formal inflation targeting policy—it would have popular support in an inflation-averse political economy. Trading with neighbours, particularly China, Pakistan and Bangladesh, is held back because of various political disputes. There is immense potential for gains from trade as India is fortunate to share boundaries with countries which also have large market sizes. It’s now time to overcome the politics. The environment remains a subject of minimal public debate in India, at least in the context of economic growth. Sustainable growth is only possible if Indian industry begins to adopt cleaner technologies from now. The report, quite correctly, points to a need for better public information on this subject. Reports come and go. But maybe policymakers would do well to take note of this exercise. Implementing even five of the ten suggested reforms could make a big difference to India’s growth trajectory.