A time traveller from the 1990s, landing in the urban India of 2009, might be surprised by the magnitude of changes. The same traveller to much of rural India would probably sense a deeper constancy of life, despite the many perceptible changes. Those perceptions probably serve as an allegory for India and Bharat. The past decade had shown what India can achieve through reforms and liberalisation. The next decade will be about sustaining this growth and taking it to deeper Bharat. India?s corporate entities have become individually more efficient; the challenge is to extend this system-wide. This is not just about fixing 2010. Policy authorities in India have demonstrated their ability to manage evolving developments and will steer the system on an even keel through the year.
We are all in it for the long haul, and measures to make India a better place to live in have to strike a balance between increasing systemic efficiency and promoting inclusive growth. The list of actionables is long and spread over a wide range of feasible time scales. Global recovery, central bank actions, the US dollar, financial regulatory changes, inflation in India, food prices, corporate Capex, disinvestment, capital flows, rise of emerging markets, agriculture reforms, pension and social security, infrastructure, fiscal consolidation, goods and service tax, electricity markets and open access, environmental degradation, financial inclusion, improving access for rural India, land rights, urban renewal?these are just the economic aspects of the agenda.
Any medium-term road map, obviously, has to take shape in the immediate future. Given the persisting fragile environment, the immediate priority will clearly be attenuation of the stimulus exercise. Policy will then transition to dampening oscillations in the business cycle, increase India?s ability to absorb high foreign capital inflow volumes and ensure steady and high growth over the next decade. The most pressing task is quelling food price pressures with minimal collateral damage to economic activity. How nimbly and sagaciously policy authorities manage this transition will set the course for the next few years. India will be both helped and put at risk by the global environment. A lot depends on how major central banks manage and time their exits from their quantitative easing stances. While a strong global recovery will aid India?s economy through exports of both goods & services and inflows of capital, the primary growth driver will still be the domestic economy. The most clear and present risk is a sharp and steady rise in industrial commodities prices, particularly crude, which will have wide ramifications on the fisc, inflation, balance of payments and consumption demand.
What then going forward? Fiscal consolidation and rationalisation is probably the more urgent requirement. This is not just a matter of efficiency and prudence. The current financial crisis has shown that countries with fiscal surpluses can probably respond more effectively without creating toxic side effects on interest rates, inflationary pressures and risk perceptions. The quest for systemic efficiency entails more rationalisation of tax accounting and collection systems than a reduction in tax rates. The recommendations of the 13th Finance Commission and their implementation are likely to be critical milestones.
This brings me to a critical marker for the new decade. A recent report from the Food and Agriculture Organisation reinforces that what we have seen in India is also true of global food production. It notes that high food prices globally had impacted poor consumers, but the puzzle was that it did not seem to have benefited farmers, inducing them to produce more. One reason is that input costs had outstripped food prices. ?Lack of rural infrastructure, limited access to modern inputs and irrigation, poor roads and storage facilities, rudimentary technology, limited knowledge of modern farming techniques and limited access to credit all leading to low productivity, limited participation in markets and lack of investment? were the main supply side constraints.
This buttresses the point that India?s socio-economic weaknesses make imperative that the government remain engaged, in providing social security nets to the poorest, and in providing access and opportunities. The two goals?fiscal consolidation and greater government engagement?are not contradictory. Efficient use of public funds has the potential not only to leverage private funds in the system, but also to increase consumer goods markets that will drive production. The NREG, Bharat Nirman, Sarva Shiksha Abhiyan and other similar programmes are the way to go, but as is well known, their implementation needs to be improved. New technologies, particularly mobile telecom and communication, will be a major enabler of lower cost and enabling technologies.
Technological advances, deepening financial markets, an improving fiscal environment and better logistics should progressively extend the reforms of the past decade into hitherto untouched geographies and activities. Prioritisation and implementation will be key in this phase. Adroit management of opportunities and risks is likely to keep India?s beacon shining brightly.
?The author is vice-president, business & economic research, Axis Bank. Views are personal