The Indian economy is steadily growing at an incredible pace with no major domestic or external imbalances apparent. But is it secure? The answer is not obvious, since economic security is a complex dynamic concept. In today?s globalised world, it is best defined by the state?s ability to meet, on a sustained basis, the material aspirations of its citizens. This depends to a considerable extent on the state?s institutional capacity to cushion its people from domestic and global threats.
Seen thus, the country?s economic security is related to every aspect of production, distribution and consumption of goods and services. Thus, the agenda for economic security includes almost every aspect of government and business policy. But in order to determine how secure the Indian economy is, I have narrowed the definition, in a paper I am preparing for the new CII Council on Economic Security, to three concepts: resources security, institutional security and strategic security.
Resources Security: this encompasses two broad areas of natural resource security that includes efficient and sustainable access to water, energy and other natural resources; and human resource security that requires a workforce with adequate skills to ensure global competitiveness. India does not measure up too well on these counts. In spite of a large endowment of arable land, it has low agricultural productivity?and it grew at a mere 7% annually over 1995 to 2004?in comparison with other large emerging economies. The underlying reasons are poor rural infrastructure, neglect of the food-processing sector and policy inadequacies in the organised retail sector that make it difficult to optimise supply chains for agriculture products.
India has the lowest renewable water resources among major global economies. Industrial and urban demand for water is fortunately low by international norms, but demand might increase hugely, ?crowding out? water for agriculture.
Separately, India needs to prepare a plan for sustainable energy security, given its heavy dependence on imported oil & gas. India also loses about a quarter of the electricity it generates to transmission and distribution losses.
Like China, India is well placed in terms of human resource endowment. India can compete with other developing countries in labour intensive sectors and with OECD economies in knowledge intensive sectors. But larger social investment is essential to sustain this edge. About 340 million Indians below 15 years of age will require education, health and nutrition. But India is clearly lagging behind the rest of the world in human capital investments. This could have an adverse impact on overall competitiveness.
Institutional security: this refers to governance. An economy with high transaction costs is neither efficient nor competitive. This may not just be a production issue, but a distributional issue as well. India?s record of policy interventions in poverty reduction and social development is unimpressive. Doing business in India is still not smooth. India fares poorly on simple indicators such as cargo dwell time, days to enforce a contract or register a property, and power and transport costs.
Strategic security: this relates to economic diplomacy, police, intelligence and military aspects of economic security. India scores well on economic diplomacy, the Indo-US nuclear deal being a shining example. It encompasses energy security and a strategic partnership with the US that could change the global dynamics of the 21st century.
India also needs to maintain its defence expenditure to safeguard its citizens from internal and external threats. As I have indicated in another paper, fast growth is enough to generate the funds needed to meet geostrategic objectives.
It is unfortunate, however, that we don?t have a vibrant economic security debate in India right now. The country needs an aggregate index of economic security that includes the issues highlighted here. A broad based economic security council should be created to monitor the progress of this economic security index. A nation of one billion plus people cannot afford to let its guard down on economic security.
Jayanta Roy is principal advisor, CII. These are his personal views