Thoughts From The Inn At Harvard

Written by N K Singh | Updated: Sep 6 2004, 05:47am hrs
Atque inter
silvas Academi Quaerere Verum
And seek for truth in the groves of Academe
Horace 65-8:BC Epistles

Cambridge, Massachusetts I am having a somewhat crowded set of meetings at Harvard, ranging from interactions with Kim Clark, Dean of the Harvard Business School, Lawrence Summers, President of the Harvard, Martin Feldstein, the President of the National Bureau of Economic Research, Mark Rosenzweig of the Kennedy School of Government and Ken Rogoff, Professor of Economics, among others.

Who can fail to be impressed by the diverse range of academic disciplines being pursued by this university, and equally by the range of cultural enterpreneurs in the surrounding areas. In my quick trip, I noticed Little Tibet, Afghani cuisine, Mongolian specialities, and Ethiopian delicacies! Not to mention the French-Cambodian cuisine that I thoroughly enjoyed.

Does this centre of academic excellence have any definitive answers to the complex economic riddles that currently beset our policymakers Perhaps not. However, on some of the issues which I have posed to them, the responses I gathered are along the following lines.

At this centre of excellence, one obvious question is what will make India a Knowledge Powerhouse and a hub for research and development India has competitive advantages as a location for outsourcing, as a source of human capital for the rest of the world, and has demonstrated skills in reverse engineering and complex manufacturing. Can we make a quantum jump to development of new technologies, and to a creative R&D

In the long run, there is no substitute for an education policy which favours inculcation of skills and encourages innovation and creativity, particularly in centers of educational excellence.

However, mere technical excellence of manpower and creation of research facilities will not make us a Knowledge Powerhouse. For this we need to be at the cutting edge of technology and at the frontier of research in areas such as stem cell research, nano-technology, manipulation of atoms and a greater synergy between different branches of R&D. What is it that takes to create a research hub and cultural changes in which the most talented in the world find it attractive to work As an example, the famous pharmaceutical company, Novartis, has recently shifted its entire global R&D to Boston. The Research Triangle in North Carolina is an example of creating a research hub almost as a separate administrative entity governed which prompts researchers from all over the world to find this an attractive location to conduct their work. So can India aim to create at least one or two research hubs of international class at the cutting edge of technology Can we, say, create separate administrative entities which can foster a culture which can attract the most talented researchers

Second, what are the big priorities in agricultural sector reforms and management of the farm economy The earlier technology adopted for the extension of Green Revolution through extensive use of water is not sustainable as aquifers are not being recharged and falling water levels pose a serious challenges.

The technological research in this area, like in many others, follow market signals. Unless the use of water and the use of energy to exploit the water are appropriately priced, technological research in water conserving crops will remain under-financed. We need to devise a strategy to incentivise national and international research which can secure requisite finance for a significant breakthrough in this area.

Third, how can India balance rising productivity with the need to generate more jobs The positive side of rising productivity is that it creates additional resources that can be set aside for re-investment, creating more jobs, and likely higher quality jobs. The process of creative destruction, and replacement of labour with capital, is an unlikely path over the medium and long term, provided that incentives for private sector growth are in place.

It may also be advisable to create incentives for additional investment in employment-creating sectors with high employment coefficient, such as tourism. Freeing up the urban sector from many labour market policy restrictions and encouraging the agro-processing sector with an affordable and assured supply of energy for greater value-added non-farm employment-intensive activity are also important steps to consider.

Fourth, on the issue of essential policy changes that India must carry out to sustain the 8 per cent rate of growth, no discussion can escape the medium and the long-term consequences of the current fiscal policy stance. The fiscal consolidation plan prescribing annual targets presented by the finance minister to Parliament was a positive step. Nonetheless, many in India have continued to deride the fiscal fetish without fully recognising the examples where beyond a point this had inherent consequences in the crowding out effect, in stifling investment and carry the inherent dangers of a low level equilibrium trap. It was also difficult to sustain the improvement in the health of the banking sector and improve efficiency of transaction or other range of services concurrent with the prospect of parking the deficit in the domestic financial system.

Finally, the inevitable concerns. Concerns on whether a coalition government with outside support of Left parties would be able to stay the course in implementing many measures and obligations which the UPA government themselves have accepted in the National Common Minimum Programme and in the Budget proposals. The attendant compulsions of managing the political economy of a coalition government was understandable. There was general confidence that the current political leadership of the Prime Minister and his able team, which has international credibility, will measure up to these complex challenges. It does not matter whether the Indian way of responding to these challenges was a convoluted and even a tortuous one, provided at the end the right things get done. In the end, one would rather be right than consistent. The next six months are, however, crucial. Clearly, the proof of pudding will be in the eating.