1. Budget 2016: Needed a strong foundation for growth

Budget 2016: Needed a strong foundation for growth

Social infrastructure for education and health has to be improved for India to advance, but money alone will not solve the problem

By: | Updated: February 12, 2016 2:29 AM
Social infrastructure for education and health has to be improved for India to advance, but money alone will not solve the problem

Social infrastructure for education and health has to be improved for India to advance, but money alone will not solve the problem

Recently the Prime Minister told a gathering of business leaders that India’s GDP needs to increase by around 10% per annum for at least two decades—as China’s did—for the country to transform itself. India must complete a marathon, not waste its energy in sprints. When I was training to run the Boston Marathon, I was cautioned not to get excited by the cheering crowds to run faster in the early stages of the race.

India has emerged as the fastest-growing economy in 2016 because others have slowed down. Run faster, some are urging: increase GDP, reduce interest rates, damn the deficit.

We will run out of breath, others caution. Some even suggest that GDP is not a good measure of our performance. We should be concerned about the quality of growth, and its sustainability—they rightly say.

The finance minister should heed these cautions, and strengthen the economy for a marathon run.

Institutions must be built and strengthened. The total factor productivity of the economy must be increased, so that more outcomes can be produced with less resources.

Implementation must be improved. Poor implementation is the Indian economy’s weakness. It makes the country a less attractive place for investors in infrastructure and industries than it should be, considering the huge potential of the Indian market.

The finance minister knows very well that social infrastructure, for education and health, has to be improved considerably for India to advance, but larger allocations of money alone will not solve the problem. Here, too, poor implementation is limiting the outcomes in spite of increased outlays over the years.

Therefore, I would suggest four priorities for the finance minister. The first is to invest more in infrastructure. The second is to spend more on the social sector. India has massive shortfalls in both these areas that must be filled to support a large, modern economy and to improve the living standards of its people. However, these thrusts could push the finance minister against fiscal limits.

Therefore, the third priority is fundamental. It will enable India to complete the marathon without its economy running out of oxygen to feed its long-term growth. The third priority, in fact, is to focus very determinedly on building the capacities of Indian institutions for coordination and implementation. Urban infrastructure will not be improved without better capacities to plan, manage and govern in Indian cities. Capabilities have to be developed within the cities for this—they cannot all be managed from distant centres. Similarly, last-mile delivery capacities of institutions in rural areas have to be created. Moreover, better processes must be institutionalised for improving collaboration between stakeholders to prevent bottlenecks arising due to myriad contentions amongst stakeholders and confusion amongst various agencies that make the country such a difficult place to get things done. Improvement of processes and capacity building of institutions does not require much money fortunately. So, the finance minister will not be strained to provide it. In fact, the catalytic benefit of better institutions and processes will be enormous. Therefore, the finance minister should force more attention to the issue—even make it a condition while assigning money for building infrastructure and social services.

The fourth priority must be stimulating growth of small enterprises—making it easier for them to get finance to grow, and to close down should they fail. We must stop subsidising enterprises merely because they are small. Rather, we must give them assistance only for a few years during which they should learn to stand on their own feet without further assistance. We need many more, and healthier enterprises, to provide a strong foundation for economic growth.

The author is former member, Planning Commission

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