1. Column: India’s opportunity for growth

Column: India’s opportunity for growth

India is a big enough domestic market to allow economies of scale and profit opportunities at all levels

Updated: February 24, 2015 11:39 AM

The idea of human-directed material progress must be an old one, going back to settler-agriculture and domestication of animals. What has changed over time is the systemisation and scale of these processes, and the new expectation that rulers could and should help things along to the benefit of the ruled. Progress has not been smooth, with processes of conflict and destruction also being subject to scale and systemisation. The seven decades since the last global war have seen unprecedented rates of material progress, especially in East Asia. Global cooperation, a relatively peaceful world, and catch-up to a knowledge frontier, that had shifted out steadily over two centuries, made accelerated growth possible.

In my last column, I noted the signs that the exceptionally favourable economic conditions coinciding with India’s history as an independent nation are waning, and the resulting fears and challenges for countries like India that missed the boat. But I argued that there are new growth opportunities. These opportunities arise because the pace at which the global knowledge frontier is being pushed out has only accelerated. Furthermore, even if the rich world is not growing as fast as it did in the 1960s, it is still rich, and is adding members to its club, as countries like Japan, South Korea, and now China, have grown rapidly. The differences from the past are in the nature of technological progress, and in the nature of demand from rich countries.

People in rich countries are getting older, and, dare I say it, wiser. They want good health to go with longer lives, better quality food, clean air, leisure experiences they can cherish, and perhaps even the satisfaction of doing their bit to preserve the planet for future generations. These changes in wants modify demand patterns for existing goods and services, and create pressures for innovation. For example, nutrition and exercise is an ancient recipe for health, but can now be supported through scientific combinations of ingredients in foods and supplements, and in numerous new devices for monitoring the body and tracking activities. A critical aspect, though not the only one, of creating new, affordable products and services for the new consumer demands, is the pervasive use of information technology.

Finding and serving global and domestic niches in the new economy is where India’s growth opportunity lies. Just as for Japan and other predecessors in rapid growth, this does not require knowledge breakthroughs. Instead, what is needed is an understanding of wants in the marketplace, and the ability to innovate incrementally and in the direction of meeting these wants. While the rich world provides many lucrative opportunities, as I suggested in my last column, India is a big enough domestic market to allow economies of scale, and profit opportunities (if not necessarily Ambani-sized fortunes) at the bottom, middle and top of the pyramid.

I have argued in the past that the government should have a strategic vision for the economy, and this can include an understanding of emerging areas for growth. This can be important for prioritising some kinds of basic research expenditures, if they have the potential for supporting promising industries. Politicians and diplomats should also have a sense of where opportunities lie, in order to better connect Indian businesses to global markets. But it is not clear that policymakers can pick winners or potential winners. Even in the case of tax breaks to support investment and innovation, such incentives might better be aimed at the firm lifecycle, for example, early-stage start-ups and middle-stage growth, rather than preferential treatment of specific industries. Similarly, competition and bankruptcy laws, especially the former, might have special issues to tackle for industries with high fixed costs, or long investment gestation lags, but the basic principles are quite general across industries of all types.

Perhaps the most obvious place where the government needs to give its attention is in giving its citizens the initial conditions—basic health and education—required to participate in growth. Japan, South Korea and China all did this, and India has failed so far. Interestingly, the digital revolution provides opportunities for delivering low cost education and health services (especially the former) in ways that were not possible earlier. Creating a national broadband infrastructure ought to be one of the government’s highest priorities. Creating and providing students with access to local language educational content in digital form can sidestep the difficult problems of shortages of teachers and poor performance incentives. Even in basic health and education, and more so in higher education and more specialised care, it is clear that a model where there is private provision, but government standard-setting (though not necessarily of the nature of the Right to Education requirements), coupled with subsidisation of the poor, can do far more to fill existing gaps than pure public provision. The government can also support mechanisms for reducing information asymmetries that plague markets for education and health care.

There is a clear way forward for India, one that implements the slogan of “minimum government, maximum governance.” The challenges lie in India’s policymakers and policy implementers being bold enough to trust and partner with the country’s citizens, both as producers and consumers, to achieve transformational material progress.

By Nirvikar Singh

The author is Professor of Economics, University of California, Santa Cruz

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