By Nirvikar Singh Professor of economics, University of California, Santa Cruz
The annual India Policy Forum (IPF), which recently concluded, brought together academics and policymakers from India and elsewhere. The conference is hosted by the National Council for Applied Economic Research (NCAER) and co-sponsored by the World Bank and NITI Aayog. Implicitly and explicitly, the government’s goal of transforming India into a developed nation by its centenary of independence, namely 2047, framed much of the discussion. What follows are my own impressions and opinions, rather than a literal account of any individual analysis or presentation.
One striking feature of the conference was the power of an ambitious target to frame people’s thinking. Importantly, 2047 is far enough away to allow for hope, though extrapolation of the recent past and the current situation does not necessarily suggest that the goal is achievable. On the other hand, the goal leads to analysis of why India may fall short. Clearly, India has to accelerate its growth rate, and ultimately, the question is how to do so. If anything leapt out for me from the discussions, it was the need for India to have more firms that grow rapidly. Most firms in India stagnate. Only the top 5% grow at rates comparable to developed countries. Of course, stressing the importance of firms that grow (and must be productive to do so) is just restating what development is, but it shifts the focus to an aspect of the economy that is often neglected in India, for complex reasons.
The good news in the conference (as I interpreted it) was that the corporate debt problem in India has been largely dealt with, clearing the way for new financing of investment and growth. There are still questions about the trade-off between the quality and quantity of investment, and aspects of India’s financial sector, such as the efficiency of public sector banks. But it may be time to focus on other factors that hinder the creation and growth of firms in India: land, labour, and the regulatory environment, including the functioning of the judiciary in cases that involve business functions, such as contract enforcement. Frictions and distortions are still high in many parts of India, and chipping away at those has to be an unrelenting process of kaizen—continuous improvement—by government officials at all levels. In the case of labour, one needs more skilling, from top to bottom—factory workers as well as managers. Paralleling what we know of the growth of Indian firms, the top firms have management practices comparable in quality to those in advanced countries, but the lower tail of that distribution is thicker and extends further down.
A presentation on India’s progress with respect to the UN’s sustainable development goals (SDGs) indicated achievements overall, but with the weakest areas being health, education, and gender equality. To the extent that these areas are the most basic ones for claiming to be a “developed” nation, the massive SDG exercise reminds us that India is still not getting the basics right. Health and education are obviously valuable in their own right, as well as being instrumental in worker productivity. Treating women better is also just as important instrumentally as it is in terms of human rights. An impassioned presentation by a medical expert from the government reminded us that the health of young women (even prior to pregnancy) is crucial to the health of their children. One could make the same case for women’s education.
Such basic policy failures are partly the result of distorted incentives related to the way that India’s democracy functions. But those distortions are not inevitable, and can be reduced by careful decentralisation of government. Decentralisation efforts also have to navigate political constraints, but there are enough positive examples in the Indian context of some state governments managing to decentralise more effectively than others. Cities and towns, in particular, are low-hanging fruits for decentralisation.
It may be that the topics discussed in the IPF are familiar ones. However, the world does not stand still, and old questions can require new answers. One area of discussion at the conference that epitomised this situation was the current turmoil in the international economic and political order, though it may be difficult to craft reliable policy responses. But perhaps the largest and most important message of the conference was a perennial one. Speakers repeatedly illustrated the value of detailed, high-quality data, including for employment, firm performance, intrastate inequality, and progress in the SDGs. A case was made for making it easier for researchers to use such data, making an effort to increase the quality and coverage of data, and enabling the combination of different data sets to answer more complex questions concerning the drivers of and barriers to development. To the extent that the IPF identified a unity of purpose along these lines among academics, policymakers, and practitioners, it represented at least a small step toward the vision of where India should be in 2047.