When it comes to India’s economic competitiveness, the still-considerable “deadweight losses”, caused by the inefficiencies that pervade both the public and private spheres, is as much a constraint as the structural bottlenecks that continue to weigh on investment and productivity. Project execution is often slow and staggered in the country, and causes costs to spiral and markets to wither away. Viability is often the casualty. Welfare targetting has improved in recent years with the help of digital means, but resource wasting is still substantial. The pressing issue was highlighted by Uday Kotak recently with the analogy of India needing to change its culinary preference to “good, thin Rotis (return on time invested)”, from “heavier, indulgent parathas”. Given its lofty economic goals, Kotak believes, the nation can little afford delays or inefficiencies, especially in defence, finance, and innovation. To be sure, behavioural intransigence isn’t the sole reason for the listlessness on the field. There is the larger issue of a heavily skewed pattern of allocative efficiency, which negates in great measure whatever gains privatisation can bring, in terms of market discipline and fiscal prudence. Market concentrations being witnessed in the country aren’t always the result of efficiency, but have a lot to do with easier, if not exclusive, access to resources.
As far as large, long-gestation infrastructure projects are concerned, the government is doing the heavy lifting in key areas like highways, and rail transport networks. This has inflated public debt. This would have been understandable if the resultant higher availability of production inputs, including capital, had produced an enhanced room for private projects in other areas. However, except for a few sectors like renewable energy, and electronics assembling, a quantum leap in production efficiencies isn’t visible. In fact, in traditional manufacturing sectors, including the labour-intensive ones, the competitiveness is on the decline. A redeeming aspect is of course that in the services sector, new trends like quick commerce haven’t turned out to be at the expense of small traders and businesses.
Of 1,873 projects, with investments of Rs 150 crore on each, 449 saw cost escalation and 779 were delayed as of March this year. This set of projects themselves saw cost overruns in excess of Rs 5 lakh crore by FY24-end, and the clock is ticking. The share of delayed projects is still higher than the pre-pandemic level. In the government sector, expenditure reforms are still an unfinished agenda – political compulsions have pushed subsidy rationalisation to the back burner after the deregulation of petroleum products, which slashed oil subsidies. There is a clear case for the fertiliser subsidy to be given in cash on a per-hectare basis to farmers instead of supplying highly subsidised soil nutrients to all without any quantity caps. Open-ended food subsidy without sound stock management is also causing the exchequer to bleed, undermining distributive efficiency.
However, rather than downsize the government, India needs to strengthen its institutions and regulators, by equipping them with required capacities and autonomy, and simultaneously cut the bureaucratic flab. The recent measures by the Reserve Bank of India, aimed at improving financial prudence among shadow bankers, and the capital market regulator’s stress on higher corporate disclosures are steps in the right direction. Corporate governance needs to qualitatively improve, rather than follow the laid-out norms just for the sake of form. Given that about 70% of Indian listed companies are family-owned, shareholder democracy ought to vastly improve.