A nice ongoing debate in Economist.com on whether Indian economy is losing its way.
Defending the motion is Arvind Subramanian (AS) and Against is Shashi Tharoor (ST). An interesting comment by Pratap Bhanu Mehta as well in the debate.
Prof. AS says:
A re-energised government attempting to rescue a slowing economy from policy paralysis and uncertainty hardly signals drift. But the risk, not the inevitability, that India will lose its way is real and substantial.
Of course, it is true that the past three decades have been a golden age for India: rarely if ever in Indian history have so many people seen such improvements in their standards of living and in such a short span of time. Amazingly, work by Devesh Kapur and colleagues suggests that even the millennia-strong stranglehold of caste is being broken by a few decades of economic growth.
And, above all, India’s future seems bright. At about one-tenth of the standard of living of the richest countries, India is still so poor that the scope for growth via catching up to the economic frontier remains considerable; most of the egregious shackles on the private sector have been lifted, unleashing its innate dynamism; and demographics will reinforce this dynamism because tomorrow’s India will be a very young India.
What then is the problem?
The central problem is lack of governance and inability to provide basic facilities to people.
these are all proximate manifestations of two deeper problems: an alarming decline in state capacity and in the quality of Indian democratic politics. The Indian state is increasingly unable to provide a range of basic services: health, education, physical security, rule of law, water and sanitation. The writ of the Indian state, for example, covers only about 80% of India, with the tribal belt essentially contested by Maoist insurgents. The private sector can substitute for some of these deficiencies but never completely (and because it cannot the outcome is the Annawadi slum in Mumbai vividly described in Katherine Boo’s recent book).
Moreover, talent is fleeing the public sector, reflected in the dramatic increase in unfilled vacancies in India’s police, military, administrative services and even the elite institutes of higher education. In the long run, growth is determined by effective state capacity: that is India’s weakness compared with China.
Democratic politics is flawed everywhere. In India, it exacts a heavy economic toll. The consistent and widespread handouts from the government, under the guise of furthering equity, are above all a reflection of populism being perceived as an electoral winning strategy. Problems in the energy sector have less to do with insufficient resources as the fact that people are not expected to pay fully for the power they receive. Politicians also brazenly, and without consequences at the polls, steal power or divert it to cronies. India’s democratic politics has successfully provided the space to minimise the risks from some of the country’s numerous social cleavages such as language and caste, but the fear is that others—such as religion, region and skill levels—might be less easily managed.
ST on the other hand is highly optimistic and clearly sees the glass as 3/4th full. He again throws the stats which are plain laughable:
Domestically, McKinsey & Co estimates that India’s middle class will grow to 525m by 2025, 1.5 times the projected size of America’s middle class. According to last year’s census, the country’s 247m households, two-thirds of them rural, reported a rise in the literacy rate to 74%, from 65% in 2001. In just the past two years, 51,000 schools were opened and 680,000 teachers appointed. Net enrolment ratios are over 99%. Our workforce has been growing at 2% steadily for the past decade (the comparable figure for China is 1%).
The reported slowdown in industrial production is primarily an export-oriented phenomenon. The domestic sector continues to expand apace. For instance, an impressive 63% of Indians now have phones, up from just 9% a decade ago; 100m new phone connections were established last year, including 40m in rural areas; and India now has 943.5m telephone connections. At the same time, some 20,000 MW in additional power-generation capacity was added last year, with 3.5m new electricity connections in rural India. As a result, 8,000 villages got power for the first time, and 93% of Indians in towns and cities now have at least some access to electricity.
So we can take more pride in our mobile connections over access to basic things that matter to life as emphasized by AS. One should read this superb paper from Prof Gordon to understand which innovations really matter for development. One can easily say is transition of Shashi Tharoor from a technocrat to a politician is complete!! And why just take my words. See the comments that follow the debate. As a politician, he should be believing what the public consensus is. When the debate just opened it was 50:50 and now is 71:29 in favor of the motion.
This does not mean one needs to be just pessimistic on India. The answer is always in the middle and one needs to be realist. After growing for just 5 years or so, we are being made to believe that India has arrived. There is a long way to go.
Prof AS ends his debate saying:
Will India inevitably lose its way? Not at all. Weakening state capacity and the deteriorating quality of politics are neither uniformly pervasive nor irreversible. Indeed, the hope for India is that there will be more successful experiences at the state level which can then travel either through demonstration effects or through people voting with their feet. But there is a race between rot and regeneration in these underlying institutions of the state and politics. And it is far from obvious that the forces of regeneration are winning.
Pratap Bhanu Mehta in another article just sums our biggest economic challenge - Our biggest economic challenge: to talk ourselves out of the lies fed by government.
The solutions to many of our challenges are not difficult. What is going to be more difficult is for us to talk ourselves out of the lies government is used to feeding us. We are in a mess because the government that stood for the aam aadmi believes the aam aadmi is stupid. If you want evidence of this, consider the response to increased consumption of gold. It described it as an idiosyncratic consumption trait of Indians, never mind the fact that most of the recent rise is in the demand for gold coins rather than jewellery. Ordinary people were trying to tell the government they found the future uncertain; the government responded by declaring them pathological.