India – A Nation in Crossroads, Urgency of Immediate Reforms I

Dmitry Medvedev & Manmohan Singh during G8 Summit

The story of rising India is all over the paper, for many years we are hearing about the strength and growth of Indian economy. News papers and talk shows are filled with the optimism (or over optimism?), people mostly Indians) are talking about India as a developed country, if not a future superpower. When Obama said India is not an emerging country but an emerged country, our happiness touched the sky. News papers are proudly declaring the growth forecasts by quoting World Bank, Financial ministry, Sample survey etc. It is another matter that reports from Transparency International, World Health Organization etc are not received with much enthusiasm.

Anyway we don’t have to read Transparency International’s reports to know about the pathetic condition India is in, regarding Corruption, people can experience it in the streets, in their day to day life or just go to a news paper stand, pick any newspaper and read the front page.

The irony is; political parties which are supposed to be the light holders of democracy often slip in to ultranationalism, minority politics, majority politics, caste politics etc to effectively put themselves in power. In India election forecasts are often made based on the number of people belonging to a particular caste or religion in a constituency. Just like grass is popping up in the ground after rain, political parties are popping up in every other day with the claim of representing the interest of dalits, upper castes, lower castes, OBC etc; Of course they will also claim that they are representing the common man, but overtime the common man become so common that political parties didn’t find anything special in them – it slowly became another jargon in election rhetoric.

But they are not the only entities to blame for this situation. If people are not subscribing their ideology, will they go for such unwanted tactics? If people aren't ready to enjoy - be it lower caste or upper caste - the benefits or disadvantages of being identified in the name of caste, will they follow these methods? You can’t claim you are not part of the deal, only because you are silent spectator, or by posting angry comments or sending letters to news paper editors. Do you remember the questions you asked - last time - to the politicians when they came to to your home asking for vote? Is it a hai..hai.. bye bye scenario or any serious questions regarding to his/her opinion on education, finance, infrastructure, corruption etc?

Tata Nano

Why parties are always popping up and revolving around some individual? Is the prospect of more regional parties and fading appeal of national parties good for India? Parties revolving around a powerful person or a family often fells in to chaos after the rein of first generation leaders are over (inheritance problem, losing appeal among common people etc). Moreover a regional party will concentrate more on regional affairs, where they have some influence. What will happen if they come to power in the centre? Will they be able to distribute the governmental operations across the country or will it become another Railway ministry?

After experimenting with socialism for four decades we reached close to disaster in 1991. As necessity is the mother of invention, financial crisis of 1991 paved the way for reforms. Government started selling the sacred cows of public sector, License Raj faced a severe setback, telecom sector opened up, rules were relaxed in service sector etc. All these resulted in a jump from Agricultural Revolution to Service Revolution skipping the labor intensive industrial revolution.Because of the skipping of Industrial revolution, percentage of people moved from Agricultural to service economy was small.

In US around 3-5% of the population produces the agricultural products for whole country [also for export]; here in India close to 60% people are involved in this sector. It is obvious that only further reforms can pull the plug and allow people to move seamlessly across industries, but after taking more than enough credits we stopped the reforms in between.

Once the so called GDP showed a consistent progress for over a decade, many people even forget the need for further reforms, thinking that the numbers will keep on increasing. But the dangerous fact is there are many countries in the world which lost the sheen after performing very well for a decade.

Moreover good numbers in GDP didn’t help - in improving the falling sex ratios; food supplies in many of the tribal areas; proportionate increase in primary healthcare facilities in many of the Indian states; didn’t stopped the corruption scandals etc. The list is very long. It may seem ironic but the situation regarding sex ratio is more complex on many of the developed parts of India. Premier organizations in the world even said that situation in many part of the country related to food supplies is as worse as that of the poorest regions of Africa.

Wadala slums, Mumbai

If it was 'Curse of Oil' for many African and other countries, for us it was curse of minerals. A good number of states have heavy mineral deposits, but mining didn't create much dividend - apart from pollution - to the local population (I am not saying that there is no benefit at all). India Inc may be increasing its revenue and profits; but many of the big and hundreds of companies - and the ones popping up in every year - are revolving around mining and real estate, not in Engineering and Design. As if these are not enough, separatists in many part of the country want to split the nation, no matter whether it is in J&K or NE. Over and above Maoists problem is running their rounds too.

There is no doubt that all these will affect the growth of nation. According to the reports Foreign Direct Investment (FDI) declined by a stunning 31% in a single year; from $34.6bn in 2009 to $23.7bn. This is happening at a time when a city state like Singapore - a country less than the size of NCR Delhi, posted an amazing 122% increase in FDI - to a stunning $37bn. As if this isn’t enough; India reported a current account deficit of $15.8bn in July-September 2010, a whopping 72% increase over the previous year's $7.26bn.

If we are not ready to address the issues now, then the cumulative effect may even acquire a critical mass to derail the progress we made so far. Government's job is not to produce items ranging from salt to cars; Days of the command economies are gone and it is better not to look in to that era. Primary job of government is to protect and guarantee the security for the people, secondly to facilitate proper environment for the people to improve themselves, third to act as a regulator in economic and other basic functions of the nation. Hyperactivity from government, only create a mammoth bureaucracy - which will keep on expanding to satisfy their needs - and the license raj associated with it.

This is the time for a second reform, for freeing the locked up spirit of Indian economy. Otherwise the service revolution will no longer remain as the face of nation. Cheap labour, human capital, low production cost, not much explored economy etc. which made India an attractive investment destination may no longer remains so. As time progress wages, cost of living, manufacturing cost etc will increase; this will force many companies to look for countries which have low production cost.

There is no point in keeping the wages low. No country can progress only by providing cheap labour. But the point is we should be able to innovate more fastly than that of the increase in the wages. Moreover countries like Bangladesh, Vietnam, African nations will give India a tough competition for jobs. So it is important for us to move up in value chain, and it required a dynamic political system, free economy and a competitive educational sector. Whatever left out, our nation should be able to provide high quality education to the people regardless of their financial power. For all this changes to happen people should be politically proactive and responsive to the political changes.

Sajeev.

Photo Courtesy: Wikipedia