The Rupee is in a freefall, investor flight has sent the Mumbai Sensex below a trillion dollars in market capitalization, and both domestic and foreign businesses are putting future plans on hold. Meanwhile politicians are trading accusations as to whose “fault” the current crisis is, while positioning for the next general elections. Businesses interested in India’s economy are right to be spooked, since few of the government’s strategies (if they can be called strategies) seem able to calm the market.
But this is not just a problem of markets. A credible response to the crisis in markets has a lot to do with credible strategies to address the country’s social and environmental challenges, which are numerous and severe. Indian political leaders often say that they are proud of India’s multi-party democracy, which ensures a balanced, people-first path of development. That may be true when the country is growing, but it increasingly looks like a moot point if development is stalled, which is arguably the case now.
The issue boils down to the best way to achieve sustainable development – where economic growth produces social progress and opportunity, within current and future environmental constraints. Ideally, these three can be achieved in tandem, without sequencing and trade-offs. In reality, one might need to come before the others, if only by a hair.
India’s social and environmental challenges are substantial. Thirty per cent of the population lives below the official poverty line; and 600 million or half the population could be considered to be “de facto” poor by their access to housing, health services or other basic needs. The poor are overwhelmingly employed in agriculture or subsistence service industries. Agriculture accounts for 60 per cent of the labor force but only 13 per cent of GDP – under-productivity is an issue, as is a resistance to bringing agriculture into the 21st century.
Many have acknowledged that India needs to move people out of agriculture into other sectors. Manufacturing would be a good candidate to create the jobs for the projected 250 million new workers who will enter the labor force from now until 2025, particularly given that many will be relatively unskilled. In fact, India’s young population would seem to presage the same demographic dividend that fuelled the growth of China’s export-manufacturing industry two decades ago. And, the Asian Development Bank recently reminded that manufacturing is a critical and necessary stage for developing countries.
However efforts to create a large-scale Indian manufacturing sector have never really gained traction, due to restrictive labor laws, a lack of infrastructure and a labyrinthine bureaucracy. India ranks 132 out of 185 countries in the World Bank’s Doing Business index, based largely on how hard it is to start and run a business. As a result manufacturing languishes at just 15 per cent of GDP.
Of course, manufacturing is not the only answer to India’s jobs challenge – but it could certainly be a strong start. Solving India’s jobs challenge is also a down payment on solving its number one social problem, poverty. As any poor person will attest, the first step out of poverty is not a government handout, but a good job. Wide scale job creation – and the economic empowerment that it brings – could also boost efforts to address other social ills such as discrimination against lower castes and against women.
Putting the economy back on a growth track will also improve chances of addressing India’s major environmental problems, though it may seem counter-intuitive. India contains seven of the world’s 15 most polluted cities, and is already the third most polluting country in the world (behind China and the U.S.). India needs to wean itself off dirty fossil fuels which provide over 90 per cent of its electricity. The country faces water issues as well, with predictions of extreme water scarcity in some areas by 2025. What this will do to the agriculture industry and those who depend on it, can only be imagined.
Where will the money for these upgrades come from? The government is in a fiscal strait jacket. More important may be to understand the role of the private sector. The International Energy Agency and the UN have estimated that 80 per cent of the investment towards a green economy will come from the private sector. While this is a global average, we know that massive levels of investments are needed in India’s case, and that little of this will materialize if the private sector is on the sidelines because it lacks confidence or has not been properly engaged.
The above isn’t just a plea for the government to adopt a more pro-business agenda. It is a plea for growth that will deliver the jobs, wealth and confidence that are needed to address the country’s primary social and environmental ills. Without growth, India’s sustainable development prospects will languish at the gate. To some extent that is already happening. The irony in India’s situation is that restoring confidence to business will also restore confidence to any semblance of a sustainability agenda.
What are the options?
One of the perennial complaints is that India is so corrupt that it takes a bribe to get an official to do something and another bribe to prevent others from interfering. Indeed, India ranks 94th on Transparency International’s 2012 Corruption Index. While this is not the only problem or even the most daunting one, it is a particular blocking point for business, which relies on legal and regulatory predictability as an a priori condition of investment and planning.
China has long been scarred by the same scourge, and is now trying to use a few high profile cases to turn the tide. Will such a strategy work in India? Is it worth trying to create a single “clean state” or “clean department”? It is hard to tell, and locals could probably provide many other ideas. What we need is action.
Making headway on corruption would do much to re-establish the idea that the government cares about the concerns of the business community, while acting on a problem that also drags down ordinary citizens. Right now there seems to be a lot of doubt. Even the perception of progress may be sufficient at this point.
What is needed is a kick-starter to get the economy flowing again. Cleaning up corruption can be seen as a first step towards better governance which will help restore faith in “India can.” Only then will business restart activity and give the country hope of achieving a “new normal GDP growth” of 8 per cent that Prime Minister Manmohan Singh talked about several years ago. This is a necessary, though not sufficient, criterion for development.
This is where sequencing issues become important. East Asia has spent years aiming for, and largely achieving, fast economic growth at all costs, as if that alone would propel development forward. They are now learning the importance of good governance to ensure that the fruits of high growth are shared fairly within society and that the environment does not become a destabilizing factor now or in the future.
In other words, growth is important, and in India’s case, it is a necessary first step on the road to prosperity, but it is not the sole or final objective. Growth is only a means to an end—which is to deliver a more sustainable, prosperous future to the Indian people.