India's development drive

Achieving the goals set for 2047 will require policy interventions

The next 25 years will be extremely important for India. Policy action during this period will decide the distance it is able to cover in its development journey when it celebrates 100 years of Independence in 2047. In order to cover maximum ground, it is important to evaluate the present situation to be able to build on strengths and overcome weaknesses. A new report, published jointly by the Institute for Competitiveness and the Economic Advisory Council to the Prime Minister, will be useful in this context for policymakers. The report is part of the “India Competitiveness Initiative”, which started with an interaction between Prime Minister Narendra Modi and Michael Porter of Harvard Business School. Mr Modi defined the task for this initiative to “develop a roadmap for India’s growth policies to aggressively push the nation towards middle-income and beyond by 2047, the 100th anniversary of India’s independence”.

The report has assessed India’s current competitiveness, using the framework developed by Prof Porter over the past several decades. Its diagnosis of the current state rightly notes that while poverty has fallen over time in India, inequality has increased. While India’s productivity growth — captured by change in gross domestic product per employee — has been good, the mobilisation of labour has lagged. India has not been able to pull enough people from agriculture, and labour force participation, particularly for women, has been abysmally low. Also, large firms have driven productivity growth, while most people work in small firms. Besides, small groups of regions are driving growth and large parts of the country seem unconnected to the development process. Given the prevailing economic condition, it is not surprising that the pace of urbanisation has been slow. Some of these problems, to be sure, are well known but have not attracted the desired level of policy attention.

The report has done well to narrow these issues into three kinds of broad challenges India will need to address: Shared prosperity, jobs, and the policy implementation challenge. In terms of policy priorities, it notes that they need to be focused on creating competitive jobs. Such jobs would be created only if India has competitive firms. Thus, this will require a range of policy interventions in a number of areas. It also suggests launching sector- and location-specific initiatives to improve regional and industrial policies. The report rightly argues for strengthening the federal structure and improving public-private collaboration. The broad assessment and recommendations of the report are well intended and provide a good starting point for policy interventions.

However, if India has to attain higher sustainable growth, more probing questions will need to be asked. For instance, why is India not able to improve the quality of education, and what can be done in this context? Unless the quality of human capital improves dramatically, India’s competitiveness will continue to suffer. A large number of Indian firms remain small and fail to attain scale — why is policy unable to address this problem? Further, will the policy of protecting domestic firms from competition and subsidising production make India more competitive over time and help create the jobs it needs? India will need to address a number of such policy issues in the near term and, as the report notes, it will require coordination at different levels of the government. The process must start soon.