Without reforms, 8% growth may elude India
Tuesday, 26 November 2002, 08:00 Hrs
NEW DELHI: India seems to lack the political will to push reforms that are crucial for achieving its eight percent growth target, experts said here Monday. An upbeat picture of economic growth presented by Ravi Shankar Prasad, the minister of state for law, justice and company affairs, did not find an echo in other speakers at the India Economic Summit 2002 plenary session here. Organised by the World Economic Forum (WEF) jointly with the Confederation of Indian Industry (CII), the three-day meet focuses on "Eight Percent Economic Growth", as targeted by India in the next five years. Prasad said political parties understand the need for reforms and this was evident in steps taken by Punjab, Madhya Pradesh and Tamil Nadu to stop free supply of power to farmers. But the examples were described as insufficient for achieving a higher growth target for the country. Former finance minister P. Chidambaram argued that though a lot of pronouncements had been made, "no initiative has been taken on ground in the last 12 months that has taken the reform process forward". For India to achieve higher economic growth, Chidambaram said, the rates of saving and investment have to go up and wasteful expenditure has to be cut down. "Real growth will come from agriculture and manufacturing, both of which are not doing well. There is need for more public investment, which is also not happening as the government needs to cut down expenditure," said Chidambaram. The rate of savings, which is expected to go up from 23 percent to 28 percent, will not suffice as on the investment front domestic investment has dried up and foreign direct investment (FDI) has stagnated at $3 billion-$4 billion. "FDI inflows are not going up as there are still sectoral caps and regulations on their movement," he said. Jairam Ramesh, economic advisor in the main opposition Congress party, stated that India had been known to perform well only when faced with an external economic crisis. "India needs another external crisis to spur economic reforms," he said, adding "reforms happen in India out of compulsion and not conviction". Given that India had achieved a seven percent gross domestic product (GDP) growth from 1994-96, experts said the eight percent target was achievable only if governance improved. At the current pace of reforms, only a 5.5 percent growth is possible, said CII in a presentation. For higher growth, more sustained reforms are called for, said experts. Robert Kennedy of the Harvard Graduate School of Business Administration said, "India has no barrier to economic growth but lacks the political will." To improve its growth, India should focus on areas besides software, which is a minuscule sector, Kennedy said. "It is important to increase productivity in other larger areas like retail, transport, energy and manufacturing." In the last five years, India's agriculture sector has recorded only two percent growth as against the desired four percent. In manufacturing, the growth has been 3.7 percent as against the targeted 10 percent. Jagdish Shettigar, member of the Prime Minister's Economic Advisory Council, stressed the need for political consensus to push ahead reforms. Otherwise, he said, agriculture and labour reforms could be projected as anti-farmer or anti-labour.