Goldmans have written about the 10 Things that India Needs to Do to Achieve its Potential. This economic paper looks at the great opportunity we have outlined, the major challenges that India faces, and what is needed to overcome them.
1. Improve Governance
This is a fancy Goldmanite way of saying that the bureaucracy sucks, needless red tape and duplication of authority among different departments, agencies and states needs to be sorted out - and perhaps most importantly, the bribes & kick-backs, and the retribution dished out for not giving bribes & kick-backs, needs to be eradicated or at least brought under control.
2. Raise the Education Level
Although literacy rates have improved, the majority of our young have little or no education. The report cites Pratham and Teach First as examples of schemes to expand. No arguments - if anything, I would focus even more on this, since building and running schools in itself provides more education and infrastructure, as well as acting as a community center that can lead to other economic benefits.
3. Increase the Quality and Quantity of Universities
Again, no arguments here. We need more universities, and a plan on how to develop them and improve their standards. We have a whole cohort of NRI (Non-Resident Indians) who are top academics in the US, UK and elsewhere. There should be some form of 'national service' scheme to help them come and spend at least a few years, or a few weeks in the year, to help in standards raising.
Think too about the opportunity that India has. As the only English-speaking country in the BRIC, it can become an academic center that attracts students from around the world, who want to be a part of the new global order.
4. Control Inflation
With food inflation now reaching a record level of 17.47%, this is clearly a big headache. Goldman's rather glibly state that
We think a formal adoption of Inflation Targeting would be a very sensible move to help India persuade its huge population of the (permanent) benefits of price stability.
Easy right? Easy in your MBA class chaps, maybe not so in the real world, since increasing interest rates to rein in prices will reduce economic growth rates, which will reduce job creation, and with hundreds of millions of people living in poverty, there are hundreds of millions of jobs needed.
GDP growth in the last quarter came in at 7.9%, which is pretty much back at pre-crisis levels. This might tempt the RBI to re-focus on inflation fighting, but remember that easy money has been a big part of the pick up in world growth, so those gains can be very easily snuffed out.
Since food is so central to overall consumption in India, increasing the supply of food is the other way to help bring down inflation, which leads us to point 8, improve agricultural productivity.
5. Introduce a Credible Fiscal Policy
India's fiscal deficit and debt burden have been growing. In a separate report, Goldman predicted that if you combine federal and state deficits, you are looking at a figure of 10.3% of GDP, among the highest in the world. It expects that shortfall to remain for several years thanks to spending commitments. It therefore believes that a 'more credible medium-term plan for fiscal policy' is needed - in other words, that cuts in spending and/ or increases in government revenues are needed.
It also wants to see 'rules' for spending cycles.
Frankly, I don't like this one a lot, it smacks a bit of IMF-style austerity measures to me. Getting more people out of poverty by growing jobs and therefore GDP surely must come first. Improving governance can help to reduce government ineffeciency and therefore the costs of some activities. Fiscal tightening should only come later. But I do grudgingly have to accept that a plan to reduce the deficit and ultimately run a surplus should be worked out, but more so for our sake.
6. Liberalise Financial Markets
Ok now it gets interesting. So we should liberalise financial markets so that you can get Indians to take on debt to buy houses and cars, use debt lines on credit cards, encourage us to refinance while the economy growths, take cash out, and keep increasing our debt? You would then like to bundle this debt in CDOs, and leverage up the asset bubble until there is a massive crash in the Indian market, at which point you get a government bailout?
Hey buddy, we have read Too Big to Fail and we are not going there! Keep your deregulated western markets, we will stick with a more conservative model thank you very much. Now I sound like David and Keith
7. Increase Trade with Neighbours
Ok I have calmed down now. This one we can all agree on. More trade with China, Pakistan, Bangladesh, less conflict - bring it on. And don't forget Sri Lanka, Burma, Nepal, again less conflict and more commerce helps us all.
8. Increase Agricultural Productivity
Since the time of the Green Revolution, yields have not been rising - in fact there is a food crisis in India as yields are flat or dropping. Currently available technology and techniques, and Genetically Modified seeds, which needs less water and produce more food, are needed in order to increase food production.
This will help with inflation, lead to more government revenues and so reduce the deficit, and if there are surpluses can also be used in trade with neighbours.
9. Improve Infrastructure
Yes we all know that the roads and buildings are dilapidated, as are most of the airports and sea ports. We have the largest railway network in the world, but much of that needs work too. Although the mobile networks have been a blessing, the traditional telco and IT infrastructure are appalling, considering that India is the largest outsourcer of IT and customer support in the world.
It is getting better, but the scale of this task remains vast. However with so many people desparate for work, and with so much economic benefit to come from the improved efficiency in distributing people, goods and information, this is surely also key.
10. Improve Environmental Quality
Greater efficiency in energy production and a lowering of greenhouse gases would obviously improve the quality of life of Indians.
There is a gripe here though; rich countries have been plundering the earth's resources for centuries, including of course India's resources in colonial times. The Industrial Revolution happened carbon-tax free, so to speak. If there is to be a cost to carbon now, the developed world needs to subsidize the developing world, otherwise, frankly, I don't think it will happen.
It is also worth pointing out that the controversial plan to generate nuclear energy is a big part of India securing both energy security and a clean energy source from a carbon perspective, although radioactive waste with a half life of thousands of years is a minor fly in the ointment.