India should never fall into the trap of premature celebration

Synopsis: India must focus on doing things right before getting too enthusiastic over the country’s economic ascent.

Introduction

There is talk of the BSE Sensex at 200,000. In 2019, a year that India’s gross domestic product (GDP) growth fell, there was talk of achieving a $10 trillion nominal GDP by 2030. Such talk has begun to resurface, though a recovery has barely begun. If we are to avoid another boom-bust cycle, such triumphalism is best avoided.

What are the things we need to get right?

Targets and rankings are only means to ends: The elevation of ‘Ease of Doing Business’ (EoDB) ranking to a goal in itself led to unethical practices, and the survey has been abandoned by the World Bank. India’s EoDB rank was based on data from two cities. That cannot be wholly representative. Moreover, operating conditions remain difficult for small businesses. Governments alone are not at fault. For example, banks require incorporated entities to submit directors’ resolutions printed on company letterheads for the opening of bank accounts. Why? Who uses letterheads these days? Will the company’s registration number not suffice? Also, even now, for proof of a bank account, many want a cancelled cheque, though payments are mostly electronic.

Second, we remain a society of rights without responsibilities, authority without accountability, and entitlement without commitment. In general, the operating principle of governance remains one of prohibition unless an act is given explicit permission. It should be the other way around. Until that happens, the overheating of our economy after a few years of growth is a given. On its part, the private sector must imbibe the spirit that Pawan Goenka of SCALE advocates: Spell out what you can deliver to the country before placing your demands. If these change, a troublesome trust deficit will disappear and so will our fiscal deficit.

Third, policymakers will serve India well if they focus on doing what it takes to improve India’s ECI ranking. It would mean making our universities fountainheads of knowledge, research and application. The quality of higher education needs to rise. State governments are still keen on levelling students down instead of levelling them up. Tamil Nadu’s protest against NEET is a neat example. Promoters of private universities are still figuring out the right balance between involvement and interference.

Index of economic complexity (ECI): Harvard University’s index of economic complexity (ECI) provides an indirect assessment of whether a country would be able to progress from low middle-income status to middle-income and then upper- income status. India’s index reading has improved marginally from 0.32 in 2000 to 0.46 in 2019. During the same period, China’s ECI went up from 0.44 to 1.35. Mexico went from 0.90 to 1.31.

Source: This post is based on the article “India should never fall into the trap of premature celebration” published in Livemint on 5th October 2021.