Developing a 2020 economic agenda for India needs precision about the foundation in which economic policy choices have to be made. There is an outright consensus worldwide that competitive market economy and democracy would provide that framework. Democracy is an accepted system of government globally which is spreading worldwide.
Moreover, devolved democracies across the globe are better at managing conflicts and contradictions that arise out of a heterogeneous society and provide effective feedback to enable a corrective government action. It motivates people to question the authorities and make them accountable.
The comparative economic results in East and West Germany, North and South Korea, China before reform and China now show that a competitive market system steered by incentives is greater to a state-controlled system. Transparent democracy is always a better system of governance than a closed dictatorship.
In 1991, when the USSR was disintegrated into 16 countries, the comparative economic development theory has shifted its focus from a study of alternative systems to alternative governance models of the market system, globalisation and democracy. That is from the change of dictatorship vs. democracy and state ownership vs. competitive market to freedom and choice. With regulation between the public, private sector and profit-driven and competitive efficient market. Democratic institutions should allocate resources with transparent and good governance.
If India enforces government norms properly, the country can grow at 12 per cent a year by efficiently using the current 36 per cent rate of investment. However, it should reduce the current incremental capital-output ratio from 4.0 to 3.0. This will take India to the league of the top three nations in the world – US, China and India, by 2020. It will help overtake China in the next two decades. This should be the ultimate goal of governance.
India is yet to be an economically developed nation. It has shown its agility in biotech, IT software and pharmaceuticals while accelerating its growth rate to 9 per cent a year. It will become the third largest nation in terms of GDP at PPP rates. It still has a backward agricultural sector with 62 per cent of the people of India.
Farmers in India are committing suicide due to debts, the national unemployment rate stands at over 15 per cent of the adult labour force and the prevalence of child labour. India has created a malfunctioning primary and secondary educational system with over 300 million illiterates. In addition, the country’s infrastructure is pathetic with frequent electric power breakdowns and unhealthy water supply. In order to be a developed country, India’s GDP must grow at 12 per cent a year for a decade.
More reforms for development
India needs more vigorous market-centric economic reforms, especially at the provincial level, to embrace development. The country’s financial system should come out of corruption and cronyism that have brought government budgets to the verge of bankruptcy.
The country’s infrastructure needs $150 billion to make it the best in the world and the education system needs 6 per cent of GDP instead of 2.8 per cent. A competitive market system can allocate these resources; provide the quality of governance and accountability. Hence, the second generation of reforms is needed.
The reforms need to be carried out to increase India’s growth rate to 12 per cent a year. India has many resources for a better economy – from a demographic dividend to the lowest cost of production. A young population (average is 28 years compared to the 38 years of the U.S., and Japan’s 49 years) which can be used for innovation in the production process.
India now is a country with a young population. We should educate the youth to become original thinkers, develop a risk-taking attitude and inculcate personal ambition to defend the rights of the weak. With all this, we can develop human beings who can be relied on to make India a global power in two decades.