If one looks at the political
discourse, there is no discussion whatsoever over the last almost decade on
what it would take to create and maintain India’s competitiveness in the
long-run. First half of the decade we were basking in the glory of the global
run and then in the second half dealing with the political drift of the
government.
During this period the world has
changed immensely, where while demand is local and can be altered by government
(fiscal stimulus) and central bank (low interest rates) policies but the supply
chains have become global. Steel plants compete with their counterparts in
China, Textiles with Vietnam and Bangladesh, Paper from Malaysia and Indonesia
and so on. Consequently, there are 4 key aspects which will determine long-term
competitiveness of an economy:
- Infrastructure (e.g. container ships turnaround time at Indian ports can be 3-6x Singapore ports);
- Land & housing (e.g. land cost impact project costs, rentals, people cost);
- Healthcare (e.g. while in the US the high healthcare costs are a drag, in India the quality of impacts productivity);
- Education.
These are large costs (implicit or
explicit) where international supply chains cannot replace Indian cost and
efficiency. We have seen very limited government focus all these aspects with
politicians (as globally) celebrating massive increase in land & house
pricing as indication of Indian prosperity little realizing they are massive
proportion of the cost (capex & opex) structure and sub-component of wages.
While India has seen growth in educational institutions, industry continues to
complain about quality of entry manpower.
In addition, we continue to shy
away from opening variety of markets except consumption markets (cars, water,
chewing gums, coffee etc) like:
- Agricultural markets;
- Education;
- Retailing;
- Power distribution;
- Coal mining;
- Defence production.
Each of the above examples imposes
significant costs and holds back economic efficiency. While certain markets may
require support from the government but support cannot be perpetual and to
prepare industry it is best done with a clear roadmap. Then, we have reversals recently
like power sector tariffs being subsidized in Delhi then in Maharashtra.
A good thing that has transpired in
recent years is that some states have begun competing with one another for
improving governance; however, there is no bench-marking one to international
standards. It is India’s myriad of regulatory arbitrages that keeps a large
part of the elite and the current power structure going and they play their
role in keeping things in status quo.
A focus on the 4 key long-term
competitive factors coupled with graded opening of markets will substantially
boost employment and raise the long-term trend growth of the economy. Question,
of course, will the self-interested political class act? This is in some ways a
manifestation of the way Indian political party’s work where the political
class seeks to avoid competition, running their parties like fiefdoms. Further,
India needs to increasingly use its large market like the US (NAFTA) to create
mutual self-interest with its neighbours.
Edward Luke in an interesting
article written in 1990 titled, From Geopolitics to Geo-economics: Logic of
Conflict, Grammer of Commerce, wrote,”…World Politics is still not about to
give way to World Business….Instead, what is going to happen - and what we are
already witnessing - is a much less transformation of state action represented
by emergence of “Geo-economics”.”
We as a country wait for each economic crisis to act and seem to be happy with the given moment as long as it is going well with no desire or willingness to act for the future.
