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By 75, can India get the economy right?

By Chanakya

Independent India turns 75 on August 15, 2022 (it will celebrate its 76th Independence Day then). In September 2007, at the India@60 event in New York, the late management guru, CK Prahalad, delivered a talk on his vision for India at 75.

Prahalad’s vision was notable simply because it was specific (and few visions are). His wish-list was long: A 10% share of global trade; a base of 200 million college graduates and 500 million certified technical workers; being home to at least 30 Fortune 100 companies; becoming a hub for innovation, including innovation at what Prahalad called the bottom of the pyramid; 500 world class cities; and a new deal for agriculture that took productivity to global standards.

There was more — “a flowering of arts, science and literature” and becoming a global “benchmark” for its inclusivity and ability to “accept and benefit from its diversity.”

India turned 73 last Saturday, and it is worth measuring its achievements on each of the items in Prahalad’s list.

On most, India is a distance away from meeting the targets enumerated 13 years ago, and as much as the coronavirus pandemic has disrupted lives and work, it can’t be blamed for that. Misdirected policies and poor implementation are to blame, but the chasm between where we are now and where Prahalad thought we should be in 2022 is due more to a collective failure than an individual one.

The pandemic, which has infected 21.3 million people and killed over 750,000 of them globally, and infected 2.5 million people (killing close to 50,000) in India, has turned everyone’s focus on the short-term (the very short-term), which is understandable. But even as a country copes with the immediate challenges posed by the viral disease, it needs to plan for the future, even if only the medium-term. That is exactly what India has to do when it comes to the economy.

Covid-19 has ravaged the economy. The consensus among economists is that the Indian economy will shrink by at least 5% in 2020-21, and that it will not recover enough in 2021-22 to make up for these losses. In effect, India could, in 2022, when it celebrates 75 years of Independence, have an economy that is smaller than what it did in 2019-20.

Over the past five months, people have lost jobs or suffered salary cuts; many small businesses have closed down and many businesspeople have gone out of work; entire supply chains have been disrupted; and consumer confidence is down. These are the immediate challenges the government has to address — and the only way to do so is a healthy fiscal stimulus with a large cash component. Larger discussions about the long-term wisdom of the measure can wait — India should just buy its way out of this mess.

Even as it does, though, India should, with the learnings from the pandemic and the quality of its response to what would definitely qualify as a Black Swan event, tailor its long-term response. There are many elements to this but Chanakya would like to focus on four.

One, India should create a bad bank. This was being discussed even before the pandemic, but given that many more borrowers are going to find it difficult to repay their loans (no matter how lenient the central bank gets) because of the pandemic, a bad bank may well be the cleanest way to protect the rest of the financial system from bad loans.

Two, India should focus on public health. Covid-19 has shown up inadequacies in the health care system that need to be addressed. Spending on health could well create a virtuous cycle. Better still, the benefits between health and productivity are well-established. How much should India spend on this? At least 4-5% of its Gross Domestic Product for the next decade.

Three, it needs to rethink its approach to manufacturing in light of the learnings from Covid-19. In areas of strategic importance, the country has to develop intellectual property and manufacturing expertise — but the government has to get innovative about this. For instance, would it be possible to encourage businesses to invest in the Indian hinterland, by providing land, tax-breaks, and easier labour laws (that still protect the interests of workers)? This may also ensure that jobs are created where the people are — preventing mass migration of workers, especially from populous-but-backward states in north and east India. There have been some efforts in this direction, but no results so far.

Four, India has to get its cities right. It isn’t a coincidence that the first major Covid-19 hotspots in the country were Delhi, Mumbai, and Chennai. Other cities — Ahmedabad, Indore, and Jaipur — also saw clusters of infections. And as this piece is being written, the pandemic is roiling Bengaluru. From the Jawaharlal Nehru National Urban Renewal Mission to the Smart Cities scheme, India has always had plans for its urban centres, yet no real progress seems to have been made. A concerted effort at urban renewal wouldn’t just give Indians cities where they can live well and work well, but also spur large-scale infrastructure projects (from housing to transport) that may just prime the pump.

India will not achieve Prahalad’s targets when it turns 75. But it is time for it to get its short-term and medium-term objectives and roadmap right for the economic story to be back on track by 2022.

(The articles appeared in The Hindustan Times)

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