The Hindu Business Line : Speed-breakers to growth

Coming on the heels of the just-concluded India Economic Summit of the World Economic Forum in New Delhi, a survey of 76 foreign direct investors in this country bears eloquent testimony to the manner in which the economy has responded to policy changes. Conducted by the Federation of Indian Chambers of Commerce and Industries, the survey's respondents endorse the view, repeatedly expressed at the India Economic Summit, that India is, among the emerging markets, a most favoured destination. And for good reason. FDI Survey 2006 found that 70 per cent of the respondents making profits and nearly 86 per cent considering expanding their operations. What is even more significant is that the scaling up of operations is being motivated by intense competition and the entry on to the same turf of both domestic and foreign firms. That if anything should constitute the most telling evidence of the success of policy reforms aimed at opening up a wide swathe of the economy to private investment.

Having said that, the Survey also notes some constraints that are becoming evident with the widening base of productive investments. Companies are facing a shortage of skilled manpower, a feature that drew comment at the India Economic Summit also, not simply by representatives of information technology firms but by those from general manufacturing. There are, however, some endemic constraints that India's consistently high growth has brought out into sharp relief and the most glaring one is the lack of social and physical infrastructure. Much as the Government would like to believe that such constraints have emerged as a consequence of rapid growth, the fact is that poor infrastructure has been a bugbear of the economy for decades despite all the Five Year Plans and the massive public investments. While lack of skilled manpower may be the outcome of fast, and unexpected growth, policymakers must bear responsibility for having neglected infrastructure even after opening up the economy. Planners must realise that shortage of manpower and good roads, for instance, will sooner than later cost the economy dear unless these issues are addressed on a priority basis.

The next Budget will then have to focus on attracting foreign investments into these key areas through the right mix of fiscal reforms and incentives. Sectors such as education, especially higher education, with the accent on training global managers; better roads; and health facilities for the vast majority are the abiding constraints that have kept a good section of the population outside the mainstream and denied them the fruits of rapid growth. The public violence by Dalits and suicides in the rural areas are the price that a State such as Maharashtra, the number one destination of FDI, is paying for this neglect.