The Hindu Business Line : The unfinished agenda of economic reform

There is no lack of thinking on what needs to be done to sustain and further accelerate growth. However, given the nature of competitive politics and the fractured mandates given to Governments, it is sometimes difficult for us to do what is manifestly obvious.

Dr Manmohan Singh

Delivering the keynote address at the McKinsey Board Meeting on October 23, the Prime Minister, Dr Manmohan Singh, dwelt at length on the economy. The country’s sustained nine per cent growth in the recent past was not a “flash in the pan,” he said, adding that much more, however, had to be done and the government was committed to making the growth process more “socially inclusive.” Here are some excerpts from the address:

Ladies and Gentlemen,

I welcome you all to India. Some of you may have been here before, some of you may have not. However, I do hope all of you will get enough time to acquaint yourselves with what is happening in India. India is a nation on the move. I am confident that our time has come. India is all set to regain its due place in the comity of nations, as a plural, secular and liberal democracy, as an open society and an open economy.

Never before has the Indian economy sustained close to 9 per cent growth year after year for so long. Most projections suggest that we should be able to sustain this rate into the medium term. You must compare this number against the fact that for almost three decades after Independence, our annual growth rate was a mere 3.5 per cent. The economic reforms we initiated in the 1980s and took up with greater vigour in the 1990s helped push this growth rate up to an average of close to 6.0 per cent over the last two decades of the previous century.

Not a flash in the pan

It is important to appreciate that this acceleration of growth is not a flash in the pan. There has been an increase in our gross investment and savings rate, particularly in the last three years. I believe this will be sustained into the foreseeable future because of the demographic transition underway. India is a country of young people. It will remain so for some time to come. The generation of savers outnumbers the generation of dis-savers.

Secondly, our growth process is largely based on growing domestic consumption. Ours’ is not an export-led growth model. Nor are we a mercantilist economy pursuing beggar-thy-neighbour trade policies.

India’s growth process is based not only on an expansion of the home market, but also largely on the rise of domestic enterprise. The economic reforms of 1991 unleashed a new era of entrepreneurial growth in India. McKinsey should be familiar with that!

I believe most of your clients today, certainly the most important clients, were either non-existent in 1991 or had hardly any presence at that time. I call these enterprises the “children of reform”. Today, they are among the world’s more respected companies.

Inclusive growth

Clearly, India has got off to a good start in the first decade of this millennium. However, we have a long road to travel before we can claim to have fulfilled Mahatma Gandhi’s prayer to wipe the last tear from the poorest of the poor. Our Government has been committed to making the growth process more socially inclusive. A great part of our effort in the past three years has been precisely in this direction.

We have launched a number of initiatives to step up investment in agriculture and rural development, in education and health care, in urban renewal and poverty removal, in rural infrastructure and in rural employment generation. These initiatives are bearing results and will certainly make the growth process more inclusive.

We remain concerned about inter-regional disparities in development. The 9 per cent growth rate is an average of over 10 per cent in some parts of India and under 3 per cent in others. Large continental economies are bound to have inter-regional disparities. However, we cannot afford to see this gap between our developed and backward regions persist. And we are not yet seeing the catching-up effect as should be the case. This is a cause for serious concern.

This is where the role of State Governments comes into focus. The implementation of many of our social and human development programmes is in the hands of State Governments. The capacity of State Governments to effectively plan and implement these programmes varies from State to State.

I believe this is an area for further action. If we can improve the administrative capacity of State Governments, we can do much more in making the growth process more socially inclusive. Therefore, while there is still an unfinished agenda of economic reforms awaiting our attention at the Centre, the real action will have to be at the State level.

In this context, I must compliment McKinsey for the initiatives it has taken in India to work with State Governments. I think such effort at the State level will create greater awareness in our political leadership and within Government of the challenges and opportunities that lie ahead. Such exercises have given us a good idea of what we need to do to accelerate the tempo of social and economic development.

I don’t think there is any lack of thinking on what needs to be done to sustain and further accelerate growth. There is also fairly wide recognition of the importance of this agenda. However, given the nature of competitive politics and the very fractured mandates given to Governments, it has become difficult sometimes for us to do what is manifestly obvious.

The successful implementation of our social and human development initiatives requires greater Public-Private Partnership (PPP). This is yet another important initiative of our Government.

Public-private initiatives

Both in infrastructure development and in social and human development, we have encouraged such partnerships. A synergy between public support and private initiative can help multiply the productivity of resource utilisation.

In a democracy like ours, the Government is duty-bound to focus on equity. At the same time, in an open economy, we cannot ignore or neglect the efficiency dimension. We have to ensure that resources are used efficiently and that competitive pressures are maintained in all markets.

We have to ensure that the productivity of resource utilisation is increased. Hence, a judicious mix of equity and efficiency considerations is required in the policy initiatives we take.

I have been deeply concerned about the efficiency of utilisation of public funds, especially in infrastructure development, education and health care. I have been looking for ways to combine our concern for equitable outcomes with our concern for efficient utilisation of outlays.

I find PPPs as an effective means of combining these two considerations. This is not yet a fully evolved paradigm of governance. We have bravely, yet cautiously, sailed forth into uncharted waters. I think we have learnt some useful lessons. We may make mistakes. But we should learn from them.

I think organisations like McKinsey can help us in this effort. You have wide-ranging exposure to best practices in infrastructure and social development across the world. You have the analytical ability to combine the best that markets can do with the best that public organisations can do. You can help harness this vast cross-country experience for addressing the specific needs of governments and public institutions in our country to achieve our equity and efficiency objectives.

Efficient resource use

Apart from contributing to increasing efficiency in resource utilisation and the efficiency of organisations, consulting firms like yours have also contributed to a culture of strategic planning in our enterprises. I find more and more of our firms investing time and money in strategic planning. This has become necessary ever since we demolished the license-permit Raj. In those days, when the Government managed the business environment, our firms had no use for strategic thinking or long-term planning.

Today, firms operate in far more competitive markets. Of course, the big ones always try to reduce the element of competition and secure an oligopolistic or monopolistic environment for themselves. However, external liberalisation has created more competitive markets and limited the scope for such strategies. This has served consumers and the nation well.

In order to operate in open and competitive markets, with all the contingent uncertainties and risks, firms need long-term planning, strategic thinking and organisational flexibility to adjust to change. I find our private sector companies have done well in this regard. I think our public sector too needs to learn more.

Ladies and Gentlemen, I hope you will find the time to discover a rapidly changing India. I certainly hope you will get time to get away from New Delhi and get a feel of the real India. I am greatly encouraged by the spirit and energy of this emerging India. I am confident that India will count for more in the world of tomorrow. You too can join this wonderful journey of creativity and enterprise taking place in India.

Thank you.