Government efficiency will be a key factor for India to become a developed nation, said Union Finance Secretary TV Somanathan.

To become a developed nation, India’s per capita income needs to touch $13,000 from the current levels of around $2,000. To achieve this, the economy has to grow at 7-7.5 per cent for the next 25 years, he said on Saturday, delivering the G Ramachandran Endowment Lecture at Madras School of Economics on ‘Development in Changing Times: Role of Government Efficiency’.

But he dismissed notions that India needs to have a more rapid pace of growth similar to that of countries like Japan, China and other East Asian nations when they took off. He pointed out that countries have become developed economies historically with a growth of less than 6 per cent. He also said that no particular demographic profile is needed to become a developed nation. He pointed out that some countries grew even when they had a high death rate.

Hurdles ahead

Somanathan also highlighted how the ground situation has changed over the years. China, he said, was able to grow rapidly in an era of rapid liberalisation of international trade, high level of investments, reduction in international conflicts, low interest rates and young population across the world. In the next 25 years, restrictions to global trade will increase, on-shoring or friendly-shoring of supply chain will happen, conflicts will increase among nations, climate change will become a major factor, interest rates will rise and young population will be restricted to just India and sub-Saharan Africa. Under these circumstances, India needs to find its own way of growth to become a developed economy. One way, he said, is to improve government efficiency. He also said that one thing that India can learn from China is the huge levels of investment — both from foreign investment and domestic savings, in the economy. India, he added, can go a step better and ensure that the capital is spent efficiently. That is something China failed to do.

He highlighted four measures that can be adopted to improve efficiency in the government. First, government should delegate decision making. Today, increasingly, decisions are being taken at higher levels. This is because there is a general feeling that bureaucracy at lower levels is less competent and corrupt. Also, collective decision-making is seen as better than individual decisions. There is no evidence for all these and delegation in decision making will save time as well, he said.

Secondly, there is a need to improve the level of supervision. Today, more attention is given for goal setting and less for achievement, especially in quality terms. Third, He also called for changing rules to change behaviour. It is necessary to make it easier for an officer to do the right thing. He cited the rule that has been framed recently where it is mandatory to pay within 10 days if the bill is correct. Lastly, he called for continuous high quality training for building capacity among bureaucracy, especially at middle and lower levels.

Former RBI Governor and Chairman of Madras School of Economics, C Rangarajan, said that India has a long way to travel to become a developed nation. He agreed with Somanathan about when it came to focusing on investments and efficiency in deploying them. “We need to run fast. Even faster,” he said.

Currency value

Meanwhile, Somanathan said that India needs to learn to live with a strong dollar. He clarified that the dollar has appreciated and it has done to against all major currencies. To see it as a weakening of the rupee is incorrect. He pointed out that rupee had strengthened across many other currencies. To blow forex reserves trying to led the rupee at an imaginary dollar value is not the right thing to do, he said. It would be better to allow market forces to determine the rupee-dollar value.

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