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Business Commentary/Bibek Debroy

The Minimum Economic Agenda

On June 1, the Federation of Indian Chambers of Commerce and Industry or Ficci organised a workshop in Delhi. The idea behind the workshop is a laudable one. Owing to political uncertainty, key economic decisions are not taken and get postponed. Is it therefore possible to work out a minimum economic agenda that all political parties agree to?

Assuming this is possible, the minimum economic agenda reflects a consensus and should not be deviated from, regardless of who forms the government.

Stated differently, can one work out a consensus on the second generation of economic reforms? What is a feasible rate of growth in gross domestic product for the next few years, leading up to the year 2020 -- eight per cent, ten per cent, even 12 per cent?

The present rate of population growth is around 1.7 per cent. It will slow down further. Even if it doesn't, at these rates of growth of real national income, we can have rates of growth in real per capita income of respectively 6.3 per cent, 8.3 per cent and 10.3 per cent.

These can be regarded as worst, median and best case scenarios, applied on the base per capita income of $ 400 in 1999. India may not have attained real gross national product growth rates of eight per cent so far. But other countries have done it on a sustained basis, so it can be done.

Given the present contributions to national income, one needs an agricultural growth of five per cent, industrial growth of ten per cent and a tertiary (services) sector growth of marginally over ten per cent.

Why should this be impossible? This is for an eight per cent growth in real national income. If agriculture and services grow faster, even ten per cent should be possible. Since political uncertainties will not go away and economic decision-making will have to function within the constraints of a democratic polity, perhaps the eight per cent rate of growth in real GDP and the 6.3 per cent growth in per capita GDP is the one to pitch for.

But this is not merely a number. With the worst case scenario of a real GDP growth of eight per cent, in today's dollars, the per capita income will go up to $ 783 in 2010, $ 1063 in 2015 and $ 1443 in 2020. This has trickle down implications for poverty.

Using our own poverty line and not the international one of $ 1 per day, the percentage of population below the poverty line is probably slightly over 30 per cent now (it was 36 per cent in 1993-94). If we can get an eight per cent rate of growth, the percentage of population below the poverty line will come down to something like 15 per cent within a span of 20 years.

Other countries like China and Indonesia have done it, and so can we. Since income distributions are typically normal and since we are now probably in the thick part of the distribution, such sharp reductions are possible within a generation. It certainly becomes more difficult to reduce poverty beyond that 15 per cent.

The poverty reduction will not happen automatically. Disadvantaged groups may not be able to tap market access opportunities because of asymmetries in distribution of assets like land, education or even information. So government intervention is necessary.

But this must be government intervention in the right places, not unnecessary government intervention that shackles growth. Unnecessary government intervention also eats up resources that can be used for active government intervention in social sectors.

With government and non-government intervention, there must be universal primary education and every child must be in school. The infant mortality rate must be reduced by half, to around 30 per thousand.

It is between five and ten in developed countries, and even in a country like Malaysia, it is only 11. The percentage of the population with access to safe water, health services and sanitation must increase. In addition to social infrastructure, physical infrastructure services must improve.

There must be better roads, power supply, telephone connections, railways, aviation services, ports and sewage disposal. If this does not happen, infrastructure constraints will hold up growth.

The 21st century is going to be one of information technology. Competitive advantage will be driven by IT usage. IT-related infrastructure services must improve. India's present figures on television, radio, telephone lines, personal computers and Internet usage are far below par.

This is the kind of vision that is set out in the Ficci's draft paper, circulated on the occasion of the workshop. However, this vision will remain a wish-list unless something is done to implement it.

There is a need to agree on some basic principles. These basic principles are so basic that they should be devoid of any ideological content:

• First, the global message is one of competition. This trend cannot be bucked, nor is there any need to buck it.
• Second, the Indian economy has had a lot of government intervention. If the benefits are not commensurate with the costs, such state intervention only shackles the economy. State intervention needs to be in the right places, not everywhere. So, the role of the government needs to be focused and targeted.
• Third, appropriate and worthwhile State intervention requires better deployment of government funds.
• Fourth, India's strength is in availability of human resources and skills. This is an area, at least in primary education, rural health care and rural infrastructure, where the government has a clearly defined role to play.

Based on these principles, the Ficci paper then goes on to list out ten items that should be on the minimum economic agenda. These are agriculture, poverty, the public distribution system, education, labour markets, governance issues, the fiscal deficit, public sector enterprises, infrastructure, the financial sector and exports.

In each of these areas, the status quo is not satisfactory and the contours of reforms are also known. It is difficult to quibble about this list in the sense of arguing that one of these ten items should not be there, although one can argue that there are other areas and sectors that should have been included.

According to the Budget speech, the Department of Economic Affairs, Ministry of Finance, should have also brought out a discussion paper on the second generation of economic reforms. This paper has not yet surfaced. But when it does, most of these items will probably figure on that list as well.

Barring the Left, there is no political configuration that can object to any of these reforms. But will they build in reforms into their manifestoes?

There lies the rub. Nothing will actually get done. Political uncertainty and Parliament's inability to legislate will slow down GDP growth.

Yes, we could have got eight per cent GDP growth. However, we will probably settle for six per cent. That two per cent difference may not seem to be very significant. But over a period of time, it becomes a substantial figure. Had we got a two per cent higher GDP growth over the last 50 years, the Indian per capita income today would have been more than $ 800 dollars, not $ 400. That is something to think about.

Bibek Debroy

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