Saturday, July 13, 2013

Time we return to 'Austerity led Growth'

The Governor, RBI in a recent address pleaded for austerity led growth. Culturally we were aligned to austerity led growth. But post liberalization, we embraced consumption led growth. It had its virtues in seeing that we tasted the western riches; we embraced even their culture in welcoming pubs and casinos. We thought we would move to export led growth. Manufacturing sector could not match up to the task not because we lacked intellect and strategy but because our technologies continue to be outmoded and the needed investments were hindered a the right time through untimely and inaccurate policies. When speed was the essence we moved slow and when we have to move slow we are now wanting to move with speed.

Indian economy continues to be agrarian though the share of agriculture is now at around 15% of GDP. The growth in services sector is the benefit we got out of liberalization during the last two decades and odd but its unsustainability stares at us in the wake of pull down in manufacturing sector. Our imports continued to surge and exports drag their feet. CAD continues to rise and is causing ripples in the economy. Our priorities in investments changed without simultaneously putting in place the needed regulations. When scams after scams occurred and when we realized that the real estate sector, the growth trigger is also responsible for a steep rise in misdirected investments and black money the regulations started moving into the needed directions and for implementing the new regulations the bureaucracy is ill equipped at the moment.

We have also misplaced our direction in education and health sectors aping the west. We have to make these two sectors within the easy reach of the poor and unreached. The real inclusive growth would occur when this happens. Therefore, the whole of Government spending has to have increasing proportions in these two areas and we should move to strengthening regulation and governance structures more responsible, responsive and accountable in these two sectors. The primary and secondary education should be the concern of the government accompanied by all the needed incentives to prevent child labor, migration from rural to urban areas and education to move with culture that is strength of India. The teacher training has to upfront move in those directions so that the teachers find environment conducive for growth in such a situation. We have to realize and recognize that the growth that we attained has become unsustainable because of certain inherent policy misdirection that needed correction.

While seeing the writing on the wall is important, we have to decide on the policy front that it would be advantageous to move in the direction where we emerge as future leaders of the world both economically and culturally. Healthy regulations and rigorous implementation of such regulation through accountability and transparency are important at the moment. Let us move along. We have the advantage of being the youngest nation of the world and the youth needs the right direction, incentive and investments. Let us put them in place. We would be a great nation and India would be truly  the nation that the world of future would look to.