KV Kamath: India Needs To Focus On Inclusive Growth
India Budget 2012: India can live with high public spending if a large part of it is going into creating assets or implementing programmes that can have a multiplier effect
It is often suggested that India has to attempt big-bang reforms to get back into a high-growth orbit. To use a cricketing analogy, it is not the fours and sixes but the singles and twos that will help win the match. We simply need to remove a whole lot of small bottlenecks that are slowing things down. Let us take the power sector, for example. We urgently need about 25,000 MW of capacity. Most of this has been built or is in an advanced stage of execution, with financing tied up. But the final completion and ability to start generating the power is held up just for some last mile clearances, and more importantly, lack of certainty on availability of fuel. This is also impacting the confidence of project companies and their ability and willingness to take up the next set of projects using the cashflows from the current projects once they start producing. We have now recognised the problem and started addressing it, but we have done so when the problem is already upon us.
There is also a lot of focus on the fiscal deficit and subsidies. India certainly needs to focus on inclusive growth, which means improving the capacity of the poor to lead decent lives and participate gainfully in the economy. Our social programmes cannot be compared to the entitlements available to people in countries like Greece. There is dire poverty in many parts of our country and we have to design our policies around this reality. We can live with high public spending if a large part of it is going into creating assets or implementing programmes that can have a multiplier effect. Studies and empirical evidence from countries that have invested in education and healthcare show that social spending does have a multiplier effect in the long term. China, for instance, is today reaping the benefits of spending heavily on social development in the seventies and eighties.
But to support this spending we need revenues and that can come only from fast growth, which, in turn, requires investment. But investors are keeping their distance for various reasons. In addition to access to land and natural resources, there are now concerns about contract risks and anything requiring government licenses and permissions. There is no doubt that the Supreme Court canceling telecom licences reinforces the rule of law, but that has placed the responsibility on the government to display its ability to quickly sort out the consequences. I am aware of at least two big investors rolling up their plans for India in the past ten days. These fears have to be allayed. We spoke of power and telecom, but even in sectors like roads, ports and railways, we can spur private investment – reducing government spending and simultaneously boosting economic growth – with a clear and stable policy framework.
So we do need action on various fronts. I am very optimistic that we will see this happen and India will continue to power ahead.
