Are Indians overly negative about India ?
That’s a question increasingly posed by some, notably those defending the present Government’s actions or the lack of them. But could that negativity be explained in some other way ? For example, is performing below potential one reason for the feeling of negativity ?
Well, India is underperforming its productivity potential by at least 3 percentage points annually. And the opportunity to grow this is at least 4 percentage points, which would lead to a productivity growth rate of 7 percentage points, says Singapore Dy Prime Minister Tharman Shanmugaratnam, also the Chairman of the Monetary Authority of Singapore.
Not that 4% is bad, he adds, if one were to contrast with advanced nations but the comparison should be with countries like Korea, China at an equivalent stage of productivity evolution. “China in 2008 and Korea in the 1970s achieved higher productivity growth, catching up faster with the rest of the world,” he explains.
And the sheer opportunity he sees in doing this is why Shanmugaratnam feels optimistic about India. “I am charmed by the fact that Indians have a lot of negative things to say about India,” he quips.
The question he poses then is what leads to standards of living going up ? “Productivity is just a measure but what matters ultimately is human capital,” he answers.
Here are the reasons, the context and the tasks ahead if India wants to capitalize on the tremendous opportunities at its doorstep.
- India shows the largest gap between its role in global trade and its strengths. It has 1/4th of the world’s labour force and only 2% of global trade. If people are assets, then this ratio must improve. One way to do this is to globalize and connect more, not just greater export orientation but allowing foreign firms to penetrate Indian markets thus allowing greater connectivity and intra-firm activity.
- India can grow at 7% (age) productivity levels (as compared to 3% today) if entrepreneurial activity is freed up further, product and factor markets work together and there is an increasing linkage via global value chains. Easier said perhaps but the horizon is clear.
- The digital revolution in the next 5-10 years will be a big kick-starter.Technology will grow big ecommerce players but also better provide better aggregation of demand and supply for small players…think of a software engineer selling software or a farmer who can buy fertilizer and sell produce bypassing the middleman.
- A rising culture of awareness among Indians who don’t tolerate abuse and inefficiencies.“That’s another reason I am more optimistic about India than I was 10 years ago. Prime Minister Modi’s Government and the broader social culture is just moving in that directions,” says Shanmugaratnam. The people’s awareness is itself a motive force for change, he says.
- It’s cheaper to get things right. Good governance & regulation does not cost anything and many of India’s problems can be fixed with improved governance. Certainty in contracts and better dispute resolution can catalyse private investment far more effectively. Similarly, regulating smartly to incentivize private investment leads to more savings.
- Human capital is the big opportunity. India was a laggard in this regard but no longer. The problem is the extremes. India has some of the highest peaks in terms of individual expertise and excellence, best-managed companies in the emerging world but the averages are low, in areas like education they have been dismal.Quantity of education has now improved, primary school enrolment is better, including for girls, the transition from primary to secondary is better than it used to be but there are still problems – teachers don’t turn up and quality is a problem.
- Focussing on the individual has to be the most fundamental strategy and thus the opportunity. For this, India ought to move away away (it is begun trying hard already) from an overemphasis on an academic path of advancement to a skills-based path. A skills approach develops people better, develops strengths better and matches the needs of the marketplace better.
India can avoid the problems seen in Korea, Taiwan and even China where there is a massive underemployment or unemployment of university graduates who have spent money and a good part of family savings with no prospect of returns. This in turn leads to frustrations which might play out differently in India as compared to a China.
“So suss out strengths of every individual girl and boy somewhere along the root, in high school, giving them a tertiary path that matches their strengths rather than formulaic academic path. Bring the private sector and industry into education at an earlier stage.”
To sum up, India has no time to be negative and lots of work on its hands. If indeed, we want to swing from being less negative and more optimistic about our future.
(Based on an address delivered at the Growth Net 2.0 in New Delhi a few weeks ago where this writer was present)