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Just how fast can India grow? Ask Manal
Farooq, who can't make gloves quickly enough.
"We are facing a major problem'', said Farooq, a senior
executive at Marvel Gloves Industries, which produces 3 million
pairs of gloves a month, most used in industrial production in
India. "Despite importing gloves we are not able to meet demand.''
The run on gloves began five months ago, said Farooq, whose
customers include Ford and Nissan.
It's been driven by a record rebound in manufacturing, spurred in
part by government stimulus, which has led India out of the Great
Recession faster than many imagined possible.
So abundant is the optimism that India's Finance Ministry, led by
Pranab Mukherjee _ not a man given to hyperbole _ has made a bold
assertion: India could soon overtake China's growth rates.
``It is possible for India to move into double-digit growth and
even become the fastest growing economy in the world within next
four years,'' the Ministry said as part of an economic survey
released in February.
The catch: bridging the chasm between the possible and the
probable.
Given the growing productivity of Indian workers and large
working age population, it's certainly possible for India's economy
to speed up, say economists and businesspeople.
But in practice, overtaking China would require fundamental
changes in the way India does business. Creaking or nonexistent
infrastructure and cumbersome government bureaucracy are drags on
businesses large and small. And few think the bureaucratic and
political hindrances that make it hard to execute even the best-laid
plans will be removed anytime soon.
Also in doubt is how much faster growth will benefit the mass of
Indians who've seen little or no gain from the country's much lauded
economic rise since liberalization began in the early 1990s.
So far, the economic makeover has worsened income inequality in
India, and despite five years of near nine percent growth, over 450
million people struggle by on less than $1.25 a day. A similar
problem of widening inequality also blights China, which has grown
an average of 9.7 percent a year over the past three decades.
But higher levels of business investment in the past decade have
raised profits and wages and in turn produced a large pool of
corporate and household savings that was unimaginable in India 10
years ago.
``The productive capacity of the economy has gone up,'' said
former International Monetary Fund economist Renu Kohli. ``My only
caveat is that as far as implementation and execution of projects
and policies is, India is a slow mover. It doesn't move at the speed
China does.''
Financing isn't the problem, nor lack of good ideas, she said.
``The constraint lies in procedural issues, land acquisition and
the capacity of even private participants to execute those projects
without delays,'' she said. ``For that to change, it's not entirely
clear what a budget or change in policies can bring about.''
India's top spending priorities in its new budget, released Feb.
26, are social programs and infrastructure. Next fiscal year, the
government plans to spend 1.37 trillion rupees ($30 billion) on
social programs and 1.7 trillion rupees ($37.9 billion) on
infrastructure.
The mix reflects the ruling Congress party's general approach _
ramp up economic growth with pro-market policies and then
redistribute the spoils through a massive hodgepodge of social
spending, subsidies and employment guarantee programs.
Many say that to sustain growth in the long-run, the nation must
do a better job of enriching millions of people at bottom of the
heap.
India's fortunes are less coupled to global markets than
export-dependent China's, but they are linked to the rural economy.
Putting more money in the hands of the poor and near-poor has helped
bolster domestic demand.
The programs that helped most _ farmer loan waivers worth over
$15 billion, a massive rural job guarantee program, and higher
minimum prices for rice and wheat _ were implemented in the run up
to last year's national elections. But they ended up shielding a
large part of the economy from the global meltdown, said Himanshu, a
professor of economics at Jawaharlal Nehru University in New Delhi,
who goes by one name.
Unless rural incomes rise, India could face a bottleneck in
domestic demand, said Himanshu.
``Sixty percent of our population is still working in
agriculture,'' he said. ``Even the corporate sector is now saying
that for growth what you require is growth at the bottom because
that's your market.''
Giving farmers a more certain future as India's economy
industrializes could also speed progress. Farmers concerned about
losing their land in exchange for promises of jobs and one-time cash
payments, which quickly get spent, have stopped or slowed the
development of mines, power plants, factories and special economic
zones.
Naushad Forbes who directs Forbes Marshall Pvt. Ltd., a large
Indian manufacturing company, wishes the government would take a
more encompassing approach to helping ``Bharat,'' or the rural poor.
``India's economy is coupled to 'Bharat','' he said. ``We have to
as a country, as we mature, move away from the budget being a list
of giveaways to something more holistic,'' he added.
Fixing India's clogged ports, sweeping power blackouts,
inadequate roads and overstretched airports would also be a huge
boost to productivity.
Goldman Sachs has estimated that India may need $1.7 trillion
over the next decade to double its electricity capacity, increase
the length of paved roads by half and substantially expand railway,
port, airport and irrigation networks.
Spending that money well could prove challenging. The Delhi
School of Economics surveyed 894 infrastructure projects between
1992 and 2009 and found that time overruns ranged from 61 percent of
projects in the power sector to nearly 100 percent of railway,
health and family welfare projects. Most were caused by government
administrative delays.
India's new budget did please some circles _ analysts and
investors, who praised Mukherjee for his fiscal discipline and
productive spending priorities.
Given the manufacturing boom, the enlightened policymaking and
all the road-building that's going on, why doesn't Farooq, the glove
maker, just ramp up production in India instead of relying on
imports to meet rising demand?
``There are certain constraints,'' he said. ``We need to take a
lot of procedures and approvals. We need to take the right land,
import the machines, train the people. It will take a long time.''
Besides, he said he's getting fed up with the number of public
holidays in India.
``By the time you start production, you have some festival for a
particular religion or caste.''
``Last week only, there were three holidays.''
So where does Farooq get those 1.5 million pairs of imported
gloves each month?
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