Right path to a sustainable future

The Hindu Business Line, May 26, 2016

By Pradeep S Mehta

India needs to grow 10 per cent a year for the next one and a half decades if it has to become a $10-trillion economy and get rid of poverty. This was the central message of a recent presentation made by Amitabh Kant, CEO of NITI Aayog, to the Prime Minister.

The PM is expected to mull over the suggestions in the presentation as he celebrates his two years in office. He needs to figure out the growth strategies to pursue, how to achieve the right balance and, above all, ways to ensure implementation.

Strategies to pursue
No country has been able to grow consistently for a long term by focusing on economic indicators alone. The right mix of economic and social capital is required to create and sustain growth. For instance, in the wake of the Great Depression in 1930s, the US launched a massive social security programme in addition to infrastructure development and defence manufacturing.

Japan famously invested in health and education while focusing on technological prowess. Similarly, China invested in skilling to become the factory of the world. Unsurprisingly, all these economies have witnessed long-term growth.

And when social and health indicators are not pursued, growth has usually been short lived. For instance, the East Asian crisis of late 1990s, and the financial meltdown, most recently, ended the short-term growth periods fuelled by debt, asset price bubbles and hot money. Even India flirted with the short-term-debt-driven high-growth strategy starting 2004, and we are still grappling with its adverse impacts.

Achieving the right mix
Investment in social and human development is a pre-requisite for economic growth, and our policy makers realise that, as evident in Kant’s presentation. In the eight themes identified in the presentation, human, social and environment development are recurring themes.

Recognising the importance of such quasi-economic indicators, and realising their connection with economic growth is a good start. Now comes the difficult part — achieving the right mix, i.e. evaluating social, health, environment and economic indicators, and designing strategies involving each of them, to enable consistent, inclusive growth.

While history helps in understanding the importance of non-economic indicators, and their inter-linkages with the economic ones, it offers limited guidance in choosing the right balance, which is often product of the times. What might work at a given point in time might not work in another.

For instance, while the west and China grew using non-renewable resources, and at the expense of environmental degradation, this strategy will no longer be available for India, which will have to chart its own path to compete with these economies.

Defining elements
Four major factors influence the mix of indicators: global environment, local settings, expected changes in future, and available resources.

The global environment is going through a very interesting phase currently. Automation and innovation are replacing human labour and blue collar jobs. European economies are witnessing an unprecedented influx of refugees, who will be looking for jobs and social security.

While global value chains are increasingly becoming common, the standards set by developed nations to partake in such exclusive chains is increasingly becoming difficult. Protectionism and exclusivity seem to be the order of the day.

On the domestic front, horizontal and vertical competition for growth is being pushed at an unprecedented rate. Entrepreneurial spirit and network industries are dominating commerce, and reforms are underway on easing entry and exit of businesses. However, enough jobs have not been created, manufacturing and agriculture are still laggards, and health and education standards remain dismal.

Going forward, use of technology will change delivery mechanisms of entitlements, services, implementation and monitoring of health, education and environment programmes. Enormous data is expected to be generated on the impact of policies and programmes, and their efficiency. However, capacity constraints to generate and utilise such data remain, both on the part of citizens and the government.

Also, with the adoption of Goods and Services Tax, overhaul of corporate tax rate, and kicking in of fiscal responsibility, the resources available for expenditure are expected to remain limited.

Getting it done
These factors matter a lot while building a robust strategy for sustainable and inclusive growth during the next 15 years. And it won’t be enough for the government to do its part. Citizen groups must come forward to seize initiatives, to fill in the gaps and act as a communicator between government and citizens. Their engagement must start right from the beginning, i.e. the planning process and must cover implementation, monitoring and evaluation.

Civil society needs to act where the State fails to act, goes overboard or underperforms. It must ensure that requisite indicators are taken into account to enable long-term inclusive growth, including GDP, job creation, competitiveness, health, education, environment, standard of living, etc.

Required weightage is given to each indicators and targets for long, medium and short-term need to be set. Policies and programmes at national, regional and local level need to be designed accordingly. Implementation must be transparent, and performance indicators and accountability standards need to be prescribed and complied with.

The writer is the secretary general of CUTS International

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