India a bright spot amidst global gloom

India a bright spot amidst global gloom

Foreign optimism on India is wholly justified
As Indians fret over growth slowing to a crawl, Toronto based Fairfax Financial Holdings boss Prem Watsa hails India as the number one investment draw of the world, as China, the hitherto automatic choice, is embroiled in a trade fight with America. Such investors focus on the country’s long-term growth potential, rather than its short-term woes, and these burn bright. India’s staggered demographic dividend, thanks to the total fertility rate dwindling to the replacement level of 2.1children per woman in different parts of the country over a protracted period, still unbuilt essential infrastructure, pent-up urbanisation, varied agroclimatic zones that can grow most crops and potential role as a global hub for assorted economic activity, all ensure that India will continue to grow for the foreseeable future.

However, India can do much either to derail the transition to sustained double-digit growth or take proactive measures to speed it up. This depends on the political system and its ability to carry out structural reforms, while maintaining essential political and social coherence. What the needed structural changes are is no secret. Cropping patterns are seriously misaligned with agroclimatic suitability, efficient global production, environmental sustainability and even domestic requirement, thanks to misdirected incentives on inputs and outputs. The power sector is crippled because the political system deems it necessary to patronise power theft and giveaways, and identifies financial engineering as the solution, instead of altered politics. The economy lacks a source of long-term finance, given the still-stunted market for corporate bonds. The legal system ranks at the bottom of the heap in terms of its ability to enforce contracts. The education system is a morass of mediocrity with a few, small islands of excellence. Healthcare is costly and lacks the personnel that a 130 crore population calls for.

Carrying out the needed reform will call for spending political capital. But, once achieved, these will transform the economy.