INTERVIEW: Some progress but still miles to go – Indian economy

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PHOTO: SAT

By Neeraj Nanda in Melbourne

Anand Kulkarni’s book ‘India and the Knowledge Economy – Performance, Perils, and Prospects’; Springer was launched in Melbourne on 28 November 2019. I was present at the launch but interviewed Anand, recently this year.

The book asks fundamental questions about the extent to which India is participating in the global shift towards knowledge-based forms of competitiveness. It charts Indian performance and progress using a unique framework benchmarked against fourteen other countries. In the course of the analysis, critical areas for improvement are identified, and the book provides detailed and objective insights for policy-makers and researchers to facilitate change and institutional reform in India.

My questions received candid replies from the author, based in Melbourne. Anand explains the need for an enabling State-one which allows for the development of ideas and creativity to flourish and empowerment which represents the basic rights of individuals to participate in the knowledge economy. His views on creating employment, managing the environment and resource management are some of his core points.

Social-political turmoil, he says, be it religious, caste-based or social exclusion is bound to be problematic. He feels there is considerable evidence that social cohesion and economic prosperity are aligned and that threats to this alignment can be damaging.

Excerpts from the interview:

Q: Your book is about India and the knowledge economy: What is meant by that and how is India tracking?

A: My book charts India’s progress towards a knowledge economy and in comparison to a number of other nations in the developing and developed world. The premise is that knowledge in all its forms and capabilities including research, diffusion of know-how, education, entrepreneurship, and advanced manufacturing and services, are central to prosperity, sustainable employment, enhanced living standards, and to address complex problems in areas such as health, the natural environment, and rapid urbanization. This will be the case for developed and emerging economies such as India. Also important is the notion of an enabling State-one which allows for the development of ideas and creativity to flourish, and empowerment which represents the basic right of individuals to participate in the knowledge economy.

The book examines India’s performance on a range of criteria and finds that while there are pockets of strength, for example in Jugaad endeavors (improvised innovation at the local grassroots level), space technology and ICT applications, there are a number of weaknesses.

I have developed a knowledge footprint idea that measures the extent to which knowledge is developed and diffused both at home and abroad, comparing India with 14 other countries of differing levels of development, including Australia. Out of the 15 countries, India is ranked 14th, unfortunately, with weaker performance among the following areas: providing widespread access to high-quality education for its citizenry; exports of high value, skill-intensive manufacturing; research performance generally and translating research into the commercial arena; and entrepreneurship which is able to be sustained.

Q: What are the core challenges confronting the Indian economy, particularly in the light of the knowledge economy?

A: India faces a number of challenges. In no particular order, creating employment for the vast number of new entrants into the labor force is key. These jobs need to be productive and sustainable in the long term, requiring a shift from the preponderance of informal, low paying jobs, to the extent that employment is available to all. This, in turn, means a vibrant industrial sector, one that adapts to the emerging needs of the domestic and global markets, and an agricultural sector which is more productive and focussed on adding value. For a country at its stage of development, India has a smaller manufacturing sector than other comparable nations. What is required in my view is the development and linkage of modern, sophisticated, manufacturing (and agriculture), allied with services through an emphasis on genuine collaboration and knowledge development and transfer? While contentious, there are likely to be opportunities for India in the 4th industrial revolution as – coined by the World Economic Forum – comprising artificial intelligence, robotics the internet of things, and technology fusion, among other things.

Upskilling and re-skilling the nation requires an education and training system that is responsive meets changing labor market needs and provides employable, broad-based and transferrable skills, embedded in deep specializations, where necessary. This could be part of a national transition plan, carefully considered to shift resources out of declining areas of the economy into more potentially productive ones. In such a context, there has been much criticism of India’s highly regimented education and training system which has not produced enough graduates with employable skills, nor endowed students with a broad range of skills, including those soft skills that are increasingly required (communication, problem-solving, teamwork, social skills). Reforming the structure and governance of education and training, revitalizing curriculum and pedagogy, and allowing for more autonomy and creativity for institutions, are core challenges, as is producing a world-class vocational education sector which has been underdeveloped. To be fair, the proposed new Education Policy, a draft of which was released in 2019, does offer hope for reform in areas of governance, research promotion and a greater focus on employability.

Another core and obvious challenge for India is in relation to the natural environment and resource management. World Health Organisation work shows that a very large number of Indian cities are among the world’s most polluted. Here we see that innovation and knowledge are vital to bringing forth new ideas, technologies and research to bear on pressing problems and address energy needs, climate change, water and waste management, as major planks of a green economy. It will be important to dispel the notion that the environment and economy are not reconcilable. This will require a concerted, coordinated and coherent national collective effort, which also links and aligns the vast number of grassroots initiatives that are in play to address massive environmental challenges. A comprehensive long term climate mitigation and adaptation plan, allied with the deployment of renewable energy at scale (and in an orderly fashion), and clear waste and water management systems, structures and objectives, are necessary.

I would also argue that India’s institutions of government and governance, including Ministries, the Judiciary, National-State Government relations, and local governmental entities need to be more agile, responsive to changing community needs, more collaborative and with clearer roles and accountabilities. This is particularly important in the context of a knowledge economy where ideas can originate from anywhere, anytime and where the economy is fast changing as new technologies develop rapidly.

Q: India is touted as having great potential to be an economic superpower in decades to come despite mixed forecasts. What do you say?

A: My view is that the potential is there, but a lot would need to change. The potential stems from a number of sources. There is the often expressed view that India has a “demographic dividend” owing to its youthful population compared to most of the rest of the world which is experiencing an aging of its population. Further, the Indian middle class is large and growing, which can drive demand, especially for higher-value goods and services. Thirdly, there is a long-standing tradition and focus on education, especially higher education. Further is the good old fashioned Indian know-how which is about the creativity of its people in both cities and villages, its rich sources of traditional and modern knowledge, and the core of highly rated educational institutions and research centers. It is noteworthy that India has improved its standing in the Global Innovation Index in recent years. Finally, there is a highly visible, talented and influential diaspora, flung widely across the globe, who are a source of know-how, finance, and other capital.

For all this potential, there are many issues to overcome. Institutional strength, governance, and accountability and transparency are concerns, as are National- State Government relations. India is stagnant on the global Corruption Performance Index, measured annually. Inequality is a pressing issue with the country having one of the highest rates of inequality in the world, impacting on social cohesion, and notions of fairness. More broadly, India continues to struggle in the UN Human Development Index, which measures, among other things, parameters such as access to, and performance of foundational education, and the extent of health, gender and other forms of inequality. These factors mean that the full potential of India is not necessarily being realized.

As mentioned, India’s environmental performance is a major constraint to its future. In the most recent Yale University Environmental Performance Index (EPI), India is ranked a dismal 177th out of 180 countries. The index covers more than 20 performance indicators relating to environmental health and ecosystem vitality. 

Q: Do you think that the recent budget puts the economy on a strong footing?

A: The latest budget has some positive features, which might stimulate consumption and investment, including tax relief for corporations and individuals, but there continue to be complexities in implementation. According to some commentators, there are attempts at stimulus and revival through investments in transport infrastructure, online education and electric vehicles for example, as well as – recapitalization of public sector banks (which can be a double-edged sword, however), and agriculture income support (although eligibility for take-up is a question).

However, I agree with the view that there does not appear to be an over-arching strategic edge to the budget, to frame a growth and employment narrative. Of concern is the dilution of funds for the employment guarantee scheme, and lack of an integrated approach to industry development and agriculture. Agriculture needs a whole of value chain approach, for example, from inputs right through to production, marketing, distribution and exporting of high-value products and services.

Q: Moody has downgraded India’s 2020 growth to 5.4% from 6.6%. What does that indicate?

A: This indicates significant concerns. Consumption is flat as the job situation weakens (and wages are by and large stagnant) and consumer sentiment is stagnant too. This, in turn, feeds into investment and production. Moreover, India has not had a particularly strong export performance and orientation, which means that opportunities for growth on world markets are not necessarily being capitalized on, noting, though, the current uncertainty in world trade.

Other key factors, as suggested, are that with a burgeoning fiscal deficit, and mounting debt, the capacity for the Government to “turbocharge” the economy is limited, while inflation continues to be a concern.

A further concern has been the structural weaknesses in the banking sector including non- performing loans and assets, which further limits credit growth and overall economic performance.

Q: Is India part of the global trend of growth without jobs?

A: I would argue two points here. Firstly, India’s growth has been slowing and is projected to do so for the various reasons advanced earlier, rather than it being a case of growth without jobs. There is certainly a major job issue, more associated with the lack of a robust manufacturing sector (and still impediments in the labor market which restrict flexibility in hiring), and an agricultural sector that does not have the productivity levels of leading countries. The absence of a shift from declining to growing sectors is marked.

A second point is that any global trend towards growth without jobs has, to a significant extent, been associated with labor displaced by technological change, including computerization and emerging fields such as robotics. Compared to other countries, it is not clear though that India has particularly rapidly diffused such technologies on a very wide scale, save for some sectors. It should be noted that while labor displacement from technological change can be an issue, there are also considerable employment opportunities associated with new technologies and new growth possibilities if harnessed.

Q: Is social-political turmoil hurting India’s economy?

A: Any turmoil of such a nature, be it religious, caste-based or socially exclusionary measures is bound to be problematic. This is in many respects. Firstly, from a purely economic standpoint is the risk and uncertainty that this creates for businesses. Businesses need predictability and stability to plan their investments with a reasonable degree of certainty. According to the Eurasia group in the US, India has one of the highest country risks in the world in 2020, as it appears that a harsh social agenda has been prioritised over an economic agenda. Various sensitive and specific sectors would be at risk from social-political turmoil, including travel and tourism. Further, there is considerable evidence that social cohesion and economic prosperity are aligned and that threats to this alignment can be damaging. In addition, is the “snowballing” effect. Social-political turmoil which affects economic performance, in turn, further exacerbates social fissures and so on.

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Q: How would you rate India’s major policy initiatives in the last few years?

A: In general, I would argue that the last few years have seen a mixed performance. Certainly, there have been gains in improving the overall business environment, through the reduction in red tape and improvements to approvals processes for businesses, trade clearance, and simplification of labor codes, among others. India’s performance in the World Bank Doing Business Index has improved significantly and is now 63rd in the world, on the back of good performance, including in construction permits, obtaining electricity, resolving insolvency and implementation of e-processes.

The GST, while laudable in aim and intent, has had implementation difficulties, and arguably, the jury has still been out on the overall impacts of the demonetization program.

Some of the more micro-measures such as the provision of more bank accounts and access to local financial institutions, including especially for females, and the Swach Bharat (Clean India) have produced gains.

However, as mentioned previously, measures in the areas of environmental management, employment generation and development of large scale industry have fallen short.

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