Under Modi, India must write a new chapter for its growth story
K. S. Venkatachalam says it must ditch its socialist model for good
Indian Prime Minister Narendra Modi was catapulted onto the national stage on the back of an enviable track record in his home state of Gujarat, where he was chief minister. Under his decisive leadership, Gujarat became an industrial powerhouse with a gross domestic product growth rate similar to that of China.
People who were fed up with ineffectual government saw in Modi a messiah with the ability to better their lives, and put India on the world economic map.
Before 1991, Indian economic policy was largely based on Fabian socialism. The central planning model, similar to the Soviet one, was protectionist in nature. Nationalisation of industries like steel, mining, telecoms, insurance and banking, with an unresponsive bureaucracy, acted like a death knell to the economy. It was rescued by then prime minister Narasimha Rao, who introduced a slew of economic reforms, by moving away from unproductive socialist philosophy to a market-driven approach.
The world's leading economists were so impressed with the Indian story that they predicted its economy would grow at a much faster rate than China's, because of two distinct advantages - a robust democracy and a large English-speaking workforce.
However, subsequent prime ministers went back to the old socialist model, with misplaced emphasis on social investments. Various welfare schemes that were introduced, though laudable, led to a loss of investor confidence in the Indian story, and they chose China instead. Today, the discussion centres around how many decades it will take India to catch up with China.
The previous government, riddled with corruption and other scandals, brought disrepute to the leadership of Manmohan Singh, and also to his party. The people lost confidence in the government, and the electorate spoke loudly in electing Modi with an unprecedented mandate.
Contrast this with the Chinese story. Under the visionary leadership of Deng Xiaoping , China realised that to become the world's leading economy, it would have to unshackle bureaucratic controls, open up the market and encourage the growth of the private sector.
Huge investments were made in infrastructure; world-class transport links have been built, power supply shored up, and concessions granted to industries. This all created a favourable climate and attracted foreign investment into China. The Chinese economy has grown at an average of more than 10 per cent per annum for the past two decades, against India's average growth of under 6 per cent per annum.
According to one survey by global information company IHS, China is on course to become the world's largest economy by 2024, displacing the US. A 2012 Bloomberg study estimates that China's investments will grow to up to 46 per cent of GDP against India's 36 per cent of GDP.
However, all is not lost for India. Instead of competing with China, New Delhi needs to improve the investment climate for attracting foreign direct investment. According to the Organisation for Economic Development, India could be within striking distance of China by 2016, provided it takes bold economic measures like building world-class transport systems, restructuring the power sector, improving connectivity, making land available for setting up manufacturing facilities, reforming tax laws, and making labour laws more industry friendly.
With Modi at the helm, the Indian economy has the potential to emerge as the third largest by 2024, next to China and the United States. Modi just needs to turn his rhetoric into action, if he eventually wants to see India emerge as the world's largest economy.
