A capsule view of Indian economy

Pakistan is justified in being wary of India; perhaps even being not on talking terms with our bigger eastern neighbour. And Kashmir being the major dispute between the two for which India and Pakistan have gone to war on three occasions it is more than justified for Pakistan to remain vigilant round the clock; militarily alert and adequately prepared.
At the same time it would be totally wrong on our part not to keep a close watch on what is going on in that country, especially on its economic front. More so because in the 21st century it is going to be geo-economics that would determine the bilateral relations between neighbours, especially close neighbours, rather than geopolitics. And it is also the economy that is going to facilitate or deter the hegemonic ambitions of a belligerent neighbor.
The very fact that India is huge in terms of population and size compared to Pakistan, makes our eastern neighbour a formidable foe.
On the economic front as well the country which was stagnating at what was called the Hindu rate of growth of two per cent almost for more than 40 years has suddenly been seen growing at an annual average rate of about 7 per cent since mid-1990s and that too at a time when Pakistan's economy seems to have been trapped in doldrums.
India produced 263 million tonnes of food grains in 2014, which has further improved since then, and exported wheat, rice and cotton, while not long ago, wheat was imported under PL-480 leading to a charming phrase that "India lived from ship to mouth". India's installed power capacity which was 2,34,600 MW around 2014 has also improved since then.
According to Klaus Schwab, founder and executive chairman, World Economic Forum (India's opportunity in a multi-conceptual world - published in Agenda weekly on January 9, 2018), India's unique demographic dividend, the rising tide of entrepreneurial spirit, breakthrough innovations across sectors, and remarkable pace of bold and structural reforms have boosted the macroeconomic fundamentals and enhanced India's long-term economic outlook.
"India's extraordinary achievements - despite its complex federal governance structure and highly pluralistic and diverse society - corroborate that the country possesses a robust institutional mechanism for deftly counterbalancing pervasive diversity while projecting a single identity, a fact which bears important lessons for the world struggling to find equilibrium and move towards a harmonious multi-conceptual existence.
"In spite of significant economic and social progress, spatial, income- and gender-based inequalities persist, and access to core public services is disproportionate between rural and urban areas. There are concerns over high levels of air pollution and scope for improved infrastructure."
Prime Minister Narendra Modi will showcase India's investment potential when he attends the annual meeting of the World Economic Forum in Davos later this month.
India will showcase the business opportunities and the reforms that have been implemented in the last three and a half years at the forum which is to be held from January 23-26 with the theme 'Creating a Shared Future in a Fractured World'.
Narendra Modi will be the first Indian Prime Minister to attend the next annual meeting of the World Economic forum since 1997. He will interact with the members of the International Business Council, consisting of 120 top chief executives of major transnational corporations across sectors and top global business leaders, including leaders of major Fortune 500 companies."
Finance Minister Arun Jaitley, Commerce and Industry Minister Suresh Prabhu, Rail and Coal Minister Piyush Goyal, Petroleum and Natural gas Minister Dharmendra Pradhan and Andhra Pradesh Chief Minister N Chandrababu Naidu will be part of the delegation to Davos.
The ministers will represent India in around 25 sessions and elaborate on the Prime Minister's vision of transforming the nation into 'New India' by 2022.
Reforms related to foreign direct investment, Goods and Services Tax, the recent 30-rank jump in ease of doing business, insolvency and bankruptcy code will be discussed.
"Even if domestic savings increase, we need foreign investment. We should also focus on outbound investment," Prabhu added.
However, according to Fareed Zakria's Global Briefing dated January 12, 2018 (India Is Missing Something Important), India is missing something crucial if it hopes to match Chinese economic progress: A middle class commensurate with its massive size.
"The top 1 percent of Indian adults, a rich enclave of 8 million inhabitants making at least $20,000 a year, equates to roughly Hong Kong in terms of population and average income," The Economist weekly says: "The next 9 percent is akin to central Europe, in the middle of the global wealth pack. The next 40 percent of India's population neatly mirrors its combined South Asian poor neighbors, Bangladesh and Pakistan. The remaining half-billion or so are on a par with the most destitute bits of Africa. To be sure, global companies take the markets of central Europe seriously. Plenty of fortunes have been made there. But they are no China.
"Worse, the chances of India developing a middle class to match the Middle Kingdom's are being throttled by growing inequality. The top 1 percent of earners pocketed nearly a third of all the extra income generated by economic growth between 1980 and 2014, according to new research from economists including Thomas Piketty.
"The reasons for this failure are not mysterious. Decades of statist intervention meant that when a measure of liberalisation came in the early 1990s, only a few were able to benefit. The workforce is woefully unproductive-no surprise given the abysmal state of India's education system, which churns out millions of adults equipped only for menial work. Its graduates go on to toil in small or micro-enterprises, operating informally; these "employ" 93% of all Indians. The great swell of middle-class jobs that China created as it became the workshop to the world is not to be found in India, because turning small businesses into productive large ones is made nigh-on impossible by bureaucracy. The fact that barely a quarter of women work-a share that has seen a precipitous decline in the past decade-only makes matters worse.
"The sudden and brutal "demonetisation" of the economy in 2016 was meant to target fat cats, but ended up hurting everybody. And the path to prosperity walked by China, where manufacturing produced the jobs that pushed up incomes, is narrowing as automation limits opportunities for factory work.
"Only 3% of Indians have ever been on an aeroplane; only one in 45 owns a car or lorry. If nearly 300m Indians count as "middle class", as HSBC has proclaimed, some of them make around $3 a day.
"Even for someone in the top 10% of Indian earners, an annual Netflix subscription can cost over a week's income; the equivalent in America would be around $3,000. Apple ads may plaster Mumbai, Delhi and Bangalore, but for only one in ten Indians would the latest iPhone represent less than half a year's salary. The biggest consumer hits in India have been goods and services that offer stonking value: scooters and mobile telephony have grown fast, but only after prices tumbled.
"Insofar as it is the job of politicians to create a consumer class, successive Indian governments have largely failed. Businesses hoping the Indian middle class will provide their next spurt of growth should be under no illusion."
Meanwhile former Union Finance Minister and Congress's Member of Parliament P. Chidambaram calling business establishments like Infosys, GMR, GVK, Wipro etc. as "children of 1991 reforms", said now the space to create efficient entrepreneurs is shrinking in India. He said that to remain at the edge of change, India must create opportunities for entrepreneurs to start brand new businesses from scratch.
Chidambaram was delivering the inaugural address at the conference on the occasion of 25 years of economic reforms in India: retrospect and prospects in Kolkata, organised by Observer Research Foundation, Kolkata, in collaboration with the Indian Institute of Management Calcutta on October 24 and 25, 2016.
Defining the scope of his idea of next 25-year agenda for India, which would have some red and green lines, Chidambaram desired to focus on getting closer to green lines and never crossing the red lines. The red lines of his included: (i) India must achieve the target of fiscal deficit of 3 percent of GDP and must always remain below that level, (ii) with the current account deficit to continue for some more years, Chidambaram suggested foreign investments (either FDI, FII, FPI or ECP) should be allowed for financing the deficit, and (iii) in a developing economy, aiming high growth, moderate inflation is inevitable. Hence, the monetary authority (particularly Reserve Bank of India) must strive to strike a balance between price stability and growth by formulating monetary policy.
"The final red line would be to be cautious of the civil service, which has indeed been a strong pillar of India's governmental sector, but the rules and regulations, drafted by the civil service, must not stifle enterprise, initiative and growth. Every law must have a sunset clause and must be mandatorily reviewed once in 5 or 10 years and laws which have survived for almost twenty years or so must be mandatorily replaced by laws written by new parliament or a new legislature," Chidambaram added.
His green lines represent targets India should aim to achieve: (i) restore the primacy of tax revenues; reliance on non-tax revenues, borrowings, aids, grants, must reduce. Taxation is a part of governance with many objectives and must restore the importance of tax revenues. They are needed to finance public infrastructure, education and health.
Chidambaram felt that society was moving away from the egalitarian system to a nation where basic health care and education is priced at a level beyond the capacity of the poor. The same applies to infrastructure as well as defence, law and order and justice delivery system in India.
"State has to play an important role and the primacy of tax revenues has to be restored. He urged that more and more people should come forward to pay taxes.
"The second green line India must vigorously pursue is to create space and opportunities for new generation of private sector entrepreneurs.
"Third green line which India must pursue vigorously is in reducing inequality and discrimination, which in the last few years has in fact increased. The growing inequality and a consequence of that the growing discrimination does not bode well for India.
"And the one way to reduce inequality, among many ways, is to raise minimum wages across board. A prosperous society cannot be built unless that society is tolerant of each other, unless it accepts more diversity and pluralism, unless it adopts the philosophy of live and let live. In the last few years, intolerance has grown in this country and it holds back the potential of the country to become prosperous and rich."