As I see now, there are three problems that require the immediate attention (and action) on the part of the Govt of India. If there is failure to act on these, the economic growth of the kind we witness now in India will surely lose its steam. And that, is bad news!
First of course is the rising inflation. The WPI based inflation rate is high and so are the CPIs too. The government has tried to bring it down by reducing the import duty on food items and the RBI has, in its Q3 Review of Monetary Policy, tried to strike at the demand side of inflation. The measures taken by the RBI officials especially are to be appreciated, as they have tried to target specific segments which, in their view, are fueling the inflationary pressures - like increasing the provisioning for segments like credit card outstandings, capital market exposures, real estate financing and personal loans. As Governor YV Reddy pointed out, inflation is always harmful to growth as it leads to volatility in the economy.
Second problem is the inadequate infrastructure. As correctly identified in the Mid-Year Review of the Economy by the Ministry of Finance, if infrastructure problems are not addressed properly and in time, it can prove to be the Achilles' Heel in our economic growth. So, what all comes under the generic term 'infrastructure'? It includes roads (highways), ports, airports, uninterrupted supply of power and water, housing facilities and telecommunication facilities. In the post-reforms era, we have seen tremendous improvement in telecommunication facilities and, to some extent, transportation facilities. It can easily be seen that whichever sector was opened up to private participation, with commensurate and competent regulatory mechanism, has shown good results. In fact, the single biggest factor behind the growth of IT & ITES sector, in my view, is the unprecedented improvement in telecom facilities resulting in the lowest charges in the world. It is mostly in the power sector that we have ended up laggards. And, that is the area where there have not much reforms and opening up. In recent times, there seems to be some improvement, what with the bidding for some mega power projects resulting in very competitive tariffs.
In PM Manmohan Singh's view, we need a whopping US$ 350 billion as investment to spruce up our infrastructure. Where will it come from? Of course, partnering with the private sector is the solution. For this, appropriate homework needs to be done and it may also be necessary that user charges may have to be imposed. A good way to raise at least a part of the funds is to revive the debt market segment. One hopes some concrete measures will be undertaken in this connection.
What is the third problem? It is agriculture. Agri-sector contributes around 22 per cent to India's GDP but employs more than 60 per cent of our population. But look at the growth rate: just about 3 per cent. And, farmer suicides are going on at an alarming rate. It naturally means that for growth to be more equitable, the fruits of reforms should reach the millions of farmers in our country. Only then will our dear politicians be able to 'sell' reforms to their constituencies. [More on agri-sector in a separate post, coming soon!]