What ails India

Dominic Barton, the global managing director of McKinsey, gave an excellent interview in December 2013, highlighting India's problems. Among other things, he mentioned two that drew my interest. One, India has the potential to grow at 10% or more. Two, corruption is an issue that comes up for discussion more in respect of Russia than India. For India, it is misgovernance that haunts the nation. I could not agree more to both these views.

In Russia, corruption is rampant, and disconcerting, because the country has massive valuable natural resources. For instance, it is virtually the mafia that runs the oil and gas businesses, leaving little for the government. India, on the contrary, has a peculiar problem. We do not produce enough crude and edible oil, necessitating huge expenditure on imports of these commodities. We have one of the largest coal reserves in the world, but still need to import it because Coal India has no vision whatsoever. We do have excess cotton, but instead of adding value and building a textile industry, we export the stuff. Same goes for iron ore.

Now, let us consider the textile business for a while. Few years back, Faisalabad, in Pakistan, used to be a textile hub. Then came the bane of the industry – power cuts. The industry started to die, and millions were unemployed within months. Business shifted to more efficient Bangladesh. Back home in India, Tirupur, a well-known textile cluster, faced a similar story. Power shortages turned the business unviable, small power loom owners faced extinction, and to add insult to injury, strict norms on water treatment spelled doom for the industry. India, however, was wiser and nimbler than Pakistan. Industry shifted to Gujarat, a power surplus state that arranged for a common water treatment facility for the cluster, saving on capital expenditure for small and medium enterprises. That, I think, is what India needs.

Indians are hardworking and entrepreneurs, what most just need is state support. Lesser the regulations and barriers between state and business, the better. E-governance, therefore, is what India needs. Ask a businessman who used to waste one man-day in procuring a straightforward sales tax form. Now, he downloads it from the government website and focuses on better things. Corruption breeds because layers separate the citizen from government records, creating ranks and files of agents. Here is where the Japanese concept of quality comes in – don't take post-facto action, stem corruption before it arises. While an anti-corruption body is required, there is little good in closing the stable door after the horse has bolted.

The other reason why corruption can wait is because, let me put it honestly, we as a country do not have enough money left to be embezzled. We are now growing slower than developed Asian economies such as Malaysia, and saving little for asset creation. India is now like an ageing man whose income is reducing as he grows weak and has no assets to feed him when he hits the hospital bed. Therefore, what we need is sustainable GDP growth, and then ensure that the coffers, once filled, are not looted again. Growing at 10% is extremely feasible, as Mr Barton said, so let us gain the lost ground first. More than 150 million Indians will need jobs in the next ten years, we created just 52 million over 2005-2012. As a CRISIL report says, we need to revive our manufacturing sector, or else 12 million people will have to shift to low-end, farm employment for feeding themselves. Are we ready for the challenge?