Before I start, we need to know what PROSPERITY is.
Economic (or any other dimension, for that matter) prosperity is a relative term. It means that, overall, the economy is doing well and most people have sufficient income for their needs and perhaps a little extra. It means that businesses are hiring and jobs are relatively easy to get. It does not mean that everyone has a job or that everyone is well off.
One of the essentials for economic prosperity is Economic growth; it indeed is one of the factors that is used as a measure of prosperity. But, in this write-up, I cover other aspects as well, i.e. what all economic and non-economic factors lead to a nations (here, India) prosperity and what is their current status!
The current bottlenecks for India are many – increasing and persistent inflation, loss in exports with imports being almost constant, weak rupee, US’s tapering of QE3 and many more. Indias road to prosperity in 2014 goes through a path that has a lot of milestones to watch out for. To name the major ones:
1) Year 2013: This year began with reforms-monetary as well as fiscal. On 30th January 2013, the Reserve bank of India cut the repo rate and cash reserve ratio by 25 basis point each and pumped INR 1,00,000 crore into the economy, since September 2012 (risking a raise in already high inflation though). Finance minister P.Chidambaram played tough with the fiscal reforms to cover up the widening fiscal deficit. A lot of reforms under the capability of Indian government were brought in without the intention of a rollback-100% Foreign Direct investment in aviation sector, 49% FDI in multi -brand retail sector and deregulation of diesel pricing , capping the number of subsidised LPG cylinders (despite huge antagonism from various stakeholders) . However, an important factor used to measure poverty, i.e., GDP growth was revised down from 5.5% to 5.2% by the RBI even though Goldman sachs presented quite an optimistic picture. They predicted Indias growth to be 6.5 per cent in 2013 (favourable external demand outlook and domestic structural reforms push getting the due credit). If their report is to be believed, then India was likely to pick up a growth rate of 7.2% in 2014 IF govt. continues to play hard.
One of the many hurdles, is to gain investor confidence. Despite the reforms and foreign direct investment, the number of foreign investment proposal is far and few in between. Investor confidence is still low and needs a raise.
Another game-changer in the process of assessing Indias 2014 stature is the February 2013 budget, which is the last before the Lok Sabha elections. Even if the FM Chidambaram has asserted the budget to be a non-populist and reform- seeking one, it is hard to believe that the ruling party will demote its political interest below the nations!
So, as we say, you reap what you sow. To have a smooth road to prosperity in 2014, India needs to work hard in 2013. A lot of structural reforms are needed. Also, fiscal reforms will have an edge over monetary reforms in making the real and stable difference in present case.
2) Population : As per Warren Thompsons Theory of Demographic Transition, India is in the second stage (falling birth rate) and is cashing on its demographic dividend. However, the scale of this benefit received is way less than what it could have been, had there been proper utilisation of human capital and for that matter better development of human capital. With a population of 1.21 billion, literacy rate of 74.04% ,fall in the infant mortality rate- penury is still rampant, employment opportunities still need to be created and a switch from unskilled to skilled sectors is the need of the hour. If Retail giants like Wal-Mart invade the Indian markets then this shift might not be a distant dream. I know that this would also imply loss in the employment rate, but as Swaminathan S. Aiyer says, every transition came with a loss in employment but later saw a rise. Same is the case with Wal-mart.
Crude birth rate as well as crude death rate both have witnessed a decline while avg. life expectancy has increased, i.e., India has a bright future as far as labour force is concerned but still rests in the hand of how the schemes for developing human capital are structured.
Hence, to have a prosperous road ahead it is necessary to work on the most important asset to a country, i.e. human beings. The government still has to open up well functioning schools, hospitals, and revamp the existing ones to have a productive population and not burdensome!
3)Infrastructure: The road to prosperity in 2014 has to pass by this station as well. Since independence, India has added only 10,000 kms to the road channels. There are still many kuchha roads, there are still places where there is no drinking water and there are still places where people have to use ropes to go across the river.
Many Indians lack basic amenities like access to running water. Indian public services are creaking under the strain of bureaucracy and inefficiency. Over 40% of Indian fruits rot before they reach the market; this is one example of the supply constraints and inefficiencies facing the Indian economy.
Hence, to sustain this journey in 2014, Infrastructure in India is yet to flourish, the growth in this sector is sporadic and needs to get uniformly and evenly spread!
4) Happiness index: In the latest report on Gross Happiness index 2012 where 156 countries were surveyed, India has been ranked 94th which is far from satisfactory. If the citizens, the Indians, are not happy or satisfied with their country then calling a country prosperous would be a bad idea. To support the afore-mentioned statement, take the case of China. Despite maintaining its double digit growth rate at a time when other economies were struggling hard to make the cut, recent reports have shown a different angle to this pace of development. 16 out of the 20 most polluted cities in the world are in China, the labour laws are so stringent that instead of the standard 8 working hours people there are forced to work for 12 hours and the administration doesnt lend an ear to dissent. In India too, there probably are a lot of things with which the countrymen are not happy.
5) Removing regional technological disparity: Total Factor Productivity (TFP) growth rates in Indian states have shown great disparity. Among Indian states, technical progress has been the fastest in Maharashtra, in total factory sector as well as in several constituent two-digit industries. Tamil Nadu, Karnataka and Gujarat closely follow Maharashtra in TFP growth rate rankings. On the other hand, Bihar, Kerala, Assam and West Bengal have had very slow rates of TFP growth; TFP growth in Andhra Pradesh and Punjab too has been slow.
Varying degrees in the realization of scale economies and technical progress cause cumulative cycle of growth differences across factory sectors of Indian states: a few states achieve faster output, productivity growth and faster reduction in unit costs, gaining shares in Indias industrial output, and a few other states lose out. Barring a few exceptions, expansion of industrial output in each of these states is faster than the countrywide average; so are labour productivity growth and capital accumulation. These states have reduced unit labour costs in their factory sectors faster than the Indian average. Between 1959 -60 and 1997 -98, shares of all these states in Indias factory sector have increased. Maharashtras share declined slightly, but this should be more on account of the dispersal of industrial activities in this state to other neighbouring regions including Madhya Pradesh and Andhra Pradesh.
In addition to their proximity to Maharashtra and Gujarat, Madhya Pradesh, Andhra Pradesh and Rajasthan have also gained from relatively faster power generation and availability of raw materials for chemicals, petrochemical and basic metal industries. On the other hand, the eastern states, West Bengal (WB), Bihar (BHR) and Assam (ASM), have lost out in this cumulative cycle. Barring a few exceptions, growth of value added, labour productivity and capital accumulation as well as reduction of unit labour costs in these states are lower than the Indian average; and shares of these states in Indias factory sector have fallen. Given our countrys nod of approval to F.D.I., these disparities can be wiped out from the regions by channelized foreign funds proportionately to every region and bringing all the states at par. In 2014, we can look forward to removal of disparity in all these regions and see all regions equally contributing to the countrys GDP.
Last but not the least:
5) Corruption: Indias key to economic growth lies in the removal of corruption. The CWG scam, 2G spectrum scam, Coal allocation scam , numerous account holders in tax haven. If all the amount is summed up, then India can exceed the US in its GDP size and no head shall sleep hungry, as forecasted by Baba Ramdev at one of his speeches at Ramlila Maidan!
Less than a year is left for the Lok sabha elections, the main opposition party has announced its prime ministerial candidate – Mr. Narendra Modi. Party big wigs are busy delivering speeches at numerous rallies across the country. Laws and bills which rested in peace for years are being passed, snap polls are being carried out, and every political figure or organisation is leaving no stone unturned to occupy New Delhi for the next 5 years. However, unless the aforementioned milestones are achieved, conducting elections will be rather redundant.
Hence, the road India has to take, the cuts it has to make to have a prosperous 2014 are quite distinct but the question as always, is whether itll be able to or remain where it is...Strong potential that could never get realised in the best form.”
By Parul Jain
A final year student studying B.A.(Hons)Economics at Daulat Ram college, Delhi University. She likes reading books, articles, or journals on various economic issue with a special inclination towards recent financial crisis and its repercussions. Recently completed her term as a Google student ambassador, She wishes to continue with her interest in economics by pursuing masters in the same and public policy as the main subject.