There are no shortcuts to development
This week, at a press conference organized by the Manufacturers' Association for Information Technology (MAIT)--the trade body of India's hardware industry--officials were talking about how the devaluation of the rupee had hit them hard and how many of their members had been bleeding for the last three months.
Another news article published yesterday talked about how India's services sector grew at a fast pace during May and firms were more optimistic about the year ahead. HSBC's services purchasing managers' index, compiled by Markit, rose almost two points to 54.7 in May from 52.8 in the previous month. It has posted an above-50 growth reading since November, which reflects market expansion.
The index measuring business expectations jumped to a 15-month high of 76.7 last month from 73.8 in April, more than 14 points above its March level.
Activities re-accelerated, new orders came in at a faster pace, and employment continued to increase. As a consequence, businesses are more optimistic about the outlook for the coming 12 months, said Leif Eskesen, an economist at HSBC.
A few days back, news that India' gross domestic product (GDP) growth rate had slipped to 5.3 percent in the January to March quarter had raised concerns within India and overseas. Comparatively, its GDP growth was at 9.2 percent during the same quarter last year
These three different news reports point to one thing: India needs to focus on more broad-based growth. The GDP growth rate must come from all quarters--be it agriculture, manufacturing or the services sector. And policies must be conducive to investments, both domestic and foreign.
All these years, India has focused more on IT and IT-enabled services (ITES). Had the hardware sector set up capacities in India, it would not have to cry hoarse about the currency fluctuations. There are really no shortcuts to real development. A focus on services can only take us this far. From here onward, India needs more reforms, more political stability and more broad-based and inclusive growth.
In 2005, a CII-WEF study that talked about India's growth path till 2025--the year when the country is said to emerge as a superpower--laid out three possible scenarios:
1. Atakta Bharat (or stagnant India): Marked by low growth and a weak domestic economy, India will not be able to sustain its healthy growth rates and collapse back to the Hindu growth rate. This refers to low annual growth rate of the socialist economy of India before 1991, which stagnated around 3.5 percent from 1950s to 1980s, while per capita income growth averaged 1.3 percent.
2. Bollyworld: Stellar growth is achieved in certain sectors, while the rest of India lags behind. Motivated by short-term gains, India fails to invest in long-term opportunities, faltering to growth rates of 6 percent and 8 percent in the future.
3. Pahale India (or India first): This will take India to the elusive inclusive growth, where everyone works toward India's future. Marked by broad-based inclusive growth, this will create a strong internal economy to weather global slowdowns.
India is at a crossroads today, with these three paths in front of her. The news about policy fatigue indicates that India will take the Atakta Bharat path and not the Bollyworld or Pahale India routes. How unfortunate will that be? One can only hope that the policymakers take these indicators as a wakeup call.