India 2050: A Roadmap to Sustainable Prosperity
Publication Year: 2014
Can India achieve a high-income status by 2050 when it celebrates the centenary of its Republic?
Will the nation eliminate absolute poverty and improve its human development record?
This book emphasizes the centrality of a trade-oriented services sector led by communication, business services, health, education, research, and innovations for achieving these growth targets. It also argues that inclusiveness, financial prudence, and low-carbon lifestyles are preconditions to long-term growth.
India can achieve such prosperity neither through the socialistic policies of 1950–80 nor through the neo-liberalistic policies since 1980. It needs to, instead, follow a middle-path approach closer to the systems adopted by Germany and the Nordic countries. It is within this framework that India will devise its independent development paradigm rooted in its own traditions and realities.
- Front Matter
- Back Matter
- Subject Index
- Chapter 1: Ending International Income Apartheid in the 21st Century
- Chapter 2: India's Growth Story: A Basis for Confidence but in Need of Course Correction
- Chapter 3: A New Paradigm for Sustainable Prosperity
- Chapter 4: Growth Prospects: Downside Scenario and Preferred Scenario
- Chapter 5: Export-Oriented Knowledge Economy for Sustainable Economic Prosperity
- Chapter 6: Ensuring Social Sustainability of Prosperity
- Chapter 7: Financially Sustainable Resource Mobilization
- Chapter 8: Making Prosperity Ecologically Sustainable
- Chapter 9: Toward Decentralized Knowledge-Centric Cities in Prosperous India 2050
- Chapter 10: Getting the Government Do Its Duty of Providing Public Goods
- Chapter 11: Some Overarching Themes
- Chapter 12: India at Crossroads
Copyright © Ramgopal Agarwala, 2014
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[Page v]Dedicated to my grandchildren
Saachi, Nathan, Rosemala, Nadia and Felix
In the hope that they will see the realization of my dreams for India
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List of Tables[Page ix]
- 1.1 Per Capita Incomes (1990 international $) 7
- 1.2 Toward Convergence in the Western World, 1950–2005 8
- 1.3 Mixed Success in Income Convergence in Non-Western World, 1950–98 9
- 1.4 Per Capita Growth (% year on year [YoY]) Relative to the US 11
- 1.5 Output Per Worker (constant 2005 international $) 12
- 1.6 China's Growth (assuming steady reforms and no major shocks) 15
- 1.7 Population Prospects of Developed Countries (millions) 17
- 2.1 Per Capita Income Levels in 1950 (in 1990 international $) 24
- 2.2 GDP (constant $2000 in billions) 32
- 2.3 GDP, PPP (constant 2005 international $ in billions) 36
- 2.4 Macro-economic Spurt during FY 2004–08 38
- 2.5 Exports of Goods and Services and Capital Inflows, FY 2003–08 ($ billion) 40
- 2.6 GDP at Factor Cost, 2004–05 Prices (annual % change) 42
- 2.7 Performance on Inflation 43
- 2.8 Consumer Prices (annual % change) 43
- 2.9 Combined Deficits of Central and State Governments (% of GDP at market prices) 44
- 2.10 Market Capitalization of Listed Companies (% of GDP) 45
- 2.11 Factor Incomes (% share) in Net Domestic Product 48
- 2.12 Poverty Ratios in India 49
- 2.13 Selected Development Indicators: Brazil and HICs in 2010 57
- 4.1 Sectoral Pattern of GDP Growth, 2001–2010 76
- 4.2 Projections of India's Population and Dependency Ratios, 2010–50 79 [Page x]
- 4.3 Saving and Investment (% of GDP), 1960–2009 82
- 4.4 Downside Scenario: GDP Growth Rates (annual %) in Growth Drivers 85
- 4.5 Downside Scenario: GDP Growth Projections (% growth rate per year) 89
- 4.6 Sectoral GDP Growth Rates (annual %) in Preferred Scenario 92
- 4.7 Annual Rate (%) of Increase/Decline in Fixed Capital Formation in Agriculture 93
- 4.8 GDP Growth Rates (annual %) in Drivers, Drivens, and GDP 98
- 4.9 Real GDP Growth: Five-year Period Averages (% per year) 101
- 4.10 Projections by Goldman Sachs (2007) 102
- 4.11 GDP in PPP (constant 2009 US$ billion) 103
- 4.12 India: GDP in Trillion 2009 PPP US$ 104
- 4.13 Growth Projections in Two Scenarios (GDP per capita PPP$ in 2050) 105
- 4.14 Calculation for Human Capital for 2009–10 107
- 4.15 GDP Growth Rates to 2050 (% annual) 109
- 5.1 The Cultivable Young Minds in India and China, 2010–50 114
- 5.2 Indicators of Educational Performance: India, China and OECD HICs 120
- 5.3 Research Input and Outputs: India, China and the US 122
- 5.4 Public Expenditure on Education (as % of GDP) 124
- 5.5 Higher Education by Type of Management 126
- 5.6 Expenditure on Education Per Student as Percent of GDP Per Capita (2007) in OECD Countries 150
- 6.1 Downside Scenario: Population, Labor Force, Employment, and Dependency Ratio 158
- 6.2 Growth in Labor Force and Employment during 2010–50: The Preferred Scenario 161
- 6.3 Sectoral Employment Level (in millions) 163
- 6.4 Sectoral Shares of Employment in High-Income Countries 164
- 6.5 Health Indicators in India and Bangladesh 171
- 7.1 Saving and Investment (% of GDP) in India, 1960–2009 181
- 7.2 GDP Growth and Capital Formation in Selected Asian Countries, 1960–2009 182 [Page xi]
- 7.3 Fixed Investment Requirement (as % of GDP) during 2010–50 (average for decades) 182
- 7.4 External Balance on Goods and Services (% of GDP; Average of the decade) 183
- 7.5 Ratio of Investment to GDP (% in current prices) 185
- 7.6 Savings as % of GDP (in current prices) 187
- 7.7 Trends in Composition of Gross Financial Assets of Households (%) 189
- 7.8 Estimates of Economic Subsidies, 2008 (% of GDP) 191
- 8.1 Non-replicability of the Current Resource Consumption Pattern of High-Income Countries 195
- 8.2 CO2 Emission and Carbon Intensity of GDP in HICs and India in 2050 197
- 8.3 GDP Growth and CO2 Emission in India 2008–50: The Preferred Scenario 199
- 8.4 Projected Greenhouse Gas Emissions for India in 2020 with 9% GDP Growth and Aggressive Effort 202
- 8.5 CO2 Emission Space and Sources of Energy in India 2050 208
- 8.6 Capacity and Power Generation of Non-solar Sources of Clean Energy 209
- 8.7 Automobile Domestic Sales (thousand vehicles) 213
- 8.8 Income Elasticities of Demand for Transport in India 214
- 8.9 Calorie Consumption (kcal/capita/day) 224
- 8.10 Trends in Meat Production in India, China, and the US 227
- 8.11 Trends in Per Capita Consumption of Calories 228
- 8.12 Per Capita Availability Per Day (grams) in India 228
- 9.1 Rural–Urban Distribution of Population, 2011–50 244
- 9.2 Per Capita Investment Cost in 2009–10 Prices (₹) for 1C Cities in India 267
- 10.1 Share of General Government (% of GDP) 286
- 10.2 Rank Country e-Government Development Index 290
- 10.3 Gujarat: Key Indicators of Development, 2000–01 to 2010–11 312
List of Figures[Page xiii]
- 5.1 Number of Students Attending Schools 147
- 5.2 Rural vs Urban Enrollment 147
- 5.3 Educational Expenditures as Percentage of GDP 149
- 5.4 On Enrollment in Rural Population 153
- 5.5 On Enrollment in Urban Population 153
- 8.1 A Schematical Summary of the Amount of Food Produced, Globally, at Field Level and Estimates of the Losses, Conversions and Wastage in the Food Chain 225
List of Boxes[Page xv]
- 2.1 The Financial Times on Crisis of Capitalism 59
- 5.1 Examples of Bold, Highly Successful Initiatives that Need to be Scaled up Throughout India 118
- 5.2 Finland: A Role Model for School System 139
- 6.1 Denmark's Flexicurity System 159
- 6.2 Singapore's Central Provident Fund: A Multi-Faceted System for Social Security 168
- 8.1 Potential of Solar Energy in New York 210
- 8.2 European Cities Adopt Anti-Car Policy 217
- 9.1 Some Success Stories of Building Sustainable Cities 247
- 9.2 Some Success Stories of Urban Infrastructure Service Provision in India 258
- 10.1 The Money Culture 296
- 10.2 European Guidelines on Political Finance 299
- 10.3 Quotes from Jeffrey Sachs on Importance of Morals for Capitalism 305
- 10.4 Thus Spoke Swami Vivekananda 308
- 12.1 Jeffrey Sachs on America's Economic Crisis and the Way Out 325 [Page xvi]
India 2050 is the culmination of more than two years of intensive research and a series of stimulating interactions on where India will and should be when it celebrates the 100th anniversary of the Republic. Ramgopal Agarwala, its author, is an accomplished economic thinker and scholar, who brings a wealth of experience in the academic and professional fields to bear on this very cogently argued and rigorously researched volume. Successive drafts were subjected to intense brainstorming sessions at the Research and Information System for Developing Countries (RIS), where Dr Agarwala served as distinguished fellow for several years. The result is a compelling vision of an India which is affluent but also ecologically sustainable.
It has been clear for quite some time that traditional models of economic growth which are resource intensive and waste-generating are no longer viable. We need a different concept of what constitutes a high standard of living. People want development. They aspire for a good life. But they also want fresh air to breath and clean water to drink. They want to see green vistas around them. Nature is a source of nurture, not a dark force to be conquered and subdued. Therefore, we need to articulate a vision of India which once again aligns with the eternal verities of Indian civilization, verities which teach us not to take from Mother Earth more than her capacity to regenerate and support the livelihoods and well-being of future generations.
Dr Agarwala has spelt out the ways in which India may be able to achieve its dream of becoming an affluent nation, but with the frugal and efficient use and reuse of our limited resources. Intertwined with his economic model is a strong advocacy of a different value system [Page xviii]that must drive our national endeavour. In the contestation of ideas over the trajectory India must traverse over the next 35 years, Dr Agarwala's book is a most thought-provoking contribution.
In 1963, I came to New Delhi for an interview for Commonwealth Scholarship offered by the UK. During the interview, I was asked what I would like to do in Britain apart from my academic work. I answered that I would like to study in my spare time the secret of success of the British society which enabled a small nation to rule over much of the world for such a long time.
During my stay in England from 1963 to 1969, I was constantly searching for the answer to my question as to what made the British so special. I studied their history and society and observed my teachers, friends, and colleagues as closely as I could. But despite my earnest search, I could not find the secret of the British success. My teachers in Manchester University were very good but not superior to my teachers in Calcutta University and Presidency College either in scholarship or dedication. Nor was there anything specially laudable about my British friends and colleagues. In their work habits, sincerity, and intellect, they were no better than me or the average of students from India or other developing countries.
In 1969, I moved to North America, first to Canada and then in 1971 to the World Bank in Washington, DC. Here again, I failed to find anything intrinsically superior among Americans. The experience in the World Bank further confirmed my belief that Indians were on average as good as any western group. The World Bank was largely a meritocratic institution where staff from all over the world would compete on the basis of merit and would be occupying senior positions. The hard work that World Bank staff would put in was impressive, but that was shared by Indians as well as others from both developing and developed countries. There were many colleagues from Africa, Arab world, Iran, Pakistan, Bangladesh, and other developing countries who rose to senior positions and were on average just as good as colleagues from the [Page xx]North. In my 30 years in the US, I admired the US public for their hard work and sincerity but here again, I could find no basis for assuming any intrinsic superiority of the Americans over Indians.
During my trips to India during the long period of work abroad (1963–96), I would try to see if there was any explanation for lower incomes of my compatriots in terms of their competencies. I invariably found that my friends, relatives, and colleagues were just as competent in their respective fields as my western friends and me.
From all this experience, I could say without the slightest hesitation that one-on-one Indians were as good as any in the western world.
With that perception, it was puzzling to see that not only was India desperately poor compared with the West, but the income gap was widening. It was painful to hear Robert S. McNamara, the eminent president of the World Bank deliver a speech in 1977 where he demonstrated with some convincing numbers why closing the income gap between developed and developing countries was not a realistic goal and in fact a recipe for needless frustration. It was also painful to see many Indians talking of inherent weaknesses in India which will keep us relatively poor for a long time. It was also disheartening to see many places in India which looked the same as they were some 60 years ago in my childhood.
In this context, my work on Korea during 1978–83 was uplifting. Here was a poor country, earlier described by many westerners as basket case that was growing considerably faster than the developed countries and the country seemed all set to become a developed country within a generation. There was also the example of Japan, which had by then caught up in income with the West and was being presented as No. 1 even by western scholars. And then came my experience of China from 1991 onward, which with a billion people were developing at a pace never experienced before in either East or West and which looked like set to surpass the US within a generation. In these countries again, I looked in vain for any special characteristics that will differentiate them one-on-one from my compatriots. At a personal level, I worked shoulder to shoulder with many Japanese, Koreans, and Chinese in the World Bank, Asian Development Bank, and elsewhere. And with all humility and with best of efforts to find some special virtues in East Asians, I could find none that will put them in a class apart from Indians. So if East Asians can catch up, why not Indians?
So as the new century opened up, I was delighted to see that India was joining the catch-up game. In fact, it was interesting to see that since [Page xxi]1980s, growth rate in India's per capita income was faster than any other group of billion people except one, China. Having discarded the notion of any fundamental deficiency in India at individual or collective level, I decided to investigate the theme of what it will take India to catch in income level with the western world.
During my work in the West, I was impressed by the power of market and prices as a force for equalization of incomes by giving precedence to competency over privileges originating in color or creed. I became an admirer of Adam Smith for articulating the power of markets for delivering on common good. In 1983, I wrote a piece for the World Development Report of the World Bank demonstrating how countries that avoided major distortions in prices achieved both higher growth and greater equity in incomes. I was however keenly aware that the markets can work efficiently only if they are not captured by vested interests and are guided by certain moral philosophy. And during the 1970s, there were thought-provoking pieces which demonstrated that unlimited growth was not possible in world of finite resources. Both the emphasis on moral philosophy and limitations of natural resources were in tune with the Gandhian philosophy of which I have been an admirer since my college days. I therefore developed in the context of a breakfast group (called Friday Morning Group) in the World Bank a philosophy of the development which I called “Adam Gandhi” philosophy which will combine the Adam Smithian mechanism (of market) with the Gandhian values (of morality and frugality). I argued that this approach could deliver on growth with equity and sustainability.1
This book is essentially an elaboration of the theme of income convergence between nations and within nations while living within the limits of sustainability. I argue that for India, such convergence will be facilitated by movement toward knowledge economy. Knowledge acquisition has to be a dispersed activity more than the physical capital assets and knowledge is non-depletable asset, which in fact grows by use. Thus, knowledge economy has a good potential for generating growth that is equitable and sustainable. Development of information [Page xxii]and communication technology has made trading in knowledge easier and the process of income convergence is working even faster than before. Thus, in the decades to come, we can make steady progress toward income convergence with sustainability provided we overcome the social, political, and institutional constraints preventing the proper working of markets with a moral compass.
While working on the book, I became increasingly aware of these social, political, and institutional constrains in India. I was repeatedly reminded that our society is deeply fractured and the elite middle class is accustomed to a hierarchal society where their comfortable lifestyle presumes existence of large underclass who can serve them at relatively low cost. Giving adequate education to the underprivileged and thereby raising their incomes close to the levels of middle class may deprive them of this low cost service class which they do not wish to see happen. And since they have all the powers of policy making and administration, they may in their interest prevent the spread of education and income convergence within the society. These old vices of the Indian society have now become combined with new vice of imitation of the US lifestyle (along with democracy corrupted and markets captured by the money power), which is perhaps not only unsustainable, but also unhealthy and which many in the western world are trying to move away from. I therefore try to develop in this book the theme I first presented to the Korean authorities in 1979 in commenting on their plans to catch up with the developed countries: We should aim at not where the developed countries are today but where they are trying to go. However, talking to friends and colleagues and observing the shenanigans of the present political leaders, my heart sinks and makes me feel that India of my dreams may well remain just that, a dream. A small middle class at the top may obtain income convergence with the West but with a large section suffering from deprivation. The country as a whole may well be caught in what has been called a middle-income trap.
If that happens, India may continue to have a deeply structured and unequal society within a democratic framework. And because of incompatibility of such inequality with democratic polity, we may have social and political instability of growing intensity. The elite may be imitative on the one hand and oppressive on the other. Our inferiority complex with the West may continue. And this may be compounded by new dominance from our Asian neighbors in particular China. China may well become the largest economy surpassing the US by 2020 and may [Page xxiii]continue its global dominance for the foreseeable future. If India remains a middle-income country with a fraction of China's economic, political, and military power, India's freedom will be compromised not excluding its territorial integrity. China may well treat India like the US did much of Latin America in the last two centuries. The only way we can manage China's rise is by rising ourselves.
Thus, continuation of our present trends may well lead us to the nightmare scenario mentioned above, and that we must try to avoid. There are many examples of such major change in trends in recent history. South Korea looked hopeless in the early 1960s. China in 1978 was worse than India today in terms of its economy, society, and polity. But with concerted efforts, trends were changed in both these countries and so can we in India.
It is in this hope that this book has been written. I believe that there is at least 50 percent chance that India will “Arise, Awake and Stop not till the goal is reached” as Swami Vivekananda told us more than a century ago.
While writing the book, I was constantly faced with the question: Who is the audience of the book? It is not an academic piece trying to add to the volume of analytical work on Indian economy. It is basically a policy advocacy document in the spirit of economic reports of the World Bank where I spent most of my professional life. My intended audience is general public and policy makers. Within the general public, the book is aimed at the middle-class youth in particular. It is the middle-class youth who need to change their attitude toward development. My message of the goal of prosperity, not only personal but also national, is perhaps easy to sell to them. But they need to realize that the national prosperity will be achievable only if they include the backward majority fully in the program for development. They also need to realize that the American lifestyle which many of them are trying to ape is neither feasible nor healthy. The road to prosperity goes through inclusiveness and a low-carbon lifestyle. It is they who have to realize that unless India changes its present ways, it will be bullied by China and they would be the worst sufferers. As regards policy makers, my aim is to make a modest contribution to the work of Planning Commission which is expected to present to the country a vision of long-term development as well as policies and programs to realize that vision
The year 2050 may seem too distant to foresee or to worry about. As an econometrician I am fully aware of the hazards of forecasting, [Page xxiv]both short-term and long-term. Consequently, my approach is not one of forecasting but what has been called “backcasting.” I define the long-term goal of income convergence and try to find out the trends that will enable us to achieve that goal and see how the present trends will need to be bent to achieve that goal. In many areas, policy changes will be needed in near-term if we want to avoid being trapped in the undesirable modes. For example, the issue of low-carbon lifestyle demands that we do not develop unhealthy and unsustainable patterns of consumption and production which will be difficult to correct once they are ingrained. The book argues that for achieving high-income status, we need a knowledge-based economy and for the development of high power knowledge economy, the gestation lag is at least 25 years and we need long-term planning for that purpose. The issue of dealing with China threat also demands near-term action. If we continue on low growth trajectory for a decade or two, we will be losing some of our major advantages in terms of demography and external support and it will be too late to avoid dominance by China. Thus, while our vision is about 2050, actions have to begin now to achieve that vision. China threat and climate change threat are new long-term issues consequences of which will be felt in the long-term, but they demand near-term corrective actions and they have not been fully integrated in our development thinking to date.
The book was finished in early 2014 and it does not take into account the emergence of the new government led by Shri Narendra Modi. However, I believe the contents of the book are very much in line with the new government's vision of development of all with participation of all (Sabka Saath, Sabka Vikaas). I hope that the book will help the new government to prepare its roadmap to that goal.
1 This theme was developed in my essay entitled, “A Harmonist Manifesto for Development: A Hindu Philosophy in Action,” in Friday Morning Reflections at the World Bank, edited by David Beckmann, Ramgopal Agarwala, Sven Burmester, and Ismail Serageldin. Washington DC: Seven Locks Publishing, 1989.
In writing a book like this one acquires many debts, not all of which can be fully recorded. For formation of my values and mindset, my greatest debt is to Ramakrishna Mission Vidyamandira where I studied during my impressionable age of 16–17 and had an opportunity to imbibe the teachings of Swami Vivekananda who preached the message of strength, compassion, and divine potential of human beings. Much of my economic thinking in the book is a continuation of my work in the World Bank and I owe a deep debt of gratitude to the institution and my dozens of colleagues with whom I debated these issues over the years. In particular, I would like to mention Stanley Please, my chief mentor in the World Bank who always encouraged me in my out-of-the box thinking even in a bureaucracy and the Friday Morning Group in the World Bank where we met every week for more than 25 years and did brainstorming on issues of development and spiritual values. In India, I am grateful to Research and Information System for Developing Countries (RIS), which provided me a comfortable and free atmosphere for my work. It was Dr V.R. Panchmukhi who in 1997 invited me to join RIS and who had been a constant source of inspiration particularly for valueoriented economics. His successors Dr Nagesh Kumar and Dr Biswajit Dhar continued to give their full support to my work and the Chairman Ambassador Shyam Saran became a most valuable source of support, inspiration, and challenging questions. He has also been kind enough to write a Foreword for the book. In RIS, a large number of summer interns and research assistants worked diligently with me to collect data and information and make analysis as I wanted. Among them were: Ritadhi Chakrabarty, Rajnish Ahuja, Jaydev Dubey, Shreyoshi Saha, Bhanu Sharma and Dhruv Juneja. Kiran Wagh cheerfully typed and retyped many drafts of the chapters. Sarita Kapoor, in charge of document center at RIS was an indefatigable source of support in collecting information [Page xxvi]and documents. And my colleagues in RIS contributed their comments and suggestions through innumerable seminars and discussions we had at RIS.
Over the years, a large number of friends gave me helpful comments and suggestions on various drafts. The list is too long to be made accurate. Among the names that come to my mind readily are: Nayan Chanda, Prem Garg, Mark Tully, Rajiv Kumar, Nagesh Kumar, Nagy Hanna, Prabir De, Pratima Majumder and Arunabh Ghosh.
I was also lucky to find a supportive publisher and editor who worked with me through various drafts of the book. In particular my thanks are due to Unni Nair, Neha Sharma, Nand Kumar Jha and Dally Verghese.
The greatest debt I owe is of course to my family. In my childhood, I imbibed the value of hard work and honesty from my parents, Dipchand and Laxmi Devi and my elder brother, Mamraj Agarwala. My daughters Chitra and Rina and my sons-in-law Rakesh Nangia and Carsten Stendevad were constant source of support, inspiration, and critical comments on various drafts of the book. My artist daughter Aruna and my ever-lively granddaughter Rosemala always picked up my spirits whenever I felt overloaded with the book.
Above all, it was my wife Bimala who made this book possible. Over the 50 years of our married life, she has been the single most important source of support for my work. Through her unassuming ways, she would always ask pertinent questions and being a more shrewd observer of the world as it is (rather than what I believe it should be), she would always try to bring me closer to reality than I often was. Whenever I felt tired and dejected about the prospect of a book like this, she gave me moral and psychological support.
Introduction[Page xxvii]Ending International Income Apartheid in the 21st Century
The 20th century was a century of political liberation for the South, but a century of growing income divergence. Some began to take income apartheid between North and South as immutable. Such income apartheid is unnatural hangover from colonial era because all nations are endowed with similar abilities and given equal opportunities, there would be income convergence among nations. Fortunately, at the beginning of the 21st century, there is a distinct tendency toward income convergence and it is desirable and plausible to make ending international income apartheid as the economic mission of the 21st century. Among developing countries, China seems particularly well placed to catch up with the developed countries by 2050. The question we address is: What will it take for India to become a developed country by 2050 when it will be celebrating the centenary of its Republic? India's growth performance over the last 60 years has been mixed and the recent high growth trajectory is at risk under the present paradigm. A course correction is needed for India to restore its high growth trajectory and become a high-income country by 2050.India's Growth Story at Risk
At the time of Independence, India was not only a poor country but the poorest among the developing regions with one exception, China. And India's poverty was embedded in long-term trends of low growth. [Page xxviii]On Independence, India adopted socialistically oriented policies, which achieved a break from the past trend of low growth. But India's growth performance remained the poorest among the developing regions with one exception, China. With the rise of neo-liberal paradigm in the West, India also started to move in the direction of market-oriented policies, which received a sharp acceleration in 1991 in the wake of an economic crisis in India and collapse of Soviet Union. With these policies, India's growth performance improved and during 1980–2010, India's growth performance was the best among developing regions with one exception, China.
However, after 30 years of dominance, the neo-liberal era seems to have run out of steam. In the wake of global financial crisis that began in 2008, there is now a widespread recognition of “crisis of capitalism” and search is on for a more “decent capitalism.” In India, neo-liberalism has led to emergence of an indecent capitalism with crony capitalism combined with reckless populism and a grave degeneration of governance. The growth rate has slowed down sharply and there is an atmosphere of economic and social crisis.The Downside Scenario: Road to Internal Deprivation and External Domination
The crisis, however, is not a short-term crisis. It is only revealing the deep fault lines of the neo-liberal doctrine as applied in Indian conditions. If it is continued in the present form, India's long-term growth rate is likely to come down to 4–5 percent per year and India in 2050 will be at best where Brazil is today. There would be high levels of unemployment and mass deprivation with a deeply fractured social structure. By that time, China would have emerged as the largest economy of the world, bigger than all the Western countries put together. With relative economic backwardness and living in a hostile neighborhood, India would come under dominance of China in economic and political matters. India's relation with China may become like Brazil's to the US. Within a 100 years of gaining Independence, India would have effectively lost its independence. That will be a national tragedy and grave betrayal of our freedom fighters.[Page xxix]A Preferred Scenario: Road to Sustainable Prosperity
A better India is possible, provided we give up the defunct doctrine of Washington-inspired neo-liberalism and design a new paradigm for achieving sustainable prosperity. Among the salient features of this new paradigm are the following:
- Focus on achieving sustainable prosperity instead of ritualistic focus on poverty alleviation. Prosperity is defined as achieving, by 2050, the per capita income of developed countries today which, in all probability, will also take care of the problem of mass deprivation and poverty. Sustainability as defined here has four dimensions: Economic, financial, social, and ecological.
- In economic terms, sustainability will require a globally competitive production structure with innovations as a major driver.
- In financial terms, sustainability would require avoiding large internal and external imbalances and controlling speculative finance/casino capitalism with tight regulations.
- In social terms, sustainability will require opportunities for upward social and economic mobility and employment for all as well as avoidance of crony capitalism and transparent, effective, and accountable governance.
- In ecological terms, sustainability will require remaining within globally responsible levels of carbon emission by adopting low-carbon systems of consumption and production.
- With regard to growth drivers, the new paradigm would mean a switch from trade-oriented goods sector to trade-oriented service sector. Goods sector (both agriculture and manufacturing) will remain important parts of the economy, agriculture for food security, and manufacturing for investment, exports, and inputs to other sectors of the economy. However, in numerical terms, most (about 80 percent) of the incremental growth and employment will come from service sector, covering construction, communication, business services, health, tourism, education, research, and innovations.[Page xxx]
- Carbon constraint will be taken not as a burden, but as blessing in disguise forcing us to adopt low-carbon lifestyle, which is healthier, and low-carbon energy system, which will improve our energy security.
- The prosperous India will be largely city centric with cities accounting for more than 80 percent of income, employment, and human resource development. Effective mechanism will have to be created to facilitate a large-scale transfer of labor from rural to urban areas and for conversion of a small percentage of land from rural use to urban use.
- In the new paradigm, provision of public goods (defined broadly to include all four dimensions of sustainability) will play a major role and so will the public sector responsible for provision of public goods. The government will not be seen as “the problem,” but as a major part of the “solution” for development. Within a framework of public–private partnership, public sector will be the senior partner.
The new paradigm will be a departure from socialistic era of 1950–80 as well as from neo-liberalistic era since 1980 and will follow a middle path approach close to the systems adopted by Germany and Nordic countries. While learning from the best in the world, India will devise its own development paradigm rooted in its own traditions.
With the new paradigm, India should be able to achieve gross domestic product (GDP) growth rate of 7 percent per year during 2010–50 and celebrate the centenary of its Republic as a developed country.Trade-Oriented Human Resource Development Strategy: Inclusiveness as Precondition for Sustained High Growth
India's growth will come largely from trade-oriented service sector and for that purpose, a basic transformation of education system will be required. India seems to have a comparative advantage in knowledge creation and knowledge marketing. But this advantage has not been actualized mainly due to three unfortunate characteristics of India's education system: It is imitative rather than creative, protectionist [Page xxxi]rather than competitive, and elitist rather than universalistic. In the new strategy, all these three characteristics have to be changed. Education systems must give up the colonial hangover and design curriculum and training systems in line with India's conditions and requirements. They must be thrown open to competition in a global environment where foreign providers of education will compete with local providers within a clear regulatory framework. Third and most importantly, India will not allow any bright mind to go uncultivated, irrespective of its income, caste, community, or gender background, and access to quality education will be made universal.
The government will have to play a dominant role in creating the foundations of the knowledge economy. Here, we have a lot to learn from Nordic countries and Germany with the provision of education at all levels largely a state responsibility with universal access based on merit. The institutions for post-secondary education including vocational training must be integrated closely with companies dealing with marketing of knowledge products. The power of information and communication technology (ICT) must be utilized fully to share electronically the lectures of high-quality teachers and to keep the costs of higher education manageable. India cannot achieve prosperity unless a high percentage of its work force acquires high skills needed in a knowledge economy and that is not possible unless access to quality education is universal. Thus, inclusiveness in education is a precondition for India's prosperity.Low-Carbon Lifestyle as Precondition for Sustained High Growth
The present trends of carbon emission in the world are clearly unsustainable and sooner or later, all countries including India will have to live within a clearly specified carbon space. If the developed countries succeed in achieving their declared goal of cutting CO2 emission by 80 percent by 2050 and India is committed not to exceed per capita emission levels of developed countries, India can only increase its per capita emission levels by about 1.1 percent per year between 2010 and 2050. Thus carbon space will become a binding constraint on India's growth trajectory. Unless India reduces carbon intensity of its GDP by 90 percent between 2010 and 2050, it cannot sustain GDP growth of 7 percent [Page xxxii]per year. Thus, ecological sustainability in terms of carbon emission becomes a precondition of sustained growth for India.
Fortunately, India has several important avenues for reducing carbon intensity of its growth. First, service sector has lower carbon intensity of GDP than goods producing sectors and since India's growth trajectory would be service sector oriented, its carbon intensity of growth would be lower. Second, in service sector, income generation is largely building oriented and there are now many techniques of low-energy (even negative energy) buildings which will come in handy for India's low-carbon economy. Third, the agricultural sector in developed countries accounts for about 6 percent of CO2 emission while accounting for only about two percent of GDP. This is largely because of wasteful and carbon-inefficient dietary habits of the Western world. India with its tradition low-meat diet can reduce carbon intensity of its agricultural sector by a considerable margin while making its diets healthier. Fourth, the Western countries have developed a private automobile-oriented lifestyle, which is both unhealthy and wasteful in terms of carbon emission and land space. India has an opportunity to follow a wiser policy (similar to Singapore's) by keeping private automobile ownership low (about 150 per 1,000 persons) and facilitating public transport, taxi services, non-motorized vehicles, and walking.
However, with the best of efforts for saving energy, energy needs of a prosperous India will remain substantial. Our analysis shows that the only way India can achieve energy security along with prosperity is by a massive expansion of solar power, similar on a per capita basis, to what European Union (EU) is trying to achieve in its energy Roadmap to 2050. In view of the centrality of solar power for achieving the goal of sustainable prosperity, we recommend setting up of a Solar Energy Commission in India with a high profile and liberal funding comparable to what was done for atomic energy in India in the 1950s.Green Knowledge Cities for Sustainable Prosperity
The prosperous India of 2050 will be city centric: More than 80 percent of employment and income will be generated in cities.
A large part of the story of generating and marketing knowledge achieving equity and low-carbon lifestyle will be played out in cities. [Page xxxiii]These cities will have to be globally competitive to attract the best knowledge workers who would have a global market and they will have to be green cities to live within India's ecological constraints. India's present cities are largely a mess; neither globally competitive in terms of living conditions nor ecologically sound. The efforts of the government for urban renewal have had limited success and they need to be redesigned for better results. Fortunately, most of India's urbanization lies in the future and India has a great opportunity to start urban process in smart fashion with the principle of “new cities, new rules.”
However, the process of development of new knowledge hubs will require conversion of some (about 6 percent) of the agricultural land to urban usage. We have to grow out of our romantic fascination with rural life and rural development. There is no way incomes of rural incomes can be increased substantially while keeping majority of our workers in agricultural occupations. For prosperous India, more than 80 percent of the farmers will have to be resettled in non-agricultural occupations, largely in cities. This will require conversion of some of the agricultural land to urban uses. Such conversion is now taking place in an unplanned manner often benefiting the speculators and creating dangerous bubbles in property prices. If unchecked, these property bubbles can deal a mortal blow to India's growth trajectory just as they did to Japan in1990s and the US in late noughties of this century. A planned system of land conversion is needed for the development of knowledge corridors/hubs in knowledge economy of India. We propose a system of compensation and resettlement of landowners which we believe will be a win-win solution for both the farmers and the public authorities trying to develop new urban hubs.Governance for Sustainable Prosperity
The vision of sustainable prosperity presented in this book will require an activist government. The neo-liberal adage (“Get the Government off your back”) has to be replaced by a new adage: “Get the Government do its duty of providing public goods.” The current government in India is clearly incapable of doing its duty. This is evident from both international and national reports on the quality of governance in the country. Here again, some basic transformations are needed. One major facilitating factor is the development of ICT and e-governance. There [Page xxxiv]are now vast opportunities for improving service delivery, better communication within government and between government and businesses and public, greater transparency and better accountability. With India's widely acknowledged ICT prowess, e-governance should certainly be a major instrument for improving governance in India. Various efforts are a-foot. But unfortunately, on international score board, as prepared by UN reports, India is in a relatively low position. India can learn from high performers in this area such as South Korea and Singapore.
However, the performance of e-governance can only be as good as the administrative system allows. India's administration services are largely in a colonial mode. During the era of freedom struggle, eminent leaders including Jawaharlal Nehru were convinced of the need to change the colonial system of administration in free India. However, after Independence came, it was decided to leave the system largely intact. That decision perhaps helped India to maintain stability that eluded so many other post-colonial countries. However, after 60 years of Independence, Indian polity has attained certain maturity and it is now imperative to change the ethos and functioning of the administrative system. The administrative service has to grow out of “rule” mode and get into “service” mode; the personnel has to acquire some domain knowledge of the functions they perform and they need to be given some stability of tenure to deliver on their duties. Their security of tenure and promotion should also be based on the performance, and their appointments should be open to competition from outsiders. Similar and many other useful recommendations have been made by the Second Administrative Reform Commission and what is needed now is their effective implementation.
Quality of administrative services will depend crucially on the quality and motivations of their political masters. Here, a sharp deterioration has taken place in India. Indian political system has become vitiated by money power and muscle power and winners of elections often openly look into their positions of power as instruments of earning decent rates of return on the election expenses incurred by them and/or their election financiers. Here again, the US with its system of lobbies and election funding is a bad role model for India. India can learn from the European practices of giving constitutional status to political parties and developing a system of state financing of elections. This reform should improve level of probity in the political system.
[Page xxxv]Even with all these reforms, government can do its duty only if the public does its duty in terms of paying the taxes and other charges rendered by the state and following the rules of public behavior as enacted by the state. The society as well as the state must focus more on its duty than just rights and a National Duties Commission may be set up to supplement the Human Rights Commission that we have.
The list of do's for achieving sustainable prosperity proposed in the book is long and given India's recent performance, one may wonder if they could ever be delivered. Fortunately, there are cases in India (such as Gujarat's) which have achieved sustained growth and provided good governance even in India's current conditions. That provides a basis for hoping that with a determined leader armed with a right vision, we can indeed change the current trends in India and put it on a road to sustainable prosperity.Concluding Remarks: India at Crossroads
In summary, this book argues that India is at crossroads. If it follows its present path largely inspired by Washington-based neo-liberal thinking, it will end up in a middle-income trap with widespread deprivation, severe internal social tensions, and possible loss of sovereignty. On the other hand, if it can design a new paradigm based upon its own realities and learning from the cases of more decent capitalism as in Germany and Nordic countries, it can achieve prosperity which is sustainable in economic, financial, social, and ecological terms. In that scenario, India by 2050 will be a high-income country possibly with the largest GDP in the world. In addition, India will be strong politically and militarily, with a high potential to contribute to the development of post-Western civilization in the world.[Page xxxvi]
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About the Author[Page 351]
Ramgopal Agarwala is currently Chairman of Pahle India Foundation, an NGO whose tagline is: Putting India first to make India first. He retired as Distinguished Fellow, Research and Information System for Developing Countries (RIS)—a Delhi-based think tank under the auspices of Ministry of External Affairs, Government of India. Professor Agarwala was awarded the Commonwealth Scholarship for studies in the UK where he completed his PhD in econometrics with his thesis published as An Econometric Model of India in 1970. He was a lead player in building macro-models of the British economy under London Business School (1966–69) and of Canadian economy under Economic Council of Canada (1969–71). After joining the World Bank in 1971, he did macro-models for several countries such as Kenya, Bangladesh, Botswana (1971–80), and was a lead player for World Bank's World Development Report of 1983. Professor Agarwala also developed economic reports on Sub-Saharan Africa and China during 1980s and 1990s. He has authored/edited the following titles:
- An Econometric Model of India, 1948–49 to 1960–61
- The Rise of China: Threat or Opportunity?
- Reforms, Labour Markets, and Social Security in India (co-edited with Nagesh Kumar and Michelle Riboud)