Sunday, December 26, 2010

Growing at 12% per annum....

For many years now India has been growing at 8-9% per annum. Further, there is expectation that this growth rate will soon rise to 10-12% per annum and sustain there for a couple of decades. If this were to happen, India would be transformed in less than 10 years. India would be in the top 3 countries in the world by GDP after the US and China.

What is often not understood is that its relatively very easy for India to go to 10-12% growth rate. To  understand this better, lets first try and break up the overall GDP growth number into its components. I dont want to go into the traditional break-up: Agriculture, services and manufacturing. The story is better understood if its broken up into "poor performing states" and "better performing states". The story goes that the poor performing states have traditionally pulled down India's a Bihar, MP, Chhatisgarh, Jharkhand, UP, Orissa, WB have typically grown at 2-4% per annum while the rich states like those in the North, West and South of India have typically grown at between 8-14% per annum. Gujarat has been growing at a rate faster than China's for the last 15 years....Well, the good news here is that in the last 5 years, most of these poor performing states have really got their act together. So Bihar has been growing the fastest at 12% and at the other end, even UP has grown at 6% over the last 5 years. The impact of this growth on the national GDP has been profound. India's national growth climbed to 9% from a low level of 5-6% during the NDA regime primarily as a result of the improvement recorded by the earlier poor performing states.

Having come to 9%, why am I saying that its relatively easy for India to go into the10-12% region? Because, there is another interesting way to dissect this 9% growth. Lets divide this up into contributions from "private sector" and "public sector". Actually, I dont really mean the public sector. What I really mean is the "government". My theory is that if only the government got its act together, that alone would life India's GDP growth to 10-12%. Here's what I mean.

Look around you. Whatever....almost whatever.....has improved around you in the last 20 years is on account of the private sector. Whether it is the quality of automobiles, houses, malls and multiplexes, availability of food items, electronics.....everything has come from the private sector. Truly, the private sector has performed well. But whatever goes into the government domain has lagged behind. Quality of roads, the drainage system, electricity, pollution control.....even education and population control....have all lagged behind. So primary education has lagged behind, but privatized college education has blossomed. So a beach will normally remain very dirty....but when it is handed over to the private sector, it will be well maintained.

The only successful initiative the government has taken has been what is called "PPP".....Public, Private, Participation. So the government gives out the contract to private companies who "build, operate and transfer" the infrastructure. Whatver progress has happened in the government sector has again happened because of the private sector.

Just imagine what could happen if the government got its act together. Like in China. Incidentally, the bulk of Chinese GDP growth comes from the government sector. Even today, more than 85% of Chinese GDP is accounted for by government companies. Imagine if India's governance standards could go somewhere close to the Chinese government's.

This wont happen unless the politicians are held accountable for the work they do. People must stop voting for parties that dont deliver growth. But this is already happening. Look at the 2nd terms that the CMs of MP, Chhatisgarh, Bihar have got. Even the Congress government at the center got a 2nd term. Clearly, the people of India are ready for higher growth. The other important role has to be that of media's. So media has to be on its toes and expose politicians who do not do work. Please note: I am shifting the responsibility of media from one that monitors corruption to one that monitors growth. There is a huge difference. What we need right now is focus on growth. That alone will mitigate the corruption in this country.

The next 2 decades are clearly India's. The truth is that India has grown so much only because of the private sector. The truth also is that if governance improves, nothing can stop us from hitting 12% in the very near future!


  1. Nice. But perhaps a bit too simplistic? Or is it really that simple?

  2. It is a very constructive way of looking at matters - Focusing and encouraging the positives of the government (as in the case of Nitish Kumar). When you say, "My theory is that if only the government got its act together, that alone would life India's GDP growth to 10-12%. ", are you not essentially saying that the monies allocated to any government project should be used only for that - which translate to professionalism and NO corruption?

    I believe that it is correct for the media to point out the corrupt practices (which never came to light, say even 5 years ago) hence ensuring these ministers do not get elected again. Having said that, it is also essential to "sensationalise" the work done by good ministers and hence establishing the standard for everyone to follow.

  3. Well Archana.....the reason I am not so focused on corruption right now is that its a beast that's existed for a 100 years. We are growing at 9% in spite of that beast. We can grow at 12% also in spite of that beast. Lets get that done first.

    On corruption, my view is that we should look at the future. We should declare a moratorium on the past....and suggest that we will not tolerate any corruption from the 1st of Jan 2011....or maybe even later. Basically, forget what happened in the past. Set a new timetable and then media should focus on that.

    Double Dolphin: It's indeed that easy! Did you know that the 9% growth we have now achieved is in spite of no major reform in the last 5 years? Its only because of the fact that the poor performing states have taken advantages of the reforms of the 1990s.

  4. While I truly agree to your premise that it is the poor performing states(read BiMaRU markets) that will engine the propulsion from 9% to 12% if they grow at a better rate plus the government machinery has to put its act together too!

    But Prashant I believe the private sector's efforts in giving us the "improved" lifestyle has come to us at a cost!
    Picture this, you mentioned blossoming private colleges, we know this is a sham 'cos everyday you come across kids from middle class households who forked out 5 lakhs of their parents' hard earned money for a sub average B school which then vanished off the map once it made a quick buck. I specifically know of 2 such cases. Dentistry schools get you an admission for your kid,if you can pay them 12 lakhs upfront in a state like Gujarat, last month I came across a Pharmacy College Dean who was a mere BCom.
    Picture this where will the middle aged execs go if their hardworking babu parents who worked out their lives in a government job didnt have their savings put up for them? THIS IS A FACT!
    So the point I am trying to make is we are growing but at a cost to ourselves. Ask that poor middle manager who slogs himself in a telecom company, who are we pushing so much and in the end to achieve what???? Its upto the companies as well to project rational growth without disturbing the mental fabric of any of its stakeholders as small as a executive to its Executive Chairman!
    I hate this story of growth that Corporate India seems to talk about despite being well aware of the fact that the work life balance in most organisations in India is a joke, again if this is the grim situation at 9%, we will be only more maniacal at 12%!
    Kids dont learn history, nuclear families buy maternal care with money, old age homes are on the rise, while China grows "peacefully" at the cost of millions of its rural population who are being forcefully migrated, what will the India story be like?
    I am scared!!
    If Corporate India continues to scream growth without thinking about the softer aspects viz. its impact on society through its own stakeholders which it is cultivating either for the good or the bad & how retail therapy is becoming an evil not required under the guise of putting money into the economy, i think we need to tread carefully, we cannot possibly walk on human carcasses just to have a sexy skyline in our adjacent street!!

  5. Hi Prashant,

    Nice blog.

    I think we can achieve 12% growth in next five years.. I have been in Orissa last week.. I saw Bhubaneshwar, Cuttak and Puri (Tier 4 cities) are developing very fast.. Rural Orissa is same as BIMARU States.. but there is a progress.

    No government will afford to lose single day without any progress (no stirs, no deadlock in parliament, etc).. The opposition and media should have to be with the development; not against. We need to focus more on development than scams & corruptions..

    Till 90s, we (our parents) used to work for the surviving, now we are at next step – Purchasing (or Spending!).. India has internal demand (purchasing power) to boost our economy. E.g. My bro has a small mobile shop in the small town of Bhavnagar District.. He was able to sell the cell phones of worth of 6 lakhs in one month even though he has a strong competition of 90+ mobile shops in the town..

    Yes. We need the PPP model for all projects.. even in education.

    Jash Valaki

  6. Boy, check your statistics, will you? Madhya Pradesh has been growing at around 7-9% p.a. since the last couple of years... The 2-4% that you're claiming is a decade-old data! Oh, and JFYI, I don't work for the BJP.