I . Introduction — A new multipolar world
The economic crisis of 2008 will certainly prove to be a landmark—it belongs to the category of events that separate “before” from “after—as were 1929, or 1991. After 1929 our understanding of the functioning of markets and role of governments was never the same.
The world changed again in 1991 when the “second world” disappeared with the fall of the Soviet Union and we ceased to think in terms of two competing economic and political systems.
The 2008 economic crisis will no doubt prove to be another such watershed. India and China, together with other East Asian countries and even Sub-Saharan Africa, helped anchor the world’s faltering economy.
The crisis accelerated the relative shift in power—the developing world’s share of global GDP in purchasing power parity terms has risen from some 33% in 1980 to 43% in 2010.
In this, Asia’s share alone stands at 21%. And Asia’s stock markets now account for almost a third of global market capitalization, ahead of those of the US and Europe.
The financial crisis also made it clear that emerging economies need to be involved in decisions affecting the global economy. In the formulation of a response to the economic crisis the G7 evolved into the G20.
In this new multipolar world, India has clearly emerged as a key player. While scenarios differ on whether India will overtake China in terms of growth rates, there is no doubt that India will be one of the powerhouses of this century.
II. Two Indias
India’s global profile is rising—from a slow-growing poor country to a burgeoning economic power:
· India grew fast before the crisis–9% per year–and has resumed fast growth–8.6% post crisis.
· India is globally recognized as a key player in the IT revolution, and in sectors as diverse as pharmaceutical, cement, steel and space
· Indian nationals hold key positions in corporations, academia and policy making worldwide
· India has acquired a prominent voice in global fora; it is playing a historic role in fostering South-South exchanges and has an influential position in the BRICs.
But there is also another India:
· India’s GNI per capita ($1170) is lower than that of 161 other countries. World Bank’s poverty numbers show 456 million people in India are poor—about one-third of the world’s poor, and more than in all of Sub-Saharan Africa.
· India lags significantly on health and nutrition targets: It is home to half of world’s underweight children, and it accounts for 1 in 5 maternal and child deaths worldwide.
· Social exclusion remains a stark reality—Scheduled Tribes lag twenty years behind the general population, Scheduled Castes ten years; gender norms can be quite restrictive and gender gap persists in realms such as child mortality and labor force participation.
If India is to play a crucial role in the new multipolar world—as an engine of growth, as a provider of knowledge, as an example of social and economic transformation under democratic auspices—it will need to close the gap between these two realities.
Closing the gap will require addressing some key challenges in the areas of infrastructure, agriculture, education, gender, and governance.
III. Infrastructure: Address institutional constraints to public provision
9% growth hides an infrastructure crisis. Innovation in the private sector has often got around this—60% of firms and a large percentage of homes rely on back-up generation, and on an industry of logistical firms. But this has costs, and sooner or later infrastructure constraints will bite, and growth will slow, absent major change. This is especially true in urban areas.
PPPs are often hailed as a solution. Private participation in infrastructure took off in the early 1990s in telecoms and power supply. Highway, port, and airport concessions began to emerge in the late 1990s, with water supply and solid waste management following.
In the 1990s Latin America had major infrastructural gaps, and PPPs were thought to be the solution (including by the World Bank). But gaps were effectively closed only in telecoms (which was not an issue for India) and in Chile (a small country with by far the best governance to manage private sector involvement). Elsewhere, there was insufficient private involvement, or private involvement that was high cost, often corrupt, and with frequent renegotiation to extract better deals from the state and society.
The lesson is that improving governance, and solving institutional problems, is unavoidable to improve infrastructure provision, and is necessary for effective private involvement.
IV. Agriculture: Feeding India and the world
The challenge here is so well-known. India has enormous untapped potential—productivity in Eastern states, for instance, is well below what it is in Punjab, and sustainability is an issue in states like Punjab.
The policy reforms that are needed to increase agricultural productivity have been discussed extensively—infrastructure provision; subsidy reform; marketing reforms, a more predictable regulatory environment to encourage private sector initiative, to name a few—and both the union government and some states have taken important steps, such as in building rural roads. But much more needs to be done. Higher productivity in India is essential to feed India and feed the world.
V. Education: Focus on results, not inputs
The two Indias are very visible in education: Graduates of India’s famed Institutes of Technology literally drive growth. But basic and secondary education are dismal.
In fact, even in tertiary education quality is in islands of excellence, not widespread. The demographic dividend can turn into a demographic curse if the millions of young people entering the labor market every year are not equipped to take up the jobs that a fast-growing economy can create.
There has been progress in enrollments, including of girls, and this should not be overlooked—it is an impressive achievement. But the issue is quality. The evidence (for example from the Annual State of Education Report) is that quality remains extraordinarily low and has not improved in the last five years, despite big increases in the inputs going into the system.
The Right to Education is a great aspiration—but it only tackles part of the agenda. It is weak on the quality issue, and is primarily input-focused. Getting better school facilities is a good thing, but will have little or no impact on quality.
Indeed requirements on meeting the curriculum may make it more difficult to improve quality, since teachers may strive, not to raise competencies based on where children are, but to stick to the curriculum.
The imposition of infrastructural and teaching norms on the burgeoning private system could also be highly costly, since it could make the low-cost private schools unviable or push them into illegality or resort to bribing school inspectors for licenses.
The private sector is no panacea—its quality is only slightly better than that of the public sector. But the answer should be to work out ways to support the quality agenda there too, not impose top-down input standards.
The pedagogy for tackling basic education is known—and tested in the field—but the incentives now are not there. This is also an institutional problem.
VI. Gender: Growth alone is not enough
Women have gained in India—more girls going into school, benefiting from the progress in poverty reduction. But historically-shaped gender disparities are still important, especially in Northern India, and are both a burden on girls and women and a lost resource for social and economic change.
Three areas merit attention:
· As everyone knows, the provisional 2011 Census report shows a sex ratio for children 0-6 at 914 females per 1,000 males, the lowest since Independence, and declining since 2001 in all but seven states.
Rising prosperity doesn’t deliver for girl children. This happened in China and Korea also—sex ratios in highly patriarchal societies initially worsened with rising prosperity. This needs to be tackled head-on.
· There are also many “missing women”—relative to what one observes in countries with low discrimination—in older age groups, as observed in the forthcoming World Development Report on Gender Equality and Development.
The main explanation appears to be that general institutional weaknesses in public health, water and sanitation and health systems hurt women more in countries where there is more subtle discrimination.
Maternal mortality is part of this story—Indian women have a 1 in 70 chance of dying during childbirth, compared to 1 in 280 for Vietnamese women and 1 in 1400 for Chinese women!
Early marriage also contributes—about 60% of Indian women are married by the time they turn 18 and almost 25% have had their first child by then, compared to only 4% in Vietnam. This has serious health implications.
· A major issue concerns the role of the political system in bringing about change. There are very few women in national politics.
Yet evidence from reservations in panchayat finds
(a) that women panchayat leaders lead to different local choices over public goods (against the view that they would be puppets of their husbands) and, even more significant,
(b) men who experience women leaders significantly change their view and are more likely to vote for women when there is no reservation. Countries have experimented with various mechanisms to increase the representation of women in national politics, but seldom has this happened automatically.
VII. Governance: A domestic as well as international agenda
Most issues come back to governance and institutions.
Governance ranks as high on the international agenda, as it does on the political agenda in India. Governance is not only an issue to be left to law enforcement agencies; it is by itself a major development challenge and needs to be addressed as part of any development strategy.
Not only because it affects primarily the poorest and most vulnerable but because misgovernance or corruption undermines the effectiveness of public policies, the proper targeting of social programs, the quality of service delivery, the exercise of fundamental rights, etc.
India’s public discourse is focused on these sets of issues at this time. Approaches and solutions that have been spelled out by senior policymakers are welcome and in the right direction.
Several states in India are also innovating on governance and that these innovations are often mainstreamed at the national level. This dynamics is extremely promising. The Public Services Guarantee Act, enacted in Madhya Pradesh by which civil servants are to be sanctioned for unwarranted delays in the provision of public services such as a power and water connections, or the granting of legal documents and social allowances, is a promising incentive mechanism towards improving service delivery.
As much as India can contribute to the international agenda on governance, it can also benefit from it.
Grand corruption is increasingly international, as it involves illicit international financial flows, sophisticated financial schemes, tax evasion, money laundering, and the theft of public assets.
It can hardly be dealt with unilaterally and requires a high level of cooperation between defrauded countries and recipient ones for effective legal action. Grand corruption and security are also closely related which is why India recently joined the Financial Action Task Force on money laundering and combating terrorism.
VIII. Conclusions
India is playing a progressively larger role in the new multipolar world we inhabit. Other countries increasingly look at India as an engine of growth, a source of knowledge, and an example on how a pluralistic society evolves over time.
Dealing with the challenges outlined here—addressing institutional constraints to better deliver infrastructure and quality education, spur agricultural productivity increases, fully include women in the development process, and strengthen governance, which in the end will translate in a wealthier, more equitable India in 20 years—calls for political will and commitment. But it can be done. India has shown itself to be capable of momentous transformations.
India has so much to share with other developing countries and indeed the whole world can learn from India. It is time India asserts its role in a multi-polar world.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.
Globally, around 80% of wastewater flows back into the ecosystem without being treated or reused, according to the United Nations.
This can pose a significant environmental and health threat.
In the absence of cost-effective, sustainable, disruptive water management solutions, about 70% of sewage is discharged untreated into India’s water bodies.
A staggering 21% of diseases are caused by contaminated water in India, according to the World Bank, and one in five children die before their fifth birthday because of poor sanitation and hygiene conditions, according to Startup India.
As we confront these public health challenges emerging out of environmental concerns, expanding the scope of public health/environmental engineering science becomes pivotal.
For India to achieve its sustainable development goals of clean water and sanitation and to address the growing demands for water consumption and preservation of both surface water bodies and groundwater resources, it is essential to find and implement innovative ways of treating wastewater.
It is in this context why the specialised cadre of public health engineers, also known as sanitation engineers or environmental engineers, is best suited to provide the growing urban and rural water supply and to manage solid waste and wastewater.
Traditionally, engineering and public health have been understood as different fields.
Currently in India, civil engineering incorporates a course or two on environmental engineering for students to learn about wastewater management as a part of their pre-service and in-service training.
Most often, civil engineers do not have adequate skills to address public health problems. And public health professionals do not have adequate engineering skills.
India aims to supply 55 litres of water per person per day by 2024 under its Jal Jeevan Mission to install functional household tap connections.
The goal of reaching every rural household with functional tap water can be achieved in a sustainable and resilient manner only if the cadre of public health engineers is expanded and strengthened.
In India, public health engineering is executed by the Public Works Department or by health officials.
This differs from international trends. To manage a wastewater treatment plant in Europe, for example, a candidate must specialise in wastewater engineering.
Furthermore, public health engineering should be developed as an interdisciplinary field. Engineers can significantly contribute to public health in defining what is possible, identifying limitations, and shaping workable solutions with a problem-solving approach.
Similarly, public health professionals can contribute to engineering through well-researched understanding of health issues, measured risks and how course correction can be initiated.
Once both meet, a public health engineer can identify a health risk, work on developing concrete solutions such as new health and safety practices or specialised equipment, in order to correct the safety concern..
There is no doubt that the majority of diseases are water-related, transmitted through consumption of contaminated water, vectors breeding in stagnated water, or lack of adequate quantity of good quality water for proper personal hygiene.
Diseases cannot be contained unless we provide good quality and adequate quantity of water. Most of the world’s diseases can be prevented by considering this.
Training our young minds towards creating sustainable water management systems would be the first step.
Currently, institutions like the Indian Institute of Technology, Madras (IIT-M) are considering initiating public health engineering as a separate discipline.
To leverage this opportunity even further, India needs to scale up in the same direction.
Consider this hypothetical situation: Rajalakshmi, from a remote Karnataka village spots a business opportunity.
She knows that flowers, discarded in the thousands by temples can be handcrafted into incense sticks.
She wants to find a market for the product and hopefully, employ some people to help her. Soon enough though, she discovers that starting a business is a herculean task for a person like her.
There is a laborious process of rules and regulations to go through, bribes to pay on the way and no actual means to transport her product to its market.
After making her first batch of agarbathis and taking it to Bengaluru by bus, she decides the venture is not easy and gives up.
On the flipside of this is a young entrepreneur in Bengaluru. Let’s call him Deepak. He wants to start an internet-based business selling sustainably made agarbathis.
He has no trouble getting investors and to mobilise supply chains. His paperwork is over in a matter of days and his business is set up quickly and ready to grow.
Never mind that the business is built on aggregation of small sellers who will not see half the profit .
Is this scenario really all that hypothetical or emblematic of how we think about entrepreneurship in India?
Between our national obsession with unicorns on one side and glorifying the person running a pakora stall for survival as an example of viable entrepreneurship on the other, is the middle ground in entrepreneurship—a space that should have seen millions of thriving small and medium businesses, but remains so sparsely occupied that you could almost miss it.
If we are to achieve meaningful economic growth in our country, we need to incorporate, in our national conversation on entrepreneurship, ways of addressing the missing middle.
Spread out across India’s small towns and cities, this is a class of entrepreneurs that have been hit by a triple wave over the last five years, buffeted first by the inadvertent fallout of demonetization, being unprepared for GST, and then by the endless pain of the covid-19 pandemic.
As we finally appear to be reaching some level of normality, now is the opportune time to identify the kind of industries that make up this layer, the opportunities they should be afforded, and the best ways to scale up their functioning in the shortest time frame.
But, why pay so much attention to these industries when we should be celebrating, as we do, our booming startup space?
It is indeed true that India has the third largest number of unicorns in the world now, adding 42 in 2021 alone. Braving all the disruptions of the pandemic, it was a year in which Indian startups raised $24.1 billion in equity investments, according to a NASSCOM-Zinnov report last year.
However, this is a story of lopsided growth.
The cities of Bengaluru, Delhi/NCR, and Mumbai together claim three-fourths of these startup deals while emerging hubs like Ahmedabad, Coimbatore, and Jaipur account for the rest.
This leap in the startup space has created 6.6 lakh direct jobs and a few million indirect jobs. Is that good enough for a country that sends 12 million fresh graduates to its workforce every year?
It doesn’t even make a dent on arguably our biggest unemployment in recent history—in April 2020 when the country shutdown to battle covid-19.
Technology-intensive start-ups are constrained in their ability to create jobs—and hybrid work models and artificial intelligence (AI) have further accelerated unemployment.
What we need to focus on, therefore, is the labour-intensive micro, small and medium enterprise (MSME). Here, we begin to get to a definitional notion of what we called the mundane middle and the problems it currently faces.
India has an estimated 63 million enterprises. But, out of 100 companies, 95 are micro enterprises—employing less than five people, four are small to medium and barely one is large.
The questions to ask are: why are Indian MSMEs failing to grow from micro to small and medium and then be spurred on to make the leap into large companies?
At the Global Alliance for Mass Entrepreneurship (GAME), we have advocated for a National Mission for Mass Entrepreneurship, the need for which is more pronounced now than ever before.
Whenever India has worked to achieve a significant economic milestone in a limited span of time, it has worked best in mission mode. Think of the Green Revolution or Operation Flood.
From across various states, there are enough examples of approaches that work to catalyse mass entrepreneurship.
The introduction of entrepreneurship mindset curriculum (EMC) in schools through alliance mode of working by a number of agencies has shown significant improvement in academic and life outcomes.
Through creative teaching methods, students are encouraged to inculcate 21st century skills like creativity, problem solving, critical thinking and leadership which are not only foundational for entrepreneurship but essential to thrive in our complex world.
Udhyam Learning Foundation has been involved with the Government of Delhi since 2018 to help young people across over 1,000 schools to develop an entrepreneurial mindset.
One pilot programme introduced the concept of ‘seed money’ and saw 41 students turn their ideas into profit-making ventures. Other programmes teach qualities like grit and resourcefulness.
If you think these are isolated examples, consider some larger data trends.
The Observer Research Foundation and The World Economic Forum released the Young India and Work: A Survey of Youth Aspirations in 2018.
When asked which type of work arrangement they prefer, 49% of the youth surveyed said they prefer a job in the public sector.
However, 38% selected self-employment as an entrepreneur as their ideal type of job. The spirit of entrepreneurship is latent and waiting to be unleashed.
The same can be said for building networks of successful women entrepreneurs—so crucial when the participation of women in the Indian economy has declined to an abysmal 20%.
The majority of India’s 63 million firms are informal —fewer than 20% are registered for GST.
Research shows that companies that start out as formal enterprises become two-three times more productive than a similar informal business.
So why do firms prefer to be informal? In most cases, it’s because of the sheer cost and difficulty of complying with the different regulations.
We have academia and non-profits working as ecosystem enablers providing insights and evidence-based models for growth. We have large private corporations and philanthropic and funding agencies ready to invest.
It should be in the scope of a National Mass Entrepreneurship Mission to bring all of them together to work in mission mode so that the gap between thought leadership and action can finally be bridged.