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Arvind Subramanian says India has a lot of catching up to do

Arvind Subramanian says India has a lot of catching up to do

India's fragmented, decentralised nature will work to its advantage.

If a number of economic parameters are considered together - the gross domestic product, the total volume of trade, the balance of payments and so on - China has already overtaken the United States. Extrapolating to 2030, India is No. 3. It is not going to seriously challenge the US or China. You have to keep that in perspective. Rather, we have a lot of catching up to do. We continue to be net debtors to the world, we run current account deficits. But we are going to close the gap somewhat over the next 15 to 20 years. That is my first point about India becoming a global economic superpower.

I do not think India is fundamentally strong or centralised enough to be able to project power internationally as successfully as China has done. China has a history of not just continuity but also of centralised power. You need that centralised power to be able to project it. When Prime Minister Manmohan Singh goes to Bangladesh and cannot even carry Mamata Banerjee with him in a conceptual sense, what are we talking about projecting power internationally? So, it is a combination of economics and our fundamentally fragmented, decentralised nature, which will keep us lagging behind China.

But that is not entirely a bad thing. India's strength is its openness and decentralisation. There is no doubt that over the next 10 to 15 years, India will start growing faster than China. Part of that is simple catching up. China is going to slow down because of demographics and other problems. Of course, it depends a lot on the choices we make. The obvious ones are: infrastructure, labour laws and others. Reforming and recovering some of the Nehruvian institutions is going to be very important and that is going to be our big challenge.

Change is not going to happen because a central government comes and says: let us reform the judiciary, the police. The most hopeful thing about India is the dynamic of competition between states. As some states do well and improve their institutions, there is going to be pressure on the others. In some ways, the hope and the beauty of the India model, going forward, is that as we get more decentralised, it will set in place the notion of states competing with one another. We see that already with (Gujarat Chief Minister) Narendra Modi and (Bihar CM) Nitish Kumar. If the political process rewards good performance, as it seems to be doing, it is the combination of decentralisation and democratic politics that is hopeful for India.

India's successful growth over the past 10 to 15 years is not about reform begetting growth, it is about growth begetting growth. Somehow we have managed to get growth and that has created a lot of pressure for change. It is very much a bottom-up, organic, endogenous process rather than the result of big policy choices and decisions being made at the top. To say all that we need bold actions, bold reforms. By definition we won't get it because no one has the authority or legitimacy to make these bold decisions.

The debate what this government needs to do always bothers me. There are occasions in other countries when leaders make choices. In a decentralised democracy, things are made bottom-up and organically. It is really quite naive, misplaced view of how these things happen. Nobody really knows how to deal with corruption. It is a very deep political, social problem. It is going to change because things happen organically, not because the Prime Minister can do something.

For example, primary education in India was a disaster. In the past 15 years, it has improved, not because the government has improved delivery, but because demand for English education has increased. Private schools have sprung up all over rural and urban India. They are not great, but they deliver a service. They arose in response to an organic demand, which was that people wanted to send their children to school. It is an example of change from below.

Let me add a key second reason for optimism. This acquires salience in the context of all that is happening in Europe. I think one of the great but unrecognised achievements of India, which augurs very well for our economics going forward, is that we have managed to create an idea of India, to use Sunil Khilnani's lovely phrase. This fact has a very important economic effect, which is labour mobility within India. If some states do badly, people will vote with their feet and progressively leave. And that will put pressure for change. This is not possible in Europe, as it has very little labour mobility. That's not case in India. That will assist the process of better decision making and the dynamism that comes with better labour mobility.

When you look 10 years ahead, you find some parts of India are going to start ageing very soon. Since we have mobility, this problem is easier to address in India than it is in the rest of the world. The deeper point is that the whole Gandhi-Nehru project of creating an idea of India has fantastic economic potential going forward. There will be not just economic dynamism, but the pressure for political reform and change. Pressure for reform comes when capital moves or labour moves. In India, both can move. The idea of India is going to save India.

The author is Senior Fellow at the Peterson Institute for International Economics

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