India needs long-term vision, not myopia

India needs long-term vision, not myopia
The Financial Express, December 23, 2009, Page 1

S Gopalakrishnan

In the second instalment of reflections from India Inc’s corner offices a year after the global financial crisis erupted, Infosys Technologies CEO & MD S ‘Kris’ Gopalakrishnan dwells on the country’s growth drivers for the future

The Indian economy has shown a great deal of resilience in the recent economic downturn. Defying the events of this global slump, India’s economy has grown and is poised to only develop further. The government has forecast a growth rate of over 7% for this financial year, with a medium-term objective to achieve 9%. Much of this is attributable to the three stimulus packages that the government announced over December 2008 and February 2009 and sustained government spending, as private sector spending declined.

The strengths of the Indian economy are many. It received a further boost following the recent general elections, which brought a stable government to power. This has reopened foreign investment in the economy. Our low dependence on exports (24% of GDP, according to the World Bank) has kept India’s exposure to the vagrancies of the global economy somewhat limited.

Of course, the commitment shown by the government to increase its spending by 36% for 2009-10 by investing in the country’s infrastructure and focusing on inclusiveness has provided further impetus for growth. While the economic slowdown over the past year is in a way a hiccup, the country needs to focus on sustained growth, looking at the long-term vision and not be myopic.

There are a few themes that stand out as focus areas. These include developing the country’s infrastructure, encouraging foreign investment, focusing on education and e-governance, and simplifying and clarifying existing laws to enhance the business environment in India.

The government has already planned to increase infrastructure spending to 9% of GDP by 2014. At the moment, India spends about 6% of its GDP on roads, ports, airports and similar facilities. The planned investment in infrastructure will enable and encourage the business environment further. A great stimulator in the sector can be foreign direct investment and public-private partnerships.

According to the World Investment Prospects Survey for 2009-2011 released by Unctad, India is the third-most favourable destination (a notch down from last year) for market growth, inexpensive skills and talent. For India to regain its foothold and move up the pecking order, we need to focus on developing an ideal business environment, which is, in turn, related to infrastructure and also creating the right incentives to attract investors.

Despite the credit crunch of the last year, India has seen an FDI inflow of $35 billion. The country is targeting annual FDI worth $50 billion by 2012, for which the commerce ministry is setting up a panel comprising state industrial ministers to address the procedural difficulties that investors might face while entering the Indian market. This effort should definitely help address some challenges in this sector.

Moving on to education, according to Unesco, India has the lowest public expenditure on higher education per student in the world. Renowned Indian universities such as the Indian Institute of Science, Bangalore, have a world ranking of 303-401, and the Indian Institute of Technology, Kharagpur, a world ranking of 402-501 (Academic Ranking of World Universities 2009 prepared by the Shanghai Jiao Tong University). Much remains to be done to enhance the education environment in India.

The government has clearly articulated its plans to focus on education, and the proposed investment in higher education--especially in IITs and NITs--will greatly benefit the industry in the medium and long term. In addition, opening up the education sector in India and allowing foreign investment in higher education has the potential to further develop a skilled workforce and nurture talent.

On the e-governance front, a higher allocation to such projects will help improve citizen services, streamline governance and further stimulate the domestic information technology industry. It will serve the objective of supporting and simplifying governance for all stakeholders--government, citizens and businesses.

Finally, the government of India needs to provide a stable, conducive and safe environment to encourage businesses to set up and flourish in the country. This includes simplifying processes through which companies apply for various licenses and approvals, and reducing the time and effort lost due to the regulatory environment. Specific challenges include duplication of laws, a disparate system for acquiring permissions and clearances, lack of transparency and limited information on processes, to name a few.