Barriers to India achieving Double Digit Growth

Indian Economic Growth: Hype versus Reality

Much has been written about how India is on the cusp of achieving double digit economic growth and that the long awaited Acche Din or Good Days are to be realized. Indeed, this was the campaign promise of the present Prime Minister, Narendra Modi, who made the state of the Indian economy as a centerpiece of his campaign.

In the midst of all this euphoria over the Indian Economy, some things such as the very real capacity constraints and the state of Indian Manufacturing and Infrastructure were relegated to the background in the mainstream discourse.

Thus, it is the case that there exist significant barriers to growth as far as India is concerned and hence, one must take a balanced view of the entire debate if one wants to have a realistic assessment of both the potential as well as the problems facing the Indian Economy.

No Hope without Manufacturing Growth

To start with, India simply cannot grow at Double Digits without its Manufacturing and Agriculture sectors not contributing to the economic growth.

In other words, despite the many predictions that India can bypass the Industrialization phase and leapfrog into developed world status, it cannot do so without a Manufacturing Renaissance.

This is because Manufacturing is the sector that contributes most to productivity growth and any journey towards high growth rates has to be accompanied by a strong manufacturing revival. In addition, manufacturing also has the potential to transform the jobs scenario since India does need to grow beyond 10% annually if it has to absorb the Millions of jobseekers entering the workforce every year.

In other words, without manufacturing contributing to the Indian Economy, it can neither create jobs nor raise GDP (Gross Domestic Product) through productivity increases. This then is the first barrier to the dreams of double digit growth.

Infrastructural Constraints and Barriers

Next, there are significant constraints as far as Infrastructure is concerned since the bad state of ports, railways, roads, and airports means that unless India gets its act going, such capacity constraints would act as a deterrent and a barrier to its growth story.

For instance, despite The Golden Quadrilateral national highway system, the state highways and the roads in the rural hinterland are very poor and this is a significant constraint. Moreover, the story of the Indian Ports is such that there are more missed opportunities than successes in terms of lost chances to become a regional transshipment point.

In addition, the Indian Railways is bloated and inefficient and all this means that transportation and logistics are a nightmare as far as India is concerned. Apart from this, despite massive investments in Airports, the sheer numbers of people who are now flying means that already the Greenfield airports that were built are running at overcapacity.

Labor Laws Need Reform

Moreover, hiring and firing of employees is not easy in India which due to its archaic labor laws means that employers cannot simply hire and lay off workers according to the seasonal variations in demand.

For instance, the present labor laws make it impossible for SMEs or Small and Medium Enterprises to downsize without due approval from the authorities and without showing cause which often is again subject to regulation.

Despite attempts at reforming the labor laws, Indian firms continue to be mired in extremely litigious processes as well as being stuck in the Colonial era law and regulations. In the same manner, the land laws that are in force make it very difficult for firms to acquire land for their ventures which causes delays and places barriers as far as setting up plants and factories are concerned.

Indeed, even the Ease of Doing Business, has only improved marginally and as any entrepreneur would tell you, the mindboggling gamut of approvals that are needed to get a business up and running deters many potential business owners from starting new ventures.

Why Attempts at Reform Have Failed

Having said that, it is not that there have been no attempts at addressing these problems. Indeed, successive governments have tried to reform some of these aspects, though they have often fallen short due to the highly layered and complex nature of the Indian Democracy.

To explain, given the fact that India is a plural polity with multiple regions, ethnicities, and castes and religions coexisting together, it is natural for politicians from any of the various groups to demand a share in the economic pie for their groups.

In addition, given the noisy nature of democracy as practiced in India, there is much opposition to any reform initiative that sets back the good efforts done.

In other words, if the government encourages entrepreneurs to setup a plant or a factory, land acquisition, displacement, and demands from various groups means that the actual process of getting it up and running is lost in the chaos and the noise that ensues soon.

Conclusion

Lastly, the very real aspect of not having enough human capital is hamstringing the Indian Economy due to the Education System churning out students for the sake of expediency rather than focusing on their skills and employability.

With reports suggesting that nearly 80% of all graduates are unemployable, it means that the Human Capital that is much needed for economic development is missing and this has implications for the way in which the Indian Economy grows.

Moreover, with the Health Sector catering to the privileged, both building and sustaining human resources becomes difficult that leads to severe barriers as far as economic growth is concerned.