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KV Kamath: India Needs To Focus On Inclusive Growth
India Budget 2012: India can live with high public spending if a large part of it is going into creating assets or implementing programmes that can have a multiplier effect
Image: Dinesh Krishnan
K.V. Kamath, Chairman, Infosys and the non-executive chairman of ICICI Bank Limited
It is often suggested that India has to attempt big-bang reforms to get back into a high-growth orbit. To use a cricketing analogy, it is not the fours and sixes but the singles and twos that will help win the match. We simply need to remove a whole lot of small bottlenecks that are slowing things down. Let us take the power sector, for example. We urgently need about 25,000 MW of capacity. Most of this has been built or is in an advanced stage of execution, with financing tied up. But the final completion and ability to start generating the power is held up just for some last mile clearances, and more importantly, lack of certainty on availability of fuel. This is also impacting the confidence of project companies and their ability and willingness to take up the next set of projects using the cashflows from the current projects once they start producing. We have now recognised the problem and started addressing it, but we have done so when the problem is already upon us.
There is also a lot of focus on the fiscal deficit and subsidies. India certainly needs to focus on inclusive growth, which means improving the capacity of the poor to lead decent lives and participate gainfully in the economy. Our social programmes cannot be compared to the entitlements available to people in countries like Greece. There is dire poverty in many parts of our country and we have to design our policies around this reality. We can live with high public spending if a large part of it is going into creating assets or implementing programmes that can have a multiplier effect. Studies and empirical evidence from countries that have invested in education and healthcare show that social spending does have a multiplier effect in the long term. China, for instance, is today reaping the benefits of spending heavily on social development in the seventies and eighties.
But to support this spending we need revenues and that can come only from fast growth, which, in turn, requires investment. But investors are keeping their distance for various reasons. In addition to access to land and natural resources, there are now concerns about contract risks and anything requiring government licenses and permissions. There is no doubt that the Supreme Court canceling telecom licences reinforces the rule of law, but that has placed the responsibility on the government to display its ability to quickly sort out the consequences. I am aware of at least two big investors rolling up their plans for India in the past ten days. These fears have to be allayed. We spoke of power and telecom, but even in sectors like roads, ports and railways, we can spur private investment – reducing government spending and simultaneously boosting economic growth – with a clear and stable policy framework.
So we do need action on various fronts. I am very optimistic that we will see this happen and India will continue to power ahead.
Comments 3
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Rakesh Kumarwhat has been stated is absolutely true but how to translate it into realty is big question. investment is not something which is said and done. india is large polity and all of them behave differently. so it is nostaligic to talk in a unrealistic manner. the growth of 9% was easy to get but when service sector and then manufacturing behaved erratically the growth started slipping. in any case the root cause is the higher inflation and it is now permanent unless the supply side constraints are removed. one way is to charge diesel sale tax on selective basis. At present the government is doing is to save the people from dying let other have less nourishment. government is committed to privide carbohydrates but there is no guarantee of protein. of late government is concerend with improving the protein intake so it is running so many social welfare programs. let the country come to stagnate but food is availble to every one. for few years the income tax has to be doubled like in US so that social spending is possible. these are not the sensible acts. what is good is that monetary policy has to loosen its string to provide relief. At present RBI governor is adamant on the monetary policy and taunts the government to rein the fiscal deficit. fiscal deficit is a compulsion because social spending are more important than taxes as taxes will adversely affect the manaufacturing sector. economy is not water tight it has so many passages through which input and output can flow. RBI mindset has to change
on Aug 31, 2012 -
Amit Singh Khokhar
Mr. Kamath has raised the right issues. He is critical of the current political and economic environment in the country. But he is also optimistic in the end that the situation would improve in future and we would see India becoming a global economic power. He says that fiscal deficit, subsidies are very important and serious issues. Large investments in social sector are encouraged. One thing that his speech doesn't highlight is the 'trust deficit'. More than fiscal deficit, trade deficit or any other deficit, one deficit that is hampering India's growth prospects is TRUST DEFICIT. As far as investment is concerned, the government (central and state) has many flagship programmes to investment in physical and human capital. Jawahar solar mission, NREGA, Right to Education and National Highway Development Project are some programmes that involve huge investments. But it is the lack of trust in government policies or incredible announcements that is slowing the pace of growth. foreign investors are clueless about intentions of government. AND to use Cricketing analogy, India is loosing because of poor 'running between the wickets'. Few run outs have led to a trust deficit between the playing partners. We don't need to dissolve the team and look for fresh talent. Those who are in the team just need some rigrous practice sessions to develop better cordination to clinch easy singles and convert ones into twos and twos into threes. If problems are not removed, who knows, we might even need a completely new team. The government has to take steps so that it doesn't loose the credibility of it's announcements.
on Jul 27, 2012 -
V.vijayamohan
Mr.Kamath is very right.It is difficult to put up projects. But, in India, it is difficult to get fuel to run the completed projects. I remember how Anil Ambani was telling the Government, give me fuel allocation, I will go through the project at extra speed. Government said, complete the project and then seek fuel allocation. Now, project is complete - but there is no fuel. KG Basin may fail. But, India must not fail. There must be more holistic planning. ONGC is talking of so many discoveries. But, how fast will it produce gas / oil? Is there an urgency in India on such matters?Country's self sufficiency depends on planning for abundance and not for scarcities. The mindset must change. We must Plan to Produce 50 % more oil, gas, electricity - and food than we need. Right now, we are only producing people - in abundance.
on Apr 1, 2012
