Top 10 economic and development challenges for India in 2014

Posted By: Rise Team|Dated: February 28, 2014

LSE’s Ruth Kattumuri highlights some economic challenges that are of priority for India’s development in the new year. Return to India At LSE on Friday for a list of the Top 10 foreign policy challenges facing India in 2014.

Sustainable growth: The United Nations describes sustainable growth as a process that “fulfils the needs of the present without compromising the ability of future generations to meet their own needs.” This year, academics working on India questioned whether Indian growth was truly sustainable, or whether the country had failed to utilise resources generated by recent economic growth by investing much more in education and healthcare and developing infrastructure in an environmentally responsible way. Heading into 2014, India must better assess how to enhance economic growth together with low-carbon development initiatives including ways to improve food and water security.

Economic Challenges for India

Inclusive growth: For Indian growth to be sustainable, it must be inclusive to cover issues related to inequalities between castes (including tribal children and elderly people living in remote areas), colour (dark and fair), disability, gender, regions (rural-urban as well as differences between states), and more. While the gender gap in employment and political participation has been narrowing, there is much more to be done for the health and safety of girls and women. India needs to do more to ensure inclusive growth, particularly by improving social protection policies. Good examples such as ‘Amma’s unavagam/canteen’, which was recently introduced in Tamil Nadu and sells highly subsidised nutritious meals, are worth expanding to other states to help address problems related to high malnutrition levels.

Demographic dividend: Approximately 200 million Indians are between the ages of 15 and 24 and India is well positioned to make the most of a growing population of working age. However, to reap the demographic dividend, India will have to manage the demand and supply of skills and labour carefully. While the government has introduced policies to improve access to education, much more needs to be done to improve the quality of education, standards of teaching, methods of examination, development of skills, vocational programmes, etc. In order to make Right to Education policy effective, the country should also address the challenges of bridging the gaps between children from disadvantaged and advantaged backgrounds being able to study together and better understand, respect and befriend each other. In the new year, India should look to develop public-private partnerships and social entrepreneurship programmes that can ensure livelihoods for its young population.

Inflation: Ahead of the 2014 elections, the issue of high inflation is uppermost in the minds of politicians, policymakers and the people. Consumer prices in India have risen at an average annual pace of 10 per cent during the past five years, and Indian households are bracing for another 13 per cent increase next year. To check inflation, the Reserve Bank of India has raised interest rates and will review India’s monetary policy framework in line with recommendations by the Urjit Patel Committee, which is expected to submit its report at the end of the year. It is also essential to manage artificially induced national and international mechanisms. The central bank and Ministry of Finance are working together to analyse and understand the reasons and find ways to encourage investment and curb inflation.

Rapid urbanisation: Indian cities are growing at an unprecedented rate—the country’s urban population is expected to grow to 590 million people by 2030. This rapid urbanisation is also expected to drive economic growth: according to some estimates, cities could generate up to 70 per cent of new jobs created until 2030 and produce 70 per cent of Indian GDP. To reap the economic advantages of urbanisation, the Indian government must develop better policies to meet urban infrastructure needs through sustainable means and address growing urban poverty and inequality.

Land reforms: The Land Acquisition Act passed this year received mixed reviews. There are concerns that the new law will drive up costs across the economy and make several industrial and real estate projects unviable, without necessarily delivering justice to farmers and landowners whose lands are acquired. These and other challenges related to land reform – particularly in the context of urbanisation and the growing need for low-income urban housing – mean that India will have to continue drafting land-related legislation to ensure sustainable and equitable growth.

Centre-state dynamics: The evident role of states in influencing economic growth, governance and policies has increasing become more prominent. States are driving localised growth, enhancing their own investments, and developing models that are being replicated across the country. But the centre needs to do more to facilitate state-state interaction and the states should also be proactive in sharing of knowledge of best practices among themselves. The central government should also seek to do more to balance the uneven growth between states.

Older citizens: While India seeks to harness its young population to drive growth, it must also start planning for increased expenditure on health and welfare services for the elderly. Fertility rates in India are declining as life expectancy increases: there will be more than 300 million Indians over the age of 60 by 2050. ‘Indians never seem to retire’ has been said of people in various sectors, particularly in urban areas, as many continue to work for several years after retirement. Nevertheless, the shifting demographics will add to the burden of inadequate healthcare, welfare services, and families. Elderly women, who will outnumber men, are expected to be the most vulnerable. In addition, there are interesting opportunities and challenges of elderly parents remaining in India while their children have migrated. To tackle these challenges, India must develop policies to ensure that its older citizens too have healthy and happy lives.

India-China trade: Despite various diplomatic standoffs this year, the governments of both India and China remain eager to boost bilateral trade to US$100 billion in the next few years. No doubt, trade with China is a significant component of India’s economy. But trade relations remain one-way, with more Indian consumers buying Chinese goods than the other way around. India will have to address this trade deficit in the new year by improving its export competitiveness and identifying more goods, services and policies to enhance balanced trade with to China.

India-Pakistan trade: In the past decade, India-Pakistan trade has increased from US$370 million per year to US$2.4 billion. But this is just a start: according to some estimates, the volume of a normalised bilateral trade regime could be as high as US$40 billion. The onus for progress on bilateral trade relations currently rests with Pakistan: despite repeated calls for improved India-Pakistan ties, Prime Minister Nawaz Sharif, who was elected to power in May, has yet to grant India Most Favoured Nation status. While there is little India can do to boost trade until Pakistan takes this key step, New Delhi should continue its support for increased bilateral trade, as it would be for the benefit of the economies of both India and Pakistan while also helping to improve the political relations between the two countries.

The views expressed above are those of the author, and not necessarily representative of the views of the Mahindra Group.
Author – Dr Ruth Kattumuri is Co-Director of the LSE Asia Research Centre and India Observatory.
This article was originally published on the London School of Economics (LSE) Blog.

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    If Amma canteen offer free food in return it doesn’t mean that an an MBA fresher grad should get Rs 5000 as wages because he doesnt know fluent english or hindi…. and cooperates penalizing the dignity… Jailalitha should reveal the name of the unique person’s who would be handling TN politics after her departure from AIDMK after 10 or 20 years . She cannot keep all the portfolio minister revolving in her circle. Its completely bizarre & like throwing biscuits to dog

  • Maj Jeyaseelan

    It is unfortunate that most authors fail to segregate the root causes from the results. A healthy way forward requires that the root causes of the fever are resolved along with the control of the rise in body temperatures.

    Even before, I offer my suggestions, let me deal with the biggest of all root problems, which is preventing not just our country but, the world at large from finding the right solutions. We refuse to listen to reason and logic independently of the name and fame of the person saying these. A lie does not become a truth just because it is being said by a president or prime minister. All of us need to retune our ears to reason and open up our minds to logic.

    While I can tear apart most of the popular myths about growth and development, let me first deal with one as a test case and challenge those offering mythical potions for accelerated growth and development of the economies.

    Let us deal with just one of the challenges called ‘inflation’. First and foremost, it is not a root cause but a result. It can no doubt lead to further problems and disabilities. But, a solution
    requires addressing its causes. Like the body temperature can go up on account of an infection or an organ failure, inflation can be the result of any number of different factors. How do we then end up looking at only money supply and interest rate management as solutions.

    We all know that the recent spurt in onion prices was caused by a few smart but crooked commodity traders who took control of the limited stocks at the end of a season to dictate prices. How does contraction in money supply or raising of interest rates solve this
    core problem. Is there anyway to raise interest rates to prevent anyone in investing in a market opportunity, which offers returns in many multiples of going interest rates? Is it not farcical? There was only one way in which we could have dealt with it. If we had an able civil supplies ministry which was capable of monitoring the end of season shortages and arranged for timely imports. Tomato prices shot up sharply around the same time as the crops in certain regions got washed away by floods and there were severe transport problems too. How does monetary measures help in such cases?

    However, economists seem to turn a blind eye to every other cause of inflation and go after only money supply expansion. Of course, expansion in money supply caused by deficit financing can be a problem. But then, why should the whole economy be penalised? Why can there not be targeted measures, which are focused on just the sources of such monetary
    expansion? Apart from deficit financing, market failures are always behind the inflation in consumer prices. There is no way we can control such inflation without developing effective market monitoring mechanisms?

    There is a popular fallacy at the bottom of the indifference towards inflation. Many policy makers do believe that moderate inflation is indeed necessary for maintaining the tempo of growth. But what they forget is the fact that even this case, the root causes of such inflation matters. If such moderate rates of inflation are caused by market failures or imperfections, such rise in prices would actually be anti growth.

    Let me explain this a bit. The underlying truth of the matter is that incomes are not as elastic as prices. So, if people are forced to spend more for any product, then they are left with no option but to cut back on their spending on other goods/services. No one foregoes the consumption of items whose prices are going up to such an extent that will force the prices down. So there will be cutbacks on in the consumer expenditure for other goods, which will lead to inventory build up. In the ultimate analysis, the economy will lose out at the end of every bout of inflation.

    What most people do not even recognise is that same logic applies to the much touted technology innovations as well. Most companies pursue technology innovations
    for boosting profit margins.

    As a result every successful innovation leads to the adoption of premium pricing strategies. This simply means making the consumer pay the maximum irrespective of the cost of production. When people end up paying premium prices for innovative products, they also end up cutting down their other expenses. This actually puts the companies, which are already facing technological obsolescence under greater pressure. So in the end, the economy loses even under conditions of technology innovations.

    The only condition under which technology innovations will be beneficial for the country will be
    when innovations leads to reduced prices and the companies share the fruits of innovations with their consumers and leave more money in their pockets, which they can use for buying more products.

    I believe what I have put forward above is a case for getting our knowledge right. Every problem that we face is a knowledge problem. If we want to overcome any of these problems,we must first correct the wrong knowledge, which caused it in the first place. Such an approach, in my opinion, will lay the foundations for a truly knowledge based society. Innovative products by themselves cannot help the country to solve the problems unless there is out of the box thinking to set right the causes behind the problems that we face.

    Where we need innovations more urgently is in our thinking, in our policies and approaches. Product innovations will make a difference only after we have these prerequisites

  • garvit jindal

    On my part after reading this discussion what i feel is we need to
    bring epic revolution in field of education and employment…
    most of the generation with innovative ideas are of the age between
    16-25 years but our educational system is making them dumb by diverting
    their efficiency and skills in so many different things instead of
    focusing on any single project. Our educational system is imposing extra
    burdens on the shoulders of youth unnecessarily , by forcing them to
    look so many different fields at the same time , which surely takes the
    actual output and efficiency away from the candidate , which could have
    been there if he or she is focusing on any particular single field which
    he or she likes. If somehow we can implement educational system just
    like of overseas nations , where they make children to particularly
    focus on one field , then i think we can surely turn into a precious
    gems of their own kind .
    By providing them all possible different
    fields in education and promote the same equally in field of employment
    with same ratios of salaries to generate the interest of our youth power
    in different fields which may be joined to their hobbies or even their
    own life , as if they will find a good employment in those fields , they
    can surely create wonders in their works , as they will work whole
    heartedly , with a passion to do work .
    The different problem which
    we face is brain drainage which can be stopped by doing the above
    activity as they will find their own image in that work , which will
    surely encourage them to stop here and develop that field by their own
    hands as they will take it as their own duty because some where or the
    other the work they do will resemble their own life. Which in return
    also help government to improve the economic growth of our country as
    well as the facilities they will be able to provide to the citizens of
    our nation. It will also reduce the work burden from the shoulders of
    the government to develop economical sector of our nation and will also
    save their time which they will be able to use to improve other sectors
    of our nation , so that soon the name of INDIA can be put in the list of
    developed countries from the list of developing countries.

  • guest

    India must implement population control policies like China.

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