Jim O'Neill: A 10-step programme to tap into India's potential

Economic View: Growth of more than 10 per cent over the next 10 to 20 years is not out of the question

It's fashionable to say the era of strong emerging-market growth is over. As the US recovers, the global cost of capital will rise, holding back investment – against this background, avoiding the next crisis is the best that most emerging economies can do. If you take this view, India might seem a perfect example, with its widening current account deficit, heavy public borrowing, persistent inflation and weak currency.

I don't think so. As a general matter, emerging-market gloom is overdone. India, in particular, could teach the pessimists a lesson.

Last week I made a quick visit to see the chief minister of Gujarat, Narendra Modi. He'd asked me to give a presentation on how India could realise its still-enormous potential. I went through points I'd first discussed in a paper I co-authored with Tushar Puddar in 2008, "Ten Things for India to Achieve its 2050 Potential". It's striking to me that, five years later, our recommendations don't need revising.

I'll state no opinion on Mr Modi's chances of becoming Prime Minister after next year's general election – it's been announced that he'll lead the opposition Bharatiya Janata Party in that campaign.

He's a controversial figure. Detractors call him a sectarian extremist (and worse). I will say this: he's good on economics, and that's one of the things India desperately needs in a leader.

Like all Indians, Mr Modi loves acronyms. Me too. I admire his MG-squared (minimum government, maximum governance) and P2G2 (proactive, pro-people, good governance). That sums it up pretty well. I don't think it's a coincidence that Gujarat has avoided the slowdown which has almost halved India's national rate of growth. The state just keeps on growing at double-digit rates.

Long-term growth depends ultimately on just two things – the number of workers and how productive they are. India's demographics are remarkable. The country is on track to grow its workforce by 140 million between 2000 and 2020. That increase is the equivalent of the working population of France, Germany, Italy and the UK combined.

Even with unspectacular growth of a little more than 6 per cent a year, by 2050 India's economy could be 40 times bigger than it was in 2000 – about as big as the US economy will probably be by then (though not as big as China). But it could do so much better than that. Growth of 8.5 per cent over the entire period is possible – with growth of more than 10 per cent over the next 15-20 years not out of the question – provided it makes some changes.

It's all about productivity. India scores poorly on indexes of economic variables that are critical for economic efficiency – worse than Brazil, China and even Russia. To change that, it needs to do 10 things:

1. Improve its governance. This is probably the hardest and most important task – the precondition for the rest. Mr Modi is right: whoever leads the next government in 2014, India needs maximum governance and minimum government. There is no point having the world's largest democracy unless it leads to effective government.

2. Fix primary and secondary education. There's been some progress here, but a huge number of young people still get little or no schooling. I sit on the board of Teach for All, a global umbrella organisation for groups that encourage the brightest graduates to spend at least two years teaching. Today India has about 350 teachers in these programmes. They could do with 350,000 or more.

3. Improve colleges and universities. India has too few excellent institutions. Its share of places in the Shanghai Index of the world's top universities should be proportional to its share of global gross domestic product. Make that an official goal.

4. Adopt an inflation target, and make it the centre of a new macroeconomic policy framework.

5. Introduce a medium to long-term fiscal policy framework, perhaps with ceilings as in the Maastricht treaty – a deficit of less than 3 per cent of GDP and debt of less than 60 per cent of GDP.

6. Increase trade with its neighbours. Indian exports to China could be close to $1 trillion by 2050, nearly the size of its entire GDP in 2008. But India has little trade with Bangladesh and Pakistan. There's no better way to promote peaceful relations than to expand trade – and that means imports as well as exports.

7. Liberalise financial markets. India needs huge amounts of domestic and foreign capital to achieve its potential – and a better-functioning capital market to allocate it wisely.

8. Innovate in farming. Gujarat isn't a traditional agricultural producer, but it has improved productivity with initiatives like its "white revolution" in milk production. The whole nation, still greatly dependent on farming, needs enormous improvements.

9. Build more infrastructure. I flew in to Ahmedabad via Delhi, and out via Mumbai, all in a day. I got where I needed to go – but it's obvious how much more India needs to do. Adopt some of that Chinese drive to invest in infrastructure.

10. Protect the environment. India can't achieve 8.5 per cent growth for the next 30-40 years unless it takes steps to safeguard environmental quality and use energy and other resources more efficiently. Encouraging the private sector to invest in sustainable technologies can boost growth in its own right.

India's potential is vast – and given the will, it can be tapped.

A version of this column was originally published by Bloomberg News

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power