Hamish McRae: India must spread its wealth more evenly

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It is a two-speed world. One half, the developed half, is desperately struggling to get things moving again. The other half, the rest of the world, is trying to rein back its growth. We talk about the recession. For many of the emerging economies, there was no recession. We worry about debts – personal, national, company and so on – and how we will repay. In much of the emerging world, there are such large savings that for many there is little need to borrow. We worry about the cuts in public spending. There, there are no cuts, for there is no need for them, and no bank rescues were needed either.

A week travelling round India talking with people from the business and voluntary sectors, plus a sprinkling of writers and film directors, has brought home to me just how stark the contrast is between West and East.

In India, the problem is how to manage growth to the benefit of all. At its simplest, it is how to make sure more of the huge wealth that is being created does indeed trickle down through society. Growth there is running at almost 9 per cent this year – yes, 9 per cent. Last year, when the rest of us were in deep recession, it dipped to a little under 7 per cent. The growth numbers are similar in China, actually a percentage point or so higher.

So the world's two most populous countries are racing on, intent as the Indian Prime Minister, Manmohan Singh, says, to use this growth to eliminate poverty and generate jobs for the rising population. India's workforce will pass China's in about 15 years' time.

So the macro-economic issue is fixed, and fixed in a way that would have been unthinkable 20 years ago when people spoke of the "Hindu rate of growth", 3 per cent max, a rate that given the rising population, would barely lift living standards at all. Nothing is inevitable and there may be some unforeseen catastrophe around the corner. But barring that, it does seem likely that India will become the world's third-largest economy, after China and the US, in 10 to 15 years' time. It will not, of course, be as rich in income per head, but it will have the resources to tackle the myriad problems the country faces.

And that, it seems to me, is more interesting than the basic success story. It is almost as though economic success at a macro level is now a given. There is a confidence, even a swagger, about that part of the story. The issue is how you use that success to make the growth more sustainable in every way.

The problems are multi-layered, as anyone who visits India will quickly appreciate. There is the infrastructure problem. Yes, air transport is vastly better than it was, with new airports and terminals, including the new airport in Bangalore (which now has a decent road from the city) and the brand new terminal, ready just in time for the Commonwealth Games, in Delhi. Delhi also has a new Metro commuter rail system. Roads are being improved, though they struggle to cope with the flood of new cars hitting them. Car sales are up a quarter year-on-year, with luxury cars gaining proportionately the most.

But infrastructure will usually lag behind the demand for it, particularly in a country such as India, where remnants of the dead hand of bureaucracy remain. The private sector has become adept at working round inadequate infrastructure, delivering strong growth despite practical hurdles. And remember that India did, in the end, deliver a competent Commonwealth Games.

People repeatedly made other points, other areas of concern. One, of course, was corruption. It was not so much the grand stuff about the 2G mobile phone licences, which the papers were full of and which seems over-the-top even by Indian standards. Rather it was the petty corruption: the fact that to get things done you were under great pressure to bend your principles. What seems to have happened is not a structural change in how the Indian system works; rather, it is that with the growth of incomes the numbers have become vastly bigger. Wealth is being spread indeed, but in a most unsatisfactory way.

There seems to me, however, to be something that is even more urgent than tackling corruption: education. Having the world's biggest workforce will not be a strength if it is not a well educated one; it will become a weakness. And I was struck by the number of people who told me that finding good staff was their hardest task: good teachers, good accountants, good managers – people who had the initiative to get on and fix problems rather than needing to wait for instructions.

One company found that it had to start a school for the children of its staff itself; it now has 2,000 pupils. And this was in Mumbai, the great economic powerhouse of the country. Out in the country there are even more basic educational needs that are not being adequately met.

It is a cliché to say that India is a land of contrasts. But this is a new sort of contrast, that between the macro-economic success story and the micro-economic list of things that have to be done if that success story is to be sustained. The wealth is real and there are tens of millions of people moving towards a middle-class lifestyle every year as a result. But the wealth has to be spread more widely.

Rising prices hurt us all eventually

Here in the UK, the inflation figures continue to dismay. And they will, at least at a headline level, get worse when the increase in VAT comes through next month. The consumer price index is stuck well above 3 per cent and if you look at the reasons for this – higher raw material prices as a result of growth in Asia, a weakish pound, rising import costs and so on – it is hard to see things getting any better next year.

This is an economic story and a troubling one, but it is also a social story. People on fixed incomes, including those who have seen their pay frozen, and people who have used interest income to bump up their living standards, are hammered. Savers are being swindled. While the mismatch between the return on savings and the rising cost of living can be sustained for a while, it eventually becomes socially corrosive. Charlie Bean, deputy governor at the Bank of England, has just spoken out about the dangers of inflation and he is right to do so.

h.mcrae@independent.co.uk

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