Transforming india

Transforming India

Krishnan

GTC talk, December 11,2011

Who is Atanu Dey ?

Economist

Writes a blog on India’s development at www.deesha.org

Chief economist at Netcore

Guess which country we are talking about

• Most of its people are impoverished

• Half of its children below five are malnourished

• Has the largest number of illiterates in the world

• Has very high levels of corruption at all levels of governance

• People lack economic freedom

India was the mother of our race, and Sanskrit the mother of Europe's languages. She was the mother of our philosophy, mother through the Arabs, of much of our mathematics, mother through Buddha, of the ideals embodied in Christianity, mother through village communities of self-government and democracy. Mother India is in many ways the mother of us all – Will Durant

Outline

• Why is India poor ?

• Transformations needed– Education– Energy– Urbanization– Transportation– Rural services– Democracy

India is very poor

• Even when compared to other developing nations

• Per capita is just $1527 and ranks 137– China is about $5184 and ranks 95– In 1978, India was actually richer than China

• 445 million Indians live on less than Rs. 26/day

Why is India poor ?

• Poor leadership– Leaders could draw crowds

but did not know how to govern

• Poor public policy choices– Disallowed foreign

investment– Led to chronic, acute

poverty• Parasitic Government

– Not wealth creator, at best wealth distributor

– Roving bandit governments with short planning horizon

Poor family subsisting on jackfruit seeds

Who can change India ?

• The rich ?– Little incentive to create

change

• The poor ?– Too busy scratching a

living

• The middle class ?– Can change the country– Were earlier a small

constituency, now large

Knowledge to create change

• Knowledge to create change will come from advances in ICT– Internet, mobile phones

• TV and media – too controlled by Government• This knowledge can lead to more informed

voting• Will take a generation of rapid economic growth

to lift India out of poverty and develop into a state where we can develop without economic growth

Economic Interlinkages

Education

Education

• India literacy rate is 60%– Similar countries are Sudan, Rwanda, ..

• Approx 360 million children– 140 million not in school– Only 22 million get a decent education

• India spends a lot on education– $90 billion annually in public/private spend– Comparison: $ 45 billion spend on power in

11th plan

Education in India

• In bad state despite a decent spend• Heavily controlled by the Government

– Government dictates everything (syllabus, teacher salaries)

– Allows only non-profits (who take profits by way of donations and capitation fees anyway)

• Government puts entry barriers– Leads to bribes for licence to setup schools/colleges– Supply cannot meet demand

• Has led to a dysfunctional system

Steps needed urgently

• Liberalization – Allow anyone to enter sector, competition will lead to quality

• Public spending needs to be channeled properly• Need independent education regulatory authority• Need funding and credit market – easy

availability of loans• Enlarge options for post secondary education

– More vocational schools needed

• Commit to achieving 90% literacy

Energy

Energy

• Greatest constraint for development is energy availability

• Still no 24x7 power (even in many metros)

• Need secure, reliable sources of energy

Steps for energy sufficiency

• Annual solar energy/square mile = 4 million barrels of oil– India consumes 12 million barrels/year– 70% imported, $100 to $150 billion/year

• Invest $100 billion in developing solar energy technology

Urbanization

Urbanization and development

• Urbanization and development are correlated

• Cities are engines of growth– Gandhiji – “Every village should be self

sufficient”– Gandhiji was WRONG

• Development cycle– Labour moves from agriculture to

manufacturing to services

India needs new cities

• Population in cities– 1800 – 3% of 900 million– 1900 – 10% of 1.2 billion– 2011 – 50% of 7 billion

• Cities are disproportionately productive

• India needs atleast 200 new cities

Themed’ cities

• University city – with theater, museums, art centers, sports

• Manufacturing cities – access to ports, vocational institutes

• Pilgrimage cities

Transportation

Transportation

• US style road transportation not an option– Cars and fossil fuels are very expensive

• US uses 25% of worlds fuel to transport 5% of worlds people

• To match US we would have to use 4 times the current world consumption

• Air travel is not an option either– US has 40000 flights for 300 million, India

would need 160000 flights daily

Rail transportation

• Only option is railways, nothing as efficient as steel locos/wheels on steel rails

• Need a fast train system– Trunk routes (Mumbai-Kolkata and Delhi-Bangalore)

via Nagpur– Link routes (Mumbai-Delhi, Delhi-Kolkata,Kolkata-

Bangalore, Chennai-Mumbai)

• Speeds of 250 km/hour• Government needs to release monopolistic hold

on railways (as it did with airlines)

Cost of high speed rail network

• $10 million per km, total of $100 billion• Can be executed by public-private partnership

– Government provides the land– Private industry builds the rail network on a build-own

basis• This will increase the productivity of the Indian

economy• This will reduce lots of wastage

– Significant amount of agricultural produce wasted because of poor transportation

– Reduce petrol bill also

Comparison with China• China

– Rail network of 76000 kms– High speed network of 8400 kms (> 200 km/h)– 2200 km network at 350 km/h– Invested $85 B in decade starting 1992

• India– Invested $17 B in decade of 1992– 64000 km rail network– No high speed trains (Rajdhani < 100 km/h)

Rural infrastructure services

• Majority of India’s population lives in villages (700 million in 600000 villages)

• This implies low per capita income– Need to manage transition to city based economies

• Villagers need access to services (education, healthcare, entertainment, communication, access to capital)

Democracy

• India lacks economic freedom– Government has consistently retarded growth

• “License control permit quota raj” dictates economic activities of Indians– This reduces economic growth– It gives rise to economic rents that attracts criminals

to gain control of government

• Indian people are hardworking and have earned high success outside India– They can within India if the conditions are right

Tyranny and democracy

• Democracy can produce tyrannical governments filled with criminals

• To remain in power– The criminals tax the productive citizens and transfer

wealth to the unproductive– While keeping a good cut themselves– Robbing Peter to gain Pauls support will be popular

with the Pauls

• Only 30% population urban, not influential in elections– Hence political class ignores urban India

Principles for minimal Government

• That government is best which governs least – Henry Thoreau

• Government involved in only basic duties– Law and order, justice, infrastructure, defence

• Removal of monopolies• Independent regulators for all sectors (telecom,

education, power, transportation, Lokpal)• Government should be referee, not a player (Jab

Raja bane vyapari, praja bane bhikari)• Ensure equality of opportunity, not outcome

Middle class voting bloc

• Enough to sway elections (even 30 million voters in metros can make a difference)

• Two generations of Indians have suffered from Nehruvian socialism– Time for a change in 2014 elections

Further reading

• Target 3 billion – APJ Abdul Kalam’s new book – Sustainable and inclusive system for villages called PURA

• Breaking free of Nehru – Sanjeev Sabhlok (ex-IAS)- free e-book – explains how socialism failed us