On December 18, the British "Economist" weekly published an article entitled "How to Boost India's Economic Development". The following is an excerpt from the full text:
Come to any Indian city, such as Bangalore or Hyderabad, and you will be struck by its optimism. India's economy may be in the early stages of a historic boom. Recently released data showed that the annualized growth rate of the Indian economy soared to 76%。In the past few weeks, four international agencies have raised their views on India's growth this year, from an average of 59% to 65%。
With a slight pause, though, India's performance becomes less remarkable. GDP growth has slowed slightly compared to the previous decade;The labor force participation rate is only 40 to 50 per cent, and only 10 to 24 per cent of women;Subsidies are distorting the economy.
Former Reserve Bank of India (RBI) Governor Rajhoom Rajan and Pennsylvania State University's Rohit Lamba have co-authored a new book that focuses on the tension between India's vast potential and the chaotic reality. The vision outlined by the two men is tantamount to a new development model for India that they believe is more in line with India's strengths than the current one. Their research identified three lessons.
First, India should stop its blind worship of manufacturing – an obsession stemming from East Asia's economic growth miracle. India's per capita income in the 60s of the 20th century was comparable to that of China and South Korea, and today China is three times richer than India and South Korea seven times richer in purchasing power parity terms. At a time when India's competitors were growing driven by low-tech manufacturing, globalization has created a huge market that has led to double-digit growth rates that were previously unheard of. Why can't India follow the example of its rivals?
The problem, as Rajan and Lamba explain, is that East Asia has made manufacturing so competitive that there is not much profit left to be made. In addition, automation has reduced the number of jobs available – manufacturing is no longer a place to find value.
The second lesson relates to services exports, which some in India** see as a new way to capitalize on global demand. Modern technology – especially the Internet – has greatly increased the tradability of services, while countries around the world** are eager to support domestic industries, which has partly contributed to the decline in global goods** over the past decade. However, services** continue to grow. It's hard to argue against a slice of the easy part of the global value chain, especially as the line between services and manufacturing becomes blurred. For example, about 40% of the value added by Chevrolet Volanda comes from its software.
The last important item on the authors' wish list is liberalism – both economic and political. Politicians, they wrote, should start by rejecting protectionism. India's refusal to join the Regional Freedom** Agreement limits its exporters' ability to engage with overseas customers.
Rajan and Lamba paint a beautiful picture of what the future might bring. A better-governed, more open India would be wonderful, but whether their ambitions are politically viable is another question. For example, improving public services may mean delegating power from the state to the local level. Who wants to give up power?Modi certainly doesn't want to, and his opponents probably don't want to. (Compiled by Ge Xuelei).