The Indian economy can, and must again grow faster than 8%, the Prime Minister said to CII at its annual meeting on April 3rd. He said the global economic slump had crimped India’s growth but the larger constraints to growth are within the country. He emphasized the need to create an environment that attracts investments and, for that, the urgent necessity to remove impediments to implementation of projects and policies.
Imperatives for India’s growth are: build infrastructure faster, attract more FDI, grow manufacturing, increase employment rapidly, and improve delivery of social sector schemes. More investments in infrastructure and manufacturing from foreign and domestic sources are essential to increase the productive capacity of the economy. Money to invest seems to be around and not only with foreign investors. Even Indian corporations have money though they appear more willing to invest abroad. Public sector companies have hoards of cash. Investments in new projects in the country have dwindled not because there is no money to invest but because it is difficult to get things done on the ground.
There are many reasons why India’s manufacturing sector has not grown as fast as it could. These include the poor state of India’s power and transport infrastructures, the messy business regulatory environment, inadequate flow and high cost of credit for India’s SME sector, and availability of land. Amongst these constraints, though not on top, are the country’s labor laws. Labor laws must be reformed: many are archaic, there are too many, and they are badly administered. For over twenty years both employers and unions have demanded reforms of labor laws. But reforms have not been possible because there is no consensus between employers and unions about what the laws should be to protect the interests of all stakeholders.
India compares poorly with other developing countries in improving human development indicators. Countries in sub-Saharan Africa as well as our poorer neighbor Bangladesh have been improving faster than we have. We have more money than them, but they deliver benefits and improve outcomes more effectively. Causes of our poor performance are badly designed programs with agencies working in silos and protecting their turfs rather than collaborating to improve outcomes for beneficiaries.
Common causes of these principal problems of the economy—insufficient investments, slow growth of manufacturing, and poor outcomes of social sector schemes—are contention amongst stakeholders, very poor coordination amongst agencies and, as a result, very poor implementation. The solutions to these root cause problems cannot be allocation of more money to schemes. This would be like putting more water in the overhead tanks of the Ministries and national schemes when the solution must be to untangle and clean up the delivery pipes. Nor is the solution even more laws which are then badly implemented.
India’s growth story is stuck in a million bottlenecks now. The Cabinet Committee on Investments will resolve disputes holding up large projects. But the bottle-necks in implementation of policy reforms and in project execution are not only at the top of the system. They are in many places—in the states, in the cities and districts, and amongst middle level functionaries in ministries too. Kicking up issues that should be coordinated and resolved lower down is creating a bigger jam at the top. The solution is to improve collaboration and coordination amongst concerned stakeholders at multiple levels in the system. This is a management issue, not a policy or budgetary issue. Management abilities are required to convert contention amongst stakeholders to more collaboration and confusion into coordination and thus, lofty intentions into implementation.
It is often said that when Indians get together their tendency is to argue. By repeating the cultural stereotype of the ‘argumentative Indian’ we do ourselves a disservice. Indians can collaborate. We could even learn to do it more often. Nations can change their work cultures. The Total Quality Movement (TQM) transformed Japan’s abilities to get things done in many industries that became world beaters, and in many public services too (e.g. the Shinkasen trains). TQM spread tools and skills for ‘small group activity’ throughout Japan in the 1960s and 70s. Groups of people systematically applied these techniques to improve teamwork and make systemic improvements within their domains. It all added up to the transformation of a nation’s self confidence and its economy.
India needs a similar movement to revive the economy. The concept of this movement, called the India Backbone Implementation Network, is described within the 12th Five Year Plan. Let us implement this idea to clear the many blocked arteries of the economy, and get confidence back in the country that we can get things done.