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Time to pay attention to the finer points of the BRIC report
Goldman Sachs’s most famous Global Economics Paper No. 99 named Dreaming with BRICs: Path to 2050 is no news now-a-days, at least in India, given the impunity with which this has often been referred to by nation’s polity and policy makers to showcase the bright future of our country. And also as if forewarn all those, who are yet to make up their minds about investing in India or take it seriously, as to what a grave mistake they would commit if they gloss over the writing on the wall.
This year, Goldman Sachs even revised their previous estimation thereby putting India even ahead of the US by 2050 in terms of Gross Domestic Product (GDP). Much to the glee of the Indian policy makers, soon thereafter, India entered the exclusive trillion dollar club. But in the midst of all these, one thing was completely ignored, i.e. the warning from Goldman Sachs which had laid down four conditions namely, macro stability, institutions, openness and education. While India’s combined fiscal deficit (that of the Centre and the states together) of about 9-10%, is a major dampener to the right kind of macro stability, lack of reforms in agriculture, power and education spheres and several other government departments like the Department of Post make sure that fiscal deficit would continue to remain high. Its reduction, if at all is not in absolute numbers but because of the increasing GDP, as a percentage looks lesser. Subsidies continue to serve the rich and middle class and incredible amount of loss in power and oil sectors is a proof enough of lack of right kind of institutional mechanism. All that oil bonds end up doing is to shift the subsidy burden to a future date. Sheer lack of pragmatic regulatory bodies ensure that cross subsidies remain very much a part of system of governance, thereby stifling growth in key sectors like aviation which continues to pay the price of the distorted price juggleries in oil sector. Incidentally, the price of aviation fuel in India is about 70% more than that in the international markets. In the same league, absence of institutional mechanism, translates into a challenge, when venture capital for starting a business is sought. Industries like insurance and banking are yet to receive full dosage of foreign investment even when they, and especially the insurance sector, are in dire need of fund infusion.
That the Indian economy is yet to be opened properly is vindicated by the fact that a stronger rupee is increasingly becoming a major cause of concern for the government and the exporters, at a time, when India ideally should be celebrating the strengthening rupee as a sign of a growing and potent economy. Instead, strict controls on capital outflow ensure that India isn’t being able to extract maximum mileage from it. The fourth and the most important point as stated by the Goldman Sachs report is on education. Unfortunately India’s dismal ranking (128th) in the UNDP Human Development Report portrays the dismal condition in terms of education and health. This can severely impede India’s economic dream run as it would invariably dry down the future supply of quality manpower. In addition to it, distorted subsidies for education like in other sectors, make sure that even today, urban college students spend more on one time recharge of their cellphones than on paying college fees, thereby depriving the millions who otherwise deserved the subsidy, more. It is for all these reasons that for India, BRIC dream is still nothing more than just daydreams. And to make it a reality, the bricks of the BRIC will have to be first of all put in the right place. Or else, the ‘I’ of BRIC would just collapse like a pack of cards.
By:- Pathikrit Payne
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