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Posted at: Oct 19, 2019, 6:44 AM; last updated: Oct 19, 2019, 6:44 AM (IST)

India going slow in tackling slowdown

Sushma Ramachandran

Sushma Ramachandran
What is of grave concern is that the focus is not being put sufficiently on improving the quality of human capital. Short-term measures to improve economic growth have already been outlined and the central bank has also played its part by cutting interest rates. That other measures to stimulate the economy are taking a long time to be unveiled is part of the problem.
India going slow in tackling slowdown
Clear message: India needs to move forward more strongly on reforms in several areas.

Sushma Ramachandran
Senior journalist

India’s economic woes are simply not ending. The latest bad news is that the country has slipped 10 places on the Global Competitiveness Index. This comes on the heels of official data showing that industrial growth declined in August, the worst performance for a single month in over six years. On the plus side, the country remains high on the Ease of Doing Business Index which indicates that some of the recent measures to cut red tape must be working.

As for the competitiveness index, the scale evolved by the World Economic Forum is much broader and takes into account many more parameters than the one for ease of doing business. Apart from macro-economic stability and innovation, where India scores high, it includes elements like health, skills, labour markets and land use regulations. It is in these areas of long-term development that there are major shortfalls in performance. 

For instance, longevity is not as high as in other countries, along with general health parameters being considered inadequate. Similarly, there is rigidity in labour markets and lack of adequate workers’ protection has been cited along with low women’s participation. At the same time, infrastructure in the area of information technology and communications is not as highly developed as many other countries.

It is in comparison to the other countries that India seems to be standing still in the race while others are racing past us. Apparently, the decline in the standing from the 58th to 68th spot is not because of a dip in performance but because the other countries are doing better. Colombia, South Africa and Turkey, for instance, have improved their standings considerably. Even Bangladesh and Vietnam have picked up speed and enhanced their standings as exporters.

The message is clear. India needs to move forward more strongly on reforms in a whole host of areas. These kinds of indices are always of an indicative nature. It would be difficult to precisely say that one country is doing better than another on the competitiveness scale merely by going by one particular index or comparative study. But such global studies highlight trends. And the trend here is that the other emerging economies are trying to make themselves more attractive investment destinations while at the same time ensuring that they provide a better standard of living to their citizens. Not just are the other developing countries proving to be more attractive to investors, they are also improving the parameters related to long-term sustainable development goals in the areas of health, education and technology adoption.

India’s fall in ranking comes along with the release of data showing that industrial output has recorded its worst performance in over six years. Industrial growth in August dipped to 1.1 per cent as compared to 4.6 per cent in the previous month. 

The manufacturing sector, which contributes largely to the index, fell by 1.2 per cent as against 4.3 per cent in July. The last time the industry had shown such a sharp dip was in February 2013 in the UPA era. One can only hope that this is the bottoming out of the crisis and that more pain is not in store for the economy.

Overall, it is clear that both short- and long-term measures are needed to provide an impetus to the economy. The competitiveness index highlights the long-term shortcomings that need to be dealt with, including skilling. But this must be dealt with at the primary school level, with a higher allocation for basic education going alongside better learning outcomes. The quality of teaching in government schools must be enhanced. The fact that it is possible has been proved by the Delhi Government that has had a remarkable success in this area. It is only when learning outcomes are adequate at the school level that skilling and entrepreneurship can be useful. It may then be possible to also address the issue of low female participation in the workforce.

Similarly, poor health conditions and low life expectancy, with India at the 109th position out of the 141 countries surveyed, are areas where a bigger push is needed. Malnutrition continues to bedevil the country and recent reports regarding stunting of children show that the country’s health indicators are in a dismal state. 

These are factors that have a long-term impact on the economic growth. And, for the time being, this country is not comparing well with others on these parameters. There is no doubt that there are multiple reasons for the shortfalls in the area of health. THe fact that this is a large country makes the implementation of programmes at the last mile an extremely difficult task. Even so, the performance in rural areas is not adequate in most states. 

In this context, one must commend the fact that a significant health intervention, the deworming programme, inspired by the work of Nobel Prize winners Abhijit Banerjee and Esther Duflo has been extended nationwide in the past few years.

What can be achieved in the short run, however, is an improvement in information and communication technology to ensure that the digital divide is bridged more quickly. This is an area where growth has been rapid compared to most other countries. But the lacuna is clearly in extending digitisation to rural and more remote areas of the country. 

The fact that India has fallen in the competitiveness index is not a matter of grave concern. What is of grave concern is that the focus is not being put sufficiently on improving the quality of human capital in the country. Short-term measures to improve economic growth have already been outlined and the central bank has also played its part by cutting interest rates. Other measures to stimulate the economy are apparently also on the anvil but the fact that these are taking a long time to be unveiled is part of the problem. 

With the economy has been in free fall for quite some time, early action is of essence. In addition, the need for a longer-term vision is imperative. The index indicates that other countries are gearing up to meet the challenges of a slowing global economy. It is high time India does the same.

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