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A Nation That Has Forgotten about Competing

November 17, 2013 in Economics

By Swaminathan S. Anklesaria Aiyar

Swaminathan S. Anklesaria Aiyar

Back in 1991, India was the world’s greatest aid recipient, a patently uncompetitive giant begging for alms. Economic reforms from 1991 onwards gradually made India highly competitive, enabled it to touch 9% GDP growth, and to be called a potential superpower.

Those days are gone. GDP growth has halved to 4.5%. India has become uncompetitive in several ways. Worse, the Indian political class has stopped even trying to compete globally. It focuses on subsidies, reservations and special measures for sundry vote banks, regardless of the implications for competitiveness. This will ultimately lead to bankruptcy, not inclusive growth (as claimed by Congress spin-masters).

India has a deep structural problem that is not even recognized, let alone redressed.”

When India went bust in 1991, drastic measures over several years were needed to restore competitiveness. The rupee was devalued hugely, industrial licensing and MRTP clearance were abolished, trade was liberalized, import duties were gradually slashed from 300% to around 10% by 2005. Public sector monopolies like telecom and oil refining were opened up to the private sector, enabling the creation of the world’s fastest growing and cheapest telecom service, and the world’s biggest export-oriented refineries. Liberal foreign investment converted India into a global small car hub, Many multinationals like GE came in and made India an R&D hub. A liberalized private sector created the software/BPO revolution.

Merchandise exports rose from 5% of GDP to 15%. Service exports rose even faster, and India became a world leader in software. The rupee strengthened from Rs 50 per dollar in 2002 to Rs 40 per dollar by 2008. India’s rising competitiveness made it a potential superpower. That’s suddenly gone. In the last three years, GDP growth has plummeted, industry and exports have stagnated, the current account deficit has widened dramatically, and the rupee has crashed. A year ago this finally persuaded the government to embark on some reforms, but these have failed to revive the old dynamism.

Why? Because the new measures do not change the political mind-set of constantly ignoring competitiveness in formulating new policies and regulations. Politicians take competitiveness for granted, and just want to divide up the spoils of growth. Alas, neglect of competitiveness has meant a collapse of growth, and hence of the spoils too.

In his 1997 “dream budget”, Chidambaram declared India would steadily reduce its import duties to ASEAN levels. This aimed to make India competitive with …read more

Source: OP-EDS

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