Dissonance on sustenance

The country is beginning to accept and enjoy its status as the world's second emerging economic superpower, but voices of concern are beginning to be heard overseas. This is only natural, as any politician will admit; the more you are in the limelight, the more attention is focused on you and, under greater scrutiny, more and more flaws are discovered. As India's growth rate converges towards that of the unquestioned leader in the race, China, many observers are beginning to raise questions about how real and how sustainable India's current economic performance is. A prominent example is the Economist, among the world's more widely read economic weeklies, which in its last two issues has advanced several reasons for viewing the India story with a pinch of salt, if not downright scepticism.

One important consideration is the contribution of productivity to overall growth, which, a recent study by Barry Bosworth and Susan Collins of the Brookings Institution suggests, is far less in India than in China. This fact, combined with the significantly higher investment rate in China, gives the latter a decided edge when it comes to sustainability. More importantly, since the Indian growth pattern is more skewed towards services, in which productivity growth is notoriously hard to measure, the two authors in collaboration with Arvind Virmani from the Planning Commission infer by a process of elimination that the productivity growth in Indian services has not been very good. This implies that the growth momentum will only continue as long as more and more resources are deployed. But skilled workers, a key input into services, appear to be in increasingly short supply.

Other threats to sustainability that are highlighted are the excessive dependence of the healthy balance of payments on non-resident remittances, the hidden burden of subsidies on the fisc, the slow movement of workers from the farm to the factory or office, and the quality of public services. Of course, many of these have been repeatedly emphasised by domestic commentators in every conceivable forum. The exception is the concern about remittances, since most observers see this as a relatively safe and sustainable source of foreign exchange inflow. Be that as it may, in the midst of the current euphoria about the economy and its expanding global reach, the natural reaction within the country would be to dismiss these as the fulminations of an order whose time has passed.

That would be the wrong response. Regardless of who the messenger is, academic or journalistic, foreign or domestic, the factors mentioned must be treated on their merits. And, unquestionably, many of them are problems unaddressed by the reform process (some, in fact, are perhaps its unintended consequences) and loom larger and larger as threats to sustainability. It is more constructive to view the fact that influential foreign media are beginning to turn their attention on these issues as a reflection of heightened scrutiny of an economy that is unquestionably emergent, than to see it as carping criticism. The rest of the world has a growing interest in seeing India sustain its current growth performance. For a while at least, we are all aligned on this issue.