India’s GDP growth drivers: The simple Five

Service sector has fueled growth for India; for service sector to expand endlessly you need those needing service to stay employed, so the focus remains on the core sector and value added agriculture as always.

Service sector growth is easier to achieve, although it may have its own woes, but it has more things which can be controlled whereas the core sector and agriculture needs engagement of many constituencies as we will see in this short article. Engagement of constituencies to achieve specific objectives is always difficult as objective functions clash with each other as do the constituencies nurturing them.

India’s GDP should be north of 7%, but that would need some non-service sectors to perform, which are very basic like Coal Mining or manufacturing of goods together with railways which must move the basic stuff for production and consumption. Why start with coal, because you need electrification as the backbone and there India has the competitive advantage with coal as the cheapest source of input.

It is as simple as that, for a 7% GDP you need Coal sector to grow at double digit, which in turn cannot grow if railway does not evacuate at a rate that grows by 10% each year.

Railways this year has actually not grown in freight, although it moved 5% more coal. It is therefore good that the government has brought the focus on coal evacuation by rail.

But is it so easy to say that Coal production should grow by double digit, or that railways must have 10% more lanes. It needs first of all the environmental clearances for everything including land for expansion, which includes forest land, land and water bodies meant for natural habitat or the pathways where animals, protected included, pass through.

Then you have the settlements on land which would need alternate rehabilitation. Much of this falls in the ambit of State Governments as land is owned by State Governments and here the inter-ministerial coordination moves from Center to State (right up to the Tahsildar) and offices of environment & forests & pollution have to coordinate with local actors on the ground.

For every action on the ground there is an equal and opposite reaction, Newton’s third law is potent in the spheres of settlements in lands which hold minerals on the ground. Compensation is never the moot issue, the issue revolves around whether the benefits are known to the people involved and if accepted by them it can be implemented in letter and spirit.

If India has to grow, this very simple puzzle needs a serious solution, which going by the track record, we have progressed only far too slowly. We need 10% growth in acquisition of agricultural or non-agricultural land every year for deployment in mining or in railways, we need alternate allocation to take care of the current needs as well otherwise the conflicts would be mounting.

The same is not true for land for roads, which in the first rounds of road expansion we have progressed well.

Speed of execution of projects is the next constraint for GDP to improve. Projects get announced by one regime and get executed by the other; ones who execute have to take the brunt of land acquisition where the potential hazards lie in terms of attracting ire from the same constituencies who need development.

This is where the scepters of democratic processes clash with those of development. If an electorate would elect on the basis of projects executed every constituency would have seen hectic activity throughout the year; unfortunately the only activity that gets the representatives elected is in the ceremonies of project announcements, most of which do not see the light of day. This is easier to execute than the projects themselves.

Thus crystal ball gazing sometimes get the better of actual things happening on the ground; results get focused on much more instead of the underlying process that would lead to the results.

It would do a world of good if all the commentators focused on the processes that would lead to GDP enhancements rather than the absolute number. Sometimes single event cascades like demonetization could have a very serious impact on GDP as lack of money in the informal sector is synonymous with lack of economic activity but at the same time large credit flows do not automatically flow into economic gains either.

Availability of credit to the needy farmers is the next very important item for India’s GDP. How much year on year expansion do we see in this credit is a very leading indicator to India’s GDP growth. Farm credit becomes a far more political issue as the leakage is mounting, while there is no insurance for the marginal farmers for crop loss for events beyond their control. Maybe some kind of implicit insurance would do a world of good.

Think of it, if fate of five percent farmers could be improved that could lead to GDP improvement of 1%.

Discussions on India’s GDP rarely touch on the very fundamental issues like land acquisition, environment clearance, fast execution of projects and the hindrances around them or the simple thing like credit disbursement to the farm sector.

It is a no-brainer that with a quarter of the world’s young people residing in this country, it just needs these basics to be right for income expansion to happen. It seems that we do more to constrain it by not acting in concert.