Current General Studies Magazine: "An A-minus for PM Modi" May 2016

Current General Studies Magazine (May 2016)

General Studies - II "Debate Based Article" (An A-minus for PM Modi)

No one expected it would be easy for a successful Chief Minister to transform India. The two years of the Modi government can be assessed in terms of its relations with the States, the performance of the Union Cabinet, sectoral policy shifts, and strategic initiatives.

The first strategic shift was in the abolition of the Planning Commission, which would itself enable India to achieve its potential of sustained growth rates of 10 per cent, which China alone has been able to do.

What did China do differently? It followed global historical trends in shifting rural populations into the urban middle class, with infrastructure investment contributing significantly to economic growth, improved standards of living, and reduced inequality. In the U.S., three-quarters of the population had moved to cities by 1970. China, with ten times the population of the U.S., will achieve this by 2030. The difference is the pace; the U.S. had shifted 250 million to cities in 100 years by 1970 while China will shift 750 million in 50 years from 1970.

What the Chinese did

In China, fixed capital formation, the measure of investment in national accounts, increased at an average annual rate of 11 per cent between 2000 and 2013, amounting for half of GDP in 2013. Infrastructure accounts for one-third of this investment.

In the late 1990s, two-thirds of the investment went into electricity generation. In the past decade, transport infrastructure has comprised one-quarter of the investment in infrastructure. China’s production increased five times from 2000 to 2010, and industry accounted for 70 per cent of energy used. Within industry, cement and steel production accounted for one-quarter of the total; half of the steel went to the construction sector. In the future one-third of the investment for infrastructure is expected to go to city development and one-quarter to water and power development, also in cities, again directly impacting living standards.

The social sector has attracted only 12 per cent of direct investment in China in the period 2000 to 2012. India’s higher direct allocations to the social sector achieved meagre results, and Mr. Modi is rightly shifting this role to the States and the private sector. This is another strategic shift that has gone unrecognised.

Around the time China was beginning its push on infrastructure, in 2003 the Planning Commission’s India Vision-2020 highlighted education and employment as thrust areas for achieving 100 per cent literacy and employment generation of 200 million, and a GDP growth of 9 per cent per annum by 2020. Significantly, while the urban population was projected to rise from 25.5 per cent in 1990 to 40 per cent in 2020, the focus remained on rural rather than urban unemployment. The Planning Commission ignored the historical trend of the critical role of infrastructure, though it acknowledged the role of policy.

Prime Minister Modi’s significant achievement is to jump-start road building. In 2015 India spent $11 billion laying 3,700 miles of highways, 36 per cent more than the previous year. The aim this year is to spend $33 billion, or 11 per cent of the Budget, on infrastructure, to lay 9,300 miles of highways. Connectivity is already transforming the rural countryside with new sources of livelihood. New towns are sprouting and the challenge now is to raise standards of living to middle-class levels through skill development for employment opportunities in manufacturing, urban services, the digital economy as well as improved civic amenities.

The key role of cities in raising standards of living has also been recognised by Mr. Modi. Secretaries to government were tasked to come up with a set of measures to move the country from an economy of $2.2 trillion to $10 trillion (China’s current level), achieve 10 per cent growth, and eradicate poverty by 2032. The policy priorities of the Budget are now infrastructure, providing a surer means of raising standards of living.

The problem with this document is not the lack of macroeconomic analysis; it is that it remains a bureaucratic exercise. For example, the presentation by the NITI Aayog to the Prime Minister on ‘Civil Services Day’ lists the ‘vision’ in terms of ‘linkages with sustainable development goals’ and ‘implementation’ through workshops, meetings and panels, avoiding setting national goals and analysis of implementation issues.

The national vision for 2032 should be a frame of reference for the 15-year action plan of Central ministries, State governments and the private sector. It should have a limited focus. Electricity generation and use, laying fibre-optic cables and broadband usage, highways and city development, improvement in technical education levels, and linkages with employment for 175 million jobs need review at the level of the Prime Minister and Chief Ministers to iron out cross-cutting policy issues. It is not the number of targets but key result areas that matter.

A new framework and vocabulary

The transition needs a political push. NITI Aayog is yet to recognise that by 2032 two-thirds of the population will be in cities. Consequently, it has not rationalised rural schemes by taking advantage of increased connectivity without reducing the level of services provided to the poor, in order to shift budgetary resources to urbanisation. Continuing urbanisation and services will now be the drivers of growth and urban infrastructure.
Similarly, harnessing opportunities in a knowledge-based economy requires simultaneous investment in infrastructure, skill development, research and innovation within an integrated approach, and these areas should also get the bulk of the resource allocation.

A new framework needs a new vocabulary for India to be a global knowledge power. Prime Minister Modi is yet to get the NITI Aayog to support him and the Chief Ministers through a more rigorous analysis of why an appropriate urban design and infrastructure, and skill development achievements consistently do not meet targets and stated outcomes. His overall score card is an A-minus.

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