Transforming India

Krishnan GTC talk, December 11,2011

Who is Atanu Dey ? Economist Writes a blog on Indias development at www.deesha.org Chief economist at Netcore

Guess which country we are talking about

Most of its people are impoverished Half of its children below five are malnourished Has the largest number of illiterates in the world Has very high levels of corruption at all levels of governance People lack economic freedom

India was the mother of our race, and Sanskrit the mother of Europe's languages. She was the mother of our philosophy, mother through the Arabs, of much of our mathematics, mother through Buddha, of the ideals embodied in Christianity, mother through village communities of selfgovernment and democracy. Mother India is in many ways the mother of us all Will Durant

Outline
Why is India poor ? Transformations needed
Education Energy Urbanization Transportation Rural services Democracy

India is very poor

Even when compared to other developing nations Per capita is just $1527 and ranks 137
China is about $5184 and ranks 95 In 1978, India was actually richer than China

445 million Indians live on less than Rs. 26/day

Why is India poor ?

Poor leadership
Leaders could draw crowds but did not know how to govern

Poor public policy choices

Disallowed foreign investment Led to chronic, acute poverty

Parasitic Government
Not wealth creator, at best wealth distributor Roving bandit governments with short planning horizon

Poor family subsisting on jackfruit seeds

Who can change India ?

The rich ?
Little incentive to create change

The poor ?
Too busy scratching a living

The middle class ?

Can change the country Were earlier a small constituency, now large

Knowledge to create change

Knowledge to create change will come from advances in ICT
Internet, mobile phones

TV and media too controlled by Government This knowledge can lead to more informed voting Will take a generation of rapid economic growth to lift India out of poverty and develop into a state where we can develop without economic growth

Economic Interlinkages

Education

Education
India literacy rate is 60%
Similar countries are Sudan, Rwanda, ..

Approx 360 million children

140 million not in school Only 22 million get a decent education

India spends a lot on education

$90 billion annually in public/private spend Comparison: $ 45 billion spend on power in 11th plan

Education in India
In bad state despite a decent spend Heavily controlled by the Government
Government dictates everything (syllabus, teacher salaries) Allows only non-profits (who take profits by way of donations and capitation fees anyway)

Government puts entry barriers

Leads to bribes for licence to setup schools/colleges Supply cannot meet demand

Has led to a dysfunctional system

Steps needed urgently

Liberalization Allow anyone to enter sector, competition will lead to quality Public spending needs to be channeled properly Need independent education regulatory authority Need funding and credit market easy availability of loans Enlarge options for post secondary education
More vocational schools needed

Commit to achieving 90% literacy

Energy

Energy
Greatest constraint for development is energy availability Still no 24x7 power (even in many metros) Need secure, reliable sources of energy

Steps for energy sufficiency

Annual solar energy/square mile = 4 million barrels of oil
India consumes 12 million barrels/year 70% imported, $100 to $150 billion/year

Invest $100 billion in developing solar energy technology

Urbanization

Urbanization and development

Urbanization and development are correlated Cities are engines of growth
Gandhiji Every village should be self sufficient Gandhiji was WRONG

Development cycle
Labour moves from agriculture to manufacturing to services

India needs new cities

Population in cities
1800 3% of 900 million 1900 10% of 1.2 billion 2011 50% of 7 billion

Cities are disproportionately productive India needs atleast 200 new cities

Themed cities
University city with theater, museums, art centers, sports Manufacturing cities access to ports, vocational institutes Pilgrimage cities

Transportation

Transportation
US style road transportation not an option
Cars and fossil fuels are very expensive

US uses 25% of worlds fuel to transport 5% of worlds people To match US we would have to use 4 times the current world consumption Air travel is not an option either
US has 40000 flights for 300 million, India would need 160000 flights daily

Rail transportation
Only option is railways, nothing as efficient as steel locos/wheels on steel rails Need a fast train system
Trunk routes (Mumbai-Kolkata and Delhi-Bangalore) via Nagpur Link routes (Mumbai-Delhi, Delhi-Kolkata,KolkataBangalore, Chennai-Mumbai)

Speeds of 250 km/hour Government needs to release monopolistic hold on railways (as it did with airlines)

Cost of high speed rail network

$10 million per km, total of $100 billion Can be executed by public-private partnership
Government provides the land Private industry builds the rail network on a build-own basis

This will increase the productivity of the Indian economy This will reduce lots of wastage
Significant amount of agricultural produce wasted because of poor transportation Reduce petrol bill also

Comparison with China

China
Rail network of 76000 kms High speed network of 8400 kms (> 200 km/h) 2200 km network at 350 km/h Invested $85 B in decade starting 1992

India
Invested $17 B in decade of 1992 64000 km rail network No high speed trains (Rajdhani < 100 km/h)

Rural infrastructure services

Majority of Indias population lives in villages (700 million in 600000 villages) This implies low per capita income
Need to manage transition to city based economies

Villagers need access to services (education, healthcare, entertainment, communication, access to capital)

Democracy
India lacks economic freedom
Government has consistently retarded growth

License control permit quota raj dictates economic activities of Indians

This reduces economic growth It gives rise to economic rents that attracts criminals to gain control of government

Indian people are hardworking and have earned high success outside India
They can within India if the conditions are right

Tyranny and democracy

Democracy can produce tyrannical governments filled with criminals To remain in power
The criminals tax the productive citizens and transfer wealth to the unproductive While keeping a good cut themselves Robbing Peter to gain Pauls support will be popular with the Pauls

Only 30% population urban, not influential in elections

Hence political class ignores urban India

Principles for minimal Government

That government is best which governs least Henry Thoreau Government involved in only basic duties
Law and order, justice, infrastructure, defence

Removal of monopolies Independent regulators for all sectors (telecom, education, power, transportation, Lokpal) Government should be referee, not a player (Jab Raja bane vyapari, praja bane bhikari) Ensure equality of opportunity, not outcome

Middle class voting bloc

Enough to sway elections (even 30 million voters in metros can make a difference) Two generations of Indians have suffered from Nehruvian socialism
Time for a change in 2014 elections

Further reading
Target 3 billion APJ Abdul Kalams new book Sustainable and inclusive system for villages called PURA Breaking free of Nehru Sanjeev Sabhlok (exIAS)- free e-book explains how socialism failed us