MUMBAI – The global economy’s slowdown has not spared India. Sustaining the growth that it needs to continue to lift millions of people out of poverty will require rethinking its economic-policy approach. If India is to succeed, it will have to deepen regional and domestic demand, strengthen its macroeconomic institutions, and join in the fight for an open global system. Diminished expectations abroad should not lead India to lower its ambitions.
Fulfilling these ambitions will require efficiency-boosting investments, particularly in infrastructure. Every corner of the country should be linked to domestic and international markets through roads, railways, ports, and airports. Inputs, such as energy, minerals, and water, must be made available at competitive prices. The country should be linked to broader markets through mobile devices and broadband, and access to finance must be made easier, especially for those who traditionally have been excluded. Plans to achieve these goals are being developed; they must now be implemented.
Moreover, human capital must be improved. This presupposes higher investment in health care, nutrition, and sanitation, so that India’s citizens are healthy and able; education tailored to developing skills that are valued in the labor market; and the creation of jobs in firms that have an incentive to invest in training. Achieving all of this requires that the bureaucracy focus on serving the economy, rather than – as has too often been the case – vice versa. Promisingly, the political leadership has affirmed its belief in “minimum government, maximum governance.”
Fueling growth through domestic demand will have to be carefully managed. As a country that does not belong to any power bloc, India cannot afford to put itself in the position of needing multilateral support – a trap into which even developed countries, like Portugal and Spain, have fallen. There is the risk of overstimulation, with fiscal deficits fueling large current-account deficits and debts, which suddenly become unsustainable when money gets tight. The few emerging economies that have avoided booms and busts have done so by adhering to sound policy frameworks.