In what might be characterized as disclaimers, Professor Bibek Debroy brought India down to earth before showing how important changes in the country are poised to help it soar.
Despite its rapid growth rate and accomplishments in reducing poverty, India is still a poor place where 100,000 of its 600,000 villages lack access to basic government services, rendering them “deprived and marginalized and bypassed” nearly 70 years after independence, he said in a keynote talk at the USA India Business Summit in Atlanta Oct. 14.
“Despite the prognosis about high rates of growth in the future and the prognosis about what’s going to happen to India in 2032 and beyond, it’s still a poor country,” he said.
And it’s a country where cash-strapped state and local governments often have to choose between being good at one thing or bad at many, said Dr. Debroy, an economist and member of the National Institute for the Transformation of India, a policy think tank formed and chaired by Prime Minister Narendra Modi.
But because of that, and thanks to a new momentum in Mr. Modi’s administration, India’s bureaucracy is changing how it relates to its people to deliver what they need, Dr. Debroy said.
The country is decentralizing authority in an unprecedented way, starting with the Goods and Services Tax, or GST, which will remove the stacked points of taxation that have long plagued commerce between Indian states.
The measure is expected to provide states a steady revenue stream, enabling them to avoid waiting for a federal finance commission to allocate funds for the basic services they were already required to provide. After a decade of talk, the measure finally passed India’s parliament in October and is expected to be implemented next April.
And that’s just the start. India is tackling urbanization and energy issues by encouraging localities to plan their own “smart cities” through competitions, and a “competitive federalism” program has been unleashed, driving a contest among states to reduce regulations in a bid to win investment. It’s part of an initiative to trim low-hanging bureaucratic fruit in which the national government itself has already cut statutory regulations from 2,000 to 500. Some states like have followed suit. Rajasthan has trimmed its statutes from 900 to 250, Mr. Debroy said.
Tax and subsidy reform are also essential to empowering government, for simple arithmetical reasons, Dr. Debroy said. Combined, governments collect about 17 percent of GDP on taxes but effectively spend 14 percent on subsidies, leaving just a tiny sliver of funds to deliver anything beyond the most basic of services, Dr. Debroy said.
Nationally, the government has responded by changing the way it determines who is below the poverty line. Now, instead of a survey, it’s done by census.
“Implicit in this is a very important statement, which is that whether a person or a household is poor or not is an individual household level characteristic. It has nothing to do with caste, ethnicity, gender or religion,” he said. “This is a major, major political shift.”
The government is now creating rudimentary bank accounts to deliver these subsidies, which are linked to a biometric identification number known as the Aadhaar, a system that has already enrolled more than a billion people. With these developments the way India talks about financial inclusion has changed, Mr. Debroy said.
“The debate has shifted to developing financial products that persuade and incentivize people to use the bank accounts that have now been created. ” Dr. Debroy said.
And a government which used to provide funds for essentials can now let citizens determine on their own how best handle to their money. This approach — giving the poor the dignity of self-determination — hasn’t been popular, Dr. Debroy said, especially as studies in two cities showed that funds earmarked for kerosene are being used to charge their prepaid mobile accounts.
“The traditional mindsets in India and many other countries is that poor people don’t know what’s good for them,” he said. “Every time, we say, ‘It’s for them to decide,’ it’s like a brick wall.”
But Indians find ways to one remote village he visited, Dr. Debroy saw people giving their bank cards and PIN numbers to a bus driver, asking him to bring their withdrawals back on his next circuit.
Despite these momentous shifts, he said, broader change won’t happen overnight. India’s public banks are still unhealthy, and progress will always be slow in a democracy as unwieldy as India’s. But Mr. Modi’s plan promises a 10-year horizon, not a quick fix, he said.
Indeed, the World Bank’s “Doing Business” rankings put India at No. 130, a measure Dr. Debroy says provides an incomplete picture but will likely improve anyway soon.
Opportunities abound for collaboration with the U.S. along India’s journey, as evidenced by the companies and organizations that presented after Dr. Debroy about their interactions with India.
Barry McCarthy, executive vice president of First Data Corp., the global payment processing giant that has joint ventures with large banks in India, said the company is exporting lessons it has learned in a country that is “leapfrogging” the traditional progression of electronic payments.
Georgia’s neighbor, South Carolina, has set up an office in Delhi to help recruit investments like United Phosphorus Inc., an Indian chemical producer that plans to create 65 jobs on a $20 million investment in Williamsburg County.
Now in its seventh year, the UIBS summit was put on by Ani Agnihotri of the United States-India Business and Research Center and Georgia Tech’s Center for International Business Education and Research.
Nagesh Singh, consul general of India in the Southeast U.S., was also on hand for the event. The following week, he discussed these issues and many more during an interview as part of Global Atlanta’s Consular Conversations series. Read that here.
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