Challenges Faced by India Inc.

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10 challenges for India to reach 2050 potential
“In our latest annual update to our Growth Environment Scores (GES), India scores below the other three BRIC nations, and is currently ranked 110 out of a set of 181 countries assigned GES scores. If India were able to undertake the necessary reforms, it could raise its growth potential by as much as 2.8% per annum, placing it in a very strong position to deliver the impressive growth we outlined,” it says.

Here are the 10 things for India, as outlined by Goldman Sachs, to achieve its 2050 potential:

India’s governance problems overarch all its other problems. Without better governance, delivery systems and effective implementation, however, India will find it difficult to educate its citizens, build infrastructure, increase agricultural productivity, and ensure that the fruits of economic growth are well-distributed.

Governance problems stem from the increasing inability of the government and public institutions to deliver public services in the face of rising expectations. A large gap between physical access to services and the quality of services provided is leading to a citizen satisfaction gap.

Some observers attribute India’s governance problems to its democracy. Goldman Sachs thinks it is the malpractice of democracy—or the ‘democracy deficit’—that is the cause of the problem.

A well-functioning democracy should allow citizens to have more voice in evaluating the quality of services they receive, for governments and service providers to be accountable, and for citizens to pay directly for services received.

Many international observers tend to see education as one of India’s biggest advantages. This is primarily because they tend to meet only the best and the brightest.

It is the case that India has a large number of highly educated people. But it has a population of 1.1bn and probably the highest absolute numbers anywhere globally receiving hardly any education.

There is evidence that the amount of time spent receiving secondary education is important for economic growth and productivity. India scores poorly relative to the other BRICs, and even below the average of all emerging market countries.

The actual amount spent on education is low, and its efficiency is weak. It is important that India improves the amount and quantity of money spent, and that the quality is improved.

There is also significant need for better higher education. The likely numbers seeking higher education can be expected to grow by three of four times by 2020 from the current number of around 10mn.

The National Knowledge Commission has proposed an increase in the number of universities from 350 today to 1,500 by 2016. It has also proposed an increase in the 18-24 age group — to be educated to university level from 7% to 15%.

India plans to quadruple the number of its universities in the next ten years—an admirable goal and a huge challenge. Its goal should also probably be that at least 20 of these are the world’s best. Shanghai University has become recognised as the authoritative voice on leading universities.

Its latest ranking does not show a single Indian university in the top 300. China itself has six. In order to achieve this kind of ambition, just as in other spheres of life, India’s leadership needs to have strong and imaginative goals. Perhaps India can share ‘best practices’ with leading universities from elsewhere around the world.

Although India has not suffered particularly from dramatic inflation, it is currently experiencing a rise in inflation similar to that seen in a number of emerging economies.

Goldman Sachs thinks a formal adoption of Inflation Targeting (IT) would be a very sensible move to help India persuade its huge population of the (permanent) benefits of price stability. It also recommends greater independence for the Reserve Bank of India and the abolishment of all FX controls.

“We are well aware of some of...
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