The Hindu Business Line : Hurdles in way of growth

`Whatever constraints (to growth) are there, are internal: constraints imposed by our polity, our social structures, our regional imbalances, our ability to handle inequity and our ability to take hard but essential decisions.'

ON NOVEMBER 14, at the inauguration of the 25th India International Trade Fair in New Delhi, the Prime Minister, Dr Manmohan Singh, said that the constraints to economic growth lay within the country rather than outside it. To quote him: "There are no external constraints to our growth. If at all there is a constraint, it is at home".

And for good measure, he laid stress on the resolve that "Our Government is determined to reverse this."

A fortnight later, on November 29, he harped on the same theme while speaking at the 21st India Economic Summit (again in the capital) when he said: "Whatever constraints (to growth) are there, are internal: constraints imposed by our polity, our social structures, our regional imbalances, our ability to handle inequity and our ability to take hard but essential decisions."

Reports of the speech mentioned agriculture as one problem area which was "under-performing" with the Prime Minister saying: "The key breakthroughs that we have to make in our country to spread the benefits of economic reform lie in the area of agriculture".

It is, of course, clear that despite what Dr Manmohan Singh, an economist in his own right, has said about external-internal constraints to growth, the fact remains that developing nations as a bloc (and India is very much a part of the bloc) face severe trade hurdles in their quest to sell their products in the international market, especially in the rich countries.

Indeed, this is what the ongoing WTO-struggle is all about, the focus of the current problems being the point that the developed economies are not willing to eliminate or reduce trade-distorting subsidies to farmers and other domestic-producer lobbies, which is ultimately harming the exports — and farm-product prices — of poor economies and thus their growth prospects.

So, there are external constraints to a poor nation's growth prospects, and it would be silly to suggest that Dr Singh is not aware of them. He was probably speaking in relative terms, meaning that the internal hurdles are much more serious than the external obstacles, and that if the former were cleared the way to sustained growth would be far smoother than if it was the other way round.

On Thursday, the Prime Minister threw some more light on what the internal hurdles in the way of growth are when — at a seminar on "Democracy, Development and Social Inclusion" in New Delhi — he argued that "facilitating sustained development within a democratic framework like that of India was not an easy task." Elaborating, he added: "Development entails inter-generational trade-offs and choices that political parties cannot easily make, given the electoral compulsions. Moreover, it is not always easy to ensure popular support for difficult decisions Governments must take in the interests of development."

Dr Singh's suggested prescription was that the urge to take populist steps in such circumstances should be resisted. "In particular, there must be general acceptance of the proposition that money does not grow on trees, and a nation cannot spend its way to prosperity."

He emphasised that, in the final analysis, a nation's standard of living was "a matter of higher efficiency and higher productivity, and there are no short-cuts to it."

That is, the calculus of "pain and pleasure" will have to be carefully and prudently managed during the growth process in a poor economy, not only relating to different strata of society, economically speaking, but even within specific stratas.

Thus, some PSU employees may have to be relocated/retrained/paid off for the sake of the betterment of a much larger number of PSU workers, etc.

The EPF interest rate issue, currently rocking the Lok Sabha, is another subject where a more mature view of the problems involved needs to be taken if what the Prime Minister has described as "unwanted populism" is to be held in check. Democracy by itself will always be a spur to economic growth because in such a political and constitutional environment it can only be all-inclusive. But, of course, it has to be a "responsible democracy" to be able to deliver the goods. The question: Is India turning out to be such a democracy?

Ranabir Ray Choudhury

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