Investment bank Goldman Sachs was one of the first to bring India’s economic potential to the attention of a wider audience. It wrote the first Bric report—on Brazil, Russia, India and China—in October 2003, at a time when the mood here was dark and the economy was mired in a slowdown.
Goldman Sachs has put out a new report this week that identifies the 10 things that India should be doing if it is to grow its economy 40 times by 2050. The to-do list tells us a lot about how India has changed in the past 15 years —and how its policy challenges have changed.
It is worth comparing the Goldman Sachs list with two earlier reform catalogues—the Washington Consensus of the early 1990s and then consulting firm McKinsey and Co.’s 13 suggestions to the Vajpayee government in 2001.
The Washington Consensus was reflected in much of the early reforms in India by the Narasimha Rao government.
A lot of that work is done. Tax rates are moderate. Protectionist walls have been lowered. Interest rates have been freed. There has been deregulation. Foreign capital is welcome. The only two major tasks that have not been addressed are fiscal discipline and reform of government spending. The former gets mention in the Goldman Sachs list.
McKinsey and Co. focused on how to make India a more productive economy. It focused on the next generation of reforms—modernizing the retail trade, better land markets, effective regulators, no reservations for small-scale production and reform of labour laws. Not everything has been done, but India has managed to double its growth rate in the intervening years.
Goldman Sachs has some standard reform proposals, such as lower fiscal deficits and liberalized financial markets. But it also suggested a lot of “soft” stuff such as improved governance, better primary education, more and better universities and improved environmental quality.
That tells us two things. One, reform agendas will have to keep changing. Two, India needs to focus on governance and human capital.
But, as economists such as Dani Rodrik and Abhijit Banerjee have demonstrated, policies have to also take local factors into account.
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