Excerpts from the PM's address at the McKinsey Meet
India is a nation on the move. I am confident that our time has come. India is all set to regain its due place in the comity of nations, as a plural, secular and liberal democracy, as an open society and an open economy.
Never before has the Indian economy sustained close to 9% growth year after year for so long. Most projections suggest that we should be able to sustain this rate into the medium term. You must compare this number against the fact that for almost three decades after Independence, our annual growth rate was a mere 3.5%. The economic reforms we initiated in the 1980s and took up with greater vigour in the 1990s helped push this growth rate up to an average of close to 6.0% over the last two decades of the last century.
It is important to appreciate that this acceleration of growth is not a flash in the pan. There has been an increase in our gross investment and savings rate, particularly in the last three years. I believe this will be sustained into the foreseeable future because of the demographic transition underway. India is a country of young people. It will remain so for sometime to come. The generation of savers outnumbers the generation of dis-savers.
Secondly, our growth process is largely based on growing domestic consumption. Ours’ is not an export-led growth model. Nor are we a mercantilist economy pursuing beggar-thy-neighbour trade policies. India’s growth process is based not only on an expansion of the home market, but also largely on the rise of domestic enterprise. The economic reforms of 1991 unleashed a new era of entrepreneurial growth in India. McKinsey should be familiar with that! I believe most of your clients today, certainly the most important clients of yours, were either non-existent in 1991, or had hardly any presence at that time. I call these enterprises the “children of reform”. Today they are among the world’s more respected companies.
Clearly, India has got off to a good start in the first decade of this millennium. However, I do believe that we have a long road to travel before we can claim to have fulfilled Mahatma Gandhi’s prayer to wipe the last tear from the poorest of the poor. Our government has been committed to making the growth process more socially inclusive. A great part of our effort in the past three years has been precisely in this direction.
We have launched a number of initiatives to step up investment in agriculture and rural development, in education and health care, in urban renewal and poverty removal, in rural infrastructure and in rural employment generation. These initiatives are bearing results and will certainly make the growth process more inclusive.
We remain concerned about inter-regional disparities in development. The 9% growth rate is an average of over 10% in some parts of India and under 3% in others. Large continental economies are bound to have inter-regional disparities. However, we cannot afford to see this gap between our developed and backward regions persist. And we are not yet seeing the catching-up effect as should be the case. This is a cause for serious concern.
This is where the role of state governments comes into focus. The implementation of many of our social and human development programmes is in the hands of state governments. The capacity of state governments to effectively plan and implement these programmes varies from state to state.
I believe this is an area for further action. If we can improve the administrative capacity of state governments, we can do much more in making the growth process more socially inclusive. Therefore, while there is still an unfinished agenda of economic reforms awaiting our attention at the centre, the real action will have to be at the level of states.
In this context, I must compliment McKinsey for the initiatives it has taken in India to work with state governments. I think such effort at the state level will create greater awareness in our political leadership and within government of the challenges and opportunities that lie ahead. Such exercises have given us a good idea of what we need to do to accelerate the tempo of social and economic development. I don’t think there is any lack of thinking on what needs to be done to sustain and further accelerate growth. There is also fairly wide recognition of the importance of this agenda. However, given the nature of competitive politics and the very fractured mandates given to governments, it has become difficult sometimes for us to do what is manifestly obvious.
The successful implementation of our social and human development initiatives requires greater Public-Private Partnership (PPP). This is yet another important initiative of our government. Both in infrastructure development and in social and human development, we have encouraged such partnerships. A synergy between public support and private initiative can help multiply the productivity of resource utilization.
In a democracy like ours, the government is duty bound to focus on equity. At the same time, in an open economy, we cannot ignore or neglect the efficiency dimension. We have to ensure that resources are used efficiently. We have to ensure that competitive pressures are maintained in all markets. We have to ensure that the productivity of resource utilization is increased. Hence, a judicious mix of equity and efficiency considerations is required in the policy initiatives we take.
I have been deeply concerned about the efficiency of utilization of public funds, especially in infrastructure development, education and health care. I have been looking for ways to combine our concern for equitable outcomes with our concern for efficient utilization of outlays. I find PPPs as an effective means of combining these two considerations. This is not yet a fully evolved paradigm of governance. We have bravely, yet cautiously, sailed forth into uncharted waters. I think we have learnt some useful lessons. We may make mistakes. But we should learn from them.
I think organizations like McKinsey can help us in this effort. You have wide ranging exposure to best practices in infrastructure and social development across the world. You have the analytical ability to combine the best that markets can do with the best that public organizations can do. You can help harness this vast cross-country experience for addressing the specific needs of governments and public institutions in our country to achieve our equity and efficiency objectives. You can help in crafting specific solutions tailor made to the needs and conditions of our diverse country. You can identify bottlenecks and hurdles that we need to cross to reach our goals. The report prepared by McKinsey on Bharat Nirman is just one such example. I compliment Rajat Gupta for the initiative he took to set up a business school in Hyderabad and to create the Public Health Foundation of India. I am sure there are other important areas in which we can replicate this model of public-private partnership.
Apart from contributing to increasing efficiency in resource utilization and the efficiency of organizations, consulting firms like yours have also contributed to a culture of strategic planning in our enterprises. I find more and more of our firms investing time and money in strategic planning. This has become necessary ever since we demolished the license-permit Raj. In those days, when the government managed the business environment, our firms had no use for strategic thinking or long-term planning.
Today, firms operate in far more competitive markets. Of course, the big ones always try to reduce the element of competition and secure an oligopolistic or monopolistic environment for themselves. However, external liberalization has created more competitive markets and limited the scope for such strategies. This has served consumers and the nation well.
In order to operate in open and competitive markets, with all the contingent uncertainties and risks, firms need long term planning, strategic thinking and organizational flexibility to adjust to change. I find our private sector companies have done well in this regard. I think our public sector too needs to learn more. Organizations like yours can help foster a culture of strategic and long-term thinking. You can help mould the thinking of our political class and opinion-making sections on these lines.
I hope you will find the time to discover a rapidly changing India. I certainly hope you will get time to get away from New Delhi and get a feel of the real India. I am greatly encouraged by the spirit and energy of this emerging India. I am confident that India will count for more in the world of tomorrow. You too can join this wonderful journey of creativity and enterprise taking place in India.
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