'An Unfinished Agenda'

Excerpts from the PM's address at the McKinsey Meet

India is a nation on the move. I am confident that ourtime has come. India is all set to regain its due place in the comity ofnations, as a plural, secular and liberal democracy, as an open society and anopen economy.

Never before has the Indian economy sustained close to 9% growth year afteryear for so long. Most projections suggest that we should be able to sustainthis rate into the medium term. You must compare this number against the factthat for almost three decades after Independence, our annual growth rate was amere 3.5%. The economic reforms we initiated in the 1980s and took up withgreater vigour in the 1990s helped push this growth rate up to an average ofclose 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 flashin 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 theforeseeable future because of the demographic transition underway. India is acountry of young people. It will remain so for sometime to come. The generationof savers outnumbers the generation of dis-savers.

Secondly, our growth process is largely based on growing domesticconsumption. Ours’ is not an export-led growth model. Nor are we amercantilist economy pursuing beggar-thy-neighbour trade policies. India’sgrowth process is based not only on an expansion of the home market, but alsolargely on the rise of domestic enterprise. The economic reforms of 1991unleashed a new era of entrepreneurial growth in India. McKinsey should befamiliar with that! I believe most of your clients today, certainly the mostimportant clients of yours, were either non-existent in 1991, or had hardly anypresence 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 thismillennium. However, I do believe that we have a long road to travel before wecan claim to have fulfilled Mahatma Gandhi’s prayer to wipe the last tear fromthe poorest of the poor. Our government has been committed to making the growthprocess more socially inclusive. A great part of our effort in the past threeyears has been precisely in this direction.

We have launched a number of initiatives to step upinvestment in agriculture and rural development, in education and health care,in urban renewal and poverty removal, in rural infrastructure and in ruralemployment generation. These initiatives are bearing results and will certainlymake 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% inothers. Large continental economies are bound to have inter-regionaldisparities. However, we cannot afford to see this gap between our developed andbackward regions persist. And we are not yet seeing the catching-up effect asshould be the case. This is a cause for serious concern.

This is where the role of state governments comes into focus. Theimplementation of many of our social and human development programmes is in thehands of state governments. The capacity of state governments to effectivelyplan and implement these programmes varies from state to state.

I believe this is an area for further action. If we can improve theadministrative capacity of state governments, we can do much more in making thegrowth process more socially inclusive. Therefore, while there is still anunfinished agenda of economic reforms awaiting our attention at the centre, thereal action will have to be at the level of states.

In this context, I must compliment McKinsey for the initiatives it has takenin India to work with state governments. I think such effort at the state levelwill create greater awareness in our political leadership and within governmentof the challenges and opportunities that lie ahead. Such exercises have given usa good idea of what we need to do to accelerate the tempo of social and economicdevelopment. I don’t think there is any lack of thinking on what needs to bedone to sustain and further accelerate growth. There is also fairly widerecognition of the importance of this agenda. However, given the nature ofcompetitive politics and the very fractured mandates given to governments, ithas become difficult sometimes for us to do what is manifestly obvious.

The successful implementation of our social and humandevelopment initiatives requires greater Public-Private Partnership (PPP). Thisis yet another important initiative of our government. Both in infrastructuredevelopment and in social and human development, we have encouraged suchpartnerships. A synergy between public support and private initiative can helpmultiply the productivity of resource utilization.

In a democracy like ours, the government is duty bound to focus on equity. Atthe same time, in an open economy, we cannot ignore or neglect the efficiencydimension. We have to ensure that resources are used efficiently. We have toensure that competitive pressures are maintained in all markets. We have toensure that the productivity of resource utilization is increased. Hence, ajudicious mix of equity and efficiency considerations is required in the policyinitiatives we take.

I have been deeply concerned about the efficiency of utilization of publicfunds, especially in infrastructure development, education and health care. Ihave been looking for ways to combine our concern for equitable outcomes withour concern for efficient utilization of outlays. I find PPPs as an effectivemeans of combining these two considerations. This is not yet a fully evolvedparadigm of governance. We have bravely, yet cautiously, sailed forth intouncharted waters. I think we have learnt some useful lessons. We may makemistakes. But we should learn from them.

I think organizations like McKinsey can help us in this effort. You have wideranging exposure to best practices in infrastructure and social developmentacross the world. You have the analytical ability to combine the best thatmarkets can do with the best that public organizations can do. You can helpharness this vast cross-country experience for addressing the specific needs of governmentsand public institutions in our country to achieve our equity and efficiencyobjectives. You can help in crafting specific solutions tailor made to the needsand conditions of our diverse country. You can identify bottlenecks and hurdlesthat we need to cross to reach our goals. The report prepared by McKinsey onBharat Nirman is just one such example. I compliment Rajat Gupta for theinitiative he took to set up a business school in Hyderabad and to create thePublic Health Foundation of India. I am sure there are other important areas inwhich we can replicate this model of public-private partnership.

Apart from contributing to increasing efficiency inresource utilization and the efficiency of organizations, consulting firms likeyours have also contributed to a culture of strategic planning in ourenterprises. I find more and more of our firms investing time and money instrategic planning. This has become necessary ever since we demolished thelicense-permit Raj. In those days, when the government managed the businessenvironment, our firms had no use for strategic thinking or long-term planning.

Today, firms operate in far more competitive markets. Of course, the big onesalways try to reduce the element of competition and secure an oligopolistic ormonopolistic environment for themselves. However, external liberalization hascreated more competitive markets and limited the scope for such strategies. Thishas served consumers and the nation well.

In order to operate in open and competitive markets, with all the contingentuncertainties and risks, firms need long term planning, strategic thinking andorganizational flexibility to adjust to change. I find our private sectorcompanies have done well in this regard. I think our public sector too needs tolearn more. Organizations like yours can help foster a culture of strategic andlong-term thinking. You can help mould the thinking of our political class andopinion-making sections on these lines.

I hope you will find the time to discover a rapidly changing India. Icertainly hope you will get time to get away from New Delhi and get a feel ofthe real India. I am greatly encouraged by the spirit and energy of thisemerging India. I am confident that India will count for more in the world oftomorrow. You too can join this wonderful journey of creativity and enterprisetaking place in India.