Description

ISBN-81439401228

McKinsey Global Institute’s (MGI) report titled “India: The Growth Imperative” advocates a complete open-door, sink or swim approach to reforms while outlining a Thirteen-point action plan to step up growth in the Indian Economy to 10 per cent per annum, doubling of real per capita income and 75 million new jobs outside agriculture by 2010.

MGI, which has conducted similar studies for other countries before, conducted this project over the last 15 months.

They identified three major barriers to faster growth faced by the Indian economy – the product market barriers (regulations that affect the price of output in a sector), distortions in the land market and widespread government ownership of business.

MGI estimates suggest that if these factors are set right, that would raise India’s growth potential by 4 percentage points – which is very close to the difference in India’s and China’s growth rates.

On the other hand, two other factors often emphasised in India’s economic debates – inflexible labour laws and poor transport infrastructure – inhibit India’s growth potential by less than 50 basis points.

The report also offers suggestions on how to smoothen the implementation to these reforms. First, it suggests formation of a small team of senior Cabinet Ministeres under the direct supervision of the PM.

And second, it suggests a gradualist approach in some of the politically difficult reforms, by targeting efforts on those portions of the reform that will yield maximum impact. For example, for removing the SSI reservation, the government could focus on the 68 items that account for 80 per cent output of the total 836 reserved items.

MGI studied 13 sectors for this study, which accounts for 26 per cent of GDP and 24 per cent of employment. The report lists several sector-specific problems of product market barriers, land market barrier and government ownership that constrain the productivity of these sectors.

MGI also paints a scenario of what would happen if these critical problems are not sorted out soon. In that scenario, India’s growth potential would remain stuck at 5.5 per cent.

More seriously, India would not be able to absorb the annual 2.2 per cent rise in working population due to the changing demographic complexion, and would face an unemployment rate of 16 per cent in 2010.

2.05 MB

Enjoyed this Summary? Get Daily Summaries in Your Email or RSS Feed !!