But that is just the starting point. India needs to think strategically about how its large market can be served.
A recent article on the spate of reminiscences about economic
reforms since 1991 characterises them as manifestations of the
Blind-Men-and-the-Elephant paradigm or the Rashomon Effect.1 Both address the
difference between perception and reality, and how each player’s experience of
the same events is from his/her unique perspective, which can be different from
everyone else’s. So, even if the reminiscing is accurate, no single tale
captures all of reality. This is the story of India’s infrastructure. It is as
though diverse descriptions lack the organising principle of a systems
perspective, an overview of the totality of interrelated circumstances and
events.
There are two resulting insights
for future reforms: the need for a conscious integrated-systems approach, and
getting the fundamentals of infrastructure right for a solid foundation. A third,
unrelated, insight arises from our balance-of-payments situation: the need to
strategise for India’s domestic market because of the prohibitive cost of
imports in a large and growing economy which relies on energy imports.
The need
for infrastructure was an early refrain, acknowledged episodically, and
repeated at intervals. Given the vast scope of our requirements, and the ways
we have gone about it, this is simply not enough. Our approach itself remains a
work in progress, not effectively addressed so far. We can’t have a burgeoning
services sector without good infrastructure. The recent flooding and gridlock
in the service hubs of Bengaluru and Gurgaon demonstrate what’s wrong.
Manufacturing can’t flourish either, nor can any other activity. They all need
access to good infrastructure.
Some advocate the primacy of services for growth, questioning the manufacturing initiative. No doubt services will remain the
major growth engine for the foreseeable future, enabling considerable
employment, provided the infrastructure supports training and competent,
efficient functioning. We’ll need commensurate improvements in security, and
law-and-order, difficult as that may be, to capitalise on the potential for
tourism and travel. But uncertainties about the desirability of manufacturing
in India are misplaced, because without more effective domestic product
development and manufacturing, the services potential will be held to ransom by
the increasingly high imports, especially of high-technology products required
to support that growth. A market with this level of demand and growth has
tremendous scope for domestic production for many products, provided (a) the
policies and (b) the infrastructure facilitate production and supply.
Even sweeping changes in policies such as the
single goods and services tax (GST) will have their full impact only when
infrastructure supports and facilitates its application. For instance, without
adequate communications and logistics, much of the large and growing Indian
market will still not be effectively served. This applies across all areas of
economic activity, for demand as well as for supply, whether for health, education,
entertainment, production and delivery, products and services through e-tailing
or brick-and-mortar, tourism and travel, financial services, or IT-enabled
services for domestic and external markets. It also applies irrespective of
whether the mode of organisation is large scale, or small and entrepreneurial.
Digital connectivity greatly facilitates efficient deployment of other forms of
infrastructure as well. All connectivity does not need to be broadband because
apart from the present benefits that accrue from voice links, many smart
applications are possible with narrow-band connections in the evolving arena of
the Internet of Things (IoT).2 The IoT often involves relatively small amounts
of data going both ways, usually from machine-to-machine, over extended
periods, using limited bandwidth and power with various technologies, and in
places that may be hard to reach. In India, we’ve seen tremendous growth in voice
with restricted data capacity, with more limited access to broadband for
high-speed data. We’re also familiar with the constraints this imposes,
starting with the limitations for education and health care services, and hence
the need for broadband for these and much else. This despite the statistics on
Internet use, which show India as being second globally as of June 30, 2016,
with over 462 million users, with China being the first with over 721 million,
and the US third with nearly 287 million.3 These figures seem to mask the
inadequacy of our services; in network readiness, India has slipped from 89
(out of 143 countries) in 2015 to 91 in 2016. Instead of focusing on figures
about assets that may not function, the Digital India initiative needs to emphasise
the delivery of high-quality services to users through changes to
administrative policies (i.e. where technology is not the constraint, but the
rules and market structures are), and to double penetration from the present
36.5 per cent to cover 920 million users.
Even 25 years on, the crucial
insights of (a) a coherent overview and objectives, (b) a foundation of
infrastructure, and (c) strategies to develop local sourcing for domestic
markets, aren’t sufficiently emphasised in our reforms. Many key players act as
though they are in a bubble or silo, apparently unaware of interlinked
realities. One aim of the reforms was – and needs to be – to establish
effective infrastructure and institutions. While beginnings are made, these are
not carried through to completion, to become fully functional.
Apart from establishing a solid base of
infrastructure through synergistic and path-breaking steps in changing our
rules and removing constraints, we have to think strategically about our large
market and how it can be served, instead of being suborned by simplistic
assumptions of comparative advantage, of being able to buy what we need from
wherever it’s produced, or allowing 100 per cent foreign direct investment
(FDI). Of course we must import and allow FDI on reasonable terms, but while
trying to consciously develop and sustain an approach such as China has done in
building Huawei, or Brazil in building Embraer. This is highly desirable for
our communications and aviation sectors, despite all the cons of industrial
planning. Not that this approach is without risk, considering what happened to
Bell Labs and Lucent, now taken over by Nokia Networks. But, the consequences
of not planning and acting on such initiatives are likely to be much worse.
___________________________________________________________________________
Shyam (no space) Ponappa at gmail dot com
1:
http://www.business-standard.com/article/opinion/t-nninan-the-fathers-of-success-116072901028_1.html
