How can India achieve inclusive growth?

Dr. Denis Medvedev, the World Bank Group’s Senior Country Economist, spoke at the IIM Calcutta on the Next Wave of Economic Reforms in India on 20th November, this year.  The talk focused on the challenges facing the Indian economy in achieving inclusive growth with a special focus on reducing poverty in the lower income states.

Dr. Medvedev touched on how external conditions including falling energy prices, improving foreign portfolio and direct investments have resulted in positive outcomes in India’s economy. He stressed that US economic recovery was a bonus for India because the country was a major market for Indian exports and a large source of remittances (second only to the Middle East). Other positive factors included our reduced inflation and fiscal deficit, and the picking up of our reform momentum.

Talking of the longer term challenges facing India, Dr. Medvedev cited the case of the Index of Economic Complexity and how exports play a pivotal role in the GDP of a nation. India lies on the higher end of this metric which reflects a significant potential for future growth.

Moreover, India’s falling dependency ratio adds to its future growth potential because a larger proportion of the population will be in the labour force in the decades to come. These signals all point to the fact that India will be ideally suited to be a manufacturing hub in the world economy.

However, India compares relatively poorly with countries like Korea, China and Brazil in the share of manufacturing in overall GDP at a time when these economies had per capita incomes similar to India.

Dr. Medvedev spoke of how policy issues and restrictions were some of the core causes that contributed to this. Various sectors which rely heavily on manufacturing such as apparel, auto parts, electronics and machinery suffer from reduced domestic and international competitiveness because of policy issues such as import restrictions as well as cost constraints.

He stressed on how logistics was a pressing issue if manufacturing was to improve. State border checkpoint regulations, for example, lead to significantly suboptimal usage of resources. In this regard, Dr. Medvedev felt that the implementation of reforms like GST were crucial to aid the manufacturing scene.

Finally, Dr. Medvedev emphasized that the World Bank’s objective was to reduce world poverty and that India was central to achieving this goal. The organization has charted out optimistic and ambitious scenarios based on India’s current growth rate and its potential; this points to promising outcomes, provided the right environment is in place.

The one and a half hour talk and Q&A session was an eye opener for students in terms of the challenges India faces in achieving significant strides in the manufacturing sector and boosting overall growth, as well as the World Bank’s efforts to support India these efforts.

This post first appeared on The World Bank Blog

Author: Varun Sridharan is a first year student of the Indian Institute of Management Calcutta’s 2014-2016 batch.

Image: Women work in a cauliflower field in Kolkata. REUTERS/Rupak De Chowdhuri