The Supply Side Deficit

I am not an economist though I must confess that I attempt to understand the subject every once in a while.

However I run a business and therefore spend a disproportionate amount of my time meeting analysts, investors, economists, reading business newspapers, watching business and news channels etc.

At almost all fora I get to hear that India is the next China.

That India will grow at 9-10pc for the next 20 years.

That Indian growth will outpace China by 2012.

That Mumbai will be like Shanghai soon.

That India will be a US $5tn economy by 2020.

Most speakers at these events believe that India's time has come.

While I am an optimist I do feel that we seem to be losing our way.

You need to be globally competitive in what you do to survive and prosper in this increasingly flat world.

Economically speaking you need to keep moving your production possibility curve as an economy forward. This means getting more and more out of the ageless factors of production - land, capital, labour using the more modern tools often not discussed in economic textboooks - technology, management, governance and entrepreneurship.

Capital should be made easily available (read as banking and financial sector reforms) and efficiently deployed (read as end to subsidies, creation of infrastructure), land allowed to become more productive (read as agriculture reforms, easier land acquisition laws) and labour made more efficient (read as primary, secondary education, technical and vocational education,health infrastruture.).

And unless and until the tools which can help us do the above in the modern world are made widely available - high quality education in management and technology (more iits and iims, superior faculty) a more efficient governance machinery (police reforms, judicial infrastructure, less corruption, safer borders), and promotion of entrepreneurship (easing of laws to setup a business, an end to the big business-government nexus, more competition) this won't happen.

India suffers from a supply side deficit in virtually every area - governance, implementation of existing laws, infrastructure, quality of education, land. Unless these supply side factors are adequately addressed, instead of 10pc growth and 5 pc inflation we risk getting 7pc growth and 8 pc inflation.

Like all Indians I am disheartened at the erosion of moral standards, the lack of governance, the inequitable development. This is an opportunity to end poverty in this country in our lifetime. We should not miss it.