‘India’s economy marked by excessive govt intervention,’ Singapore former Dy PM

Addressing the first NITI Lecture on ‘Transforming India’ on August 26, 2016, Tharman Shanmugaratnam, delivered a speech on India and emphasized that India faces two significant challenges, one related to its demographic situation and the other concerning the rise of intelligent machines.

He pointed out that India’s internal demands make it imperative to achieve sustained economic growth of more than 8% in the next two decades. This growth is necessary to generate employment opportunities for its young population, address the prevalent underemployment issue, and foster inclusive economic development.

Ultimately, India aims to emulate China’s success in moving a substantial portion of its population from lower-income status to the middle-income bracket.

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In essence, Tharman Shanmugaratnam pointed out that India’s approach to its economy has been characterized by excessive government intervention and inadequate investment in social and human development. The government has been too involved in regulating economic activities while not giving enough attention to building social and human capital.

“It has to withdraw from the old roles of the State – economic regulation, and ownership and management of enterprise. Those roles restrain private investment and job creation. They also preserve incumbents, the existing players, at the cost of allowing new players to grow,” he added.

China and India on economic disparities

He emphasized that achieving a growth rate exceeding 8% over two decades is not a luxury but a necessity. In the mid-1970s, India and China had similar per capita incomes, but today India lags significantly behind, with less than half the per capita income of China.

Shanmugaratnam stressed that even with consistent growth between 8% and 10%, as India catches up while China’s growth slows down, India would still only achieve approximately 70% of China’s per capita income in two decades.

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He further added that there is no fundamental reason why India cannot address the social and economic disparities of its past. India possesses one of the largest untapped potentials among all countries. “But India needs a sense of urgency in politics and society, in government and amongst its people, to achieve this potential,” he added.

Integrating India with China and ASEAN

Speaking in 2016, Shanmugaratnam said that there is a notable contrast in terms of interaction levels between ASEAN and China compared to India. The level of engagement between India and China is considerably lower. Specifically, the total trade between India and China accounts for just 3% of their respective global trade volumes. Likewise, when looking at India’s trade with Southeast Asia, it represents only 4% of the total trade conducted by both parties with the rest of the world.

There is therefore opportunity to develop much stronger links between India and Southeast Asia, and India and China – both through higher exports and higher imports, and with FDI flowing in both directions.

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And remember, Asia is very likely the biggest source of future growth in the global economy. We have to take advantage of it, and spur that growth through the supply-side dynamic that comes from integrating our economies.

However, Tharman Shanmugaratnam said that above all, India’s biggest deficit lies in education, and in the unfulfilled potential of its people. “India has the biggest gap I know of, between the talent at the top and the unfulfilled potential of the rest of society.”

Stressing on fixing the school system, Shanmugaratnam said that when India took part in the OECD’s ‘PISA’ study in 2009 – which tests students in Mathematics, Science and Problem-solving – it was 73rd out of 74 countries. India opted not to take part subsequently.

Speaking on why India’s per capita income fell behind, Shanmugaratnam said, “India has not been geared to exporting to the world. That’s a major shortfall in its economy, compared to several East Asian nations. India has 18 per cent of the world’s population, but less than 2 per cent of the world’s exports. Your exports per person are only one-fifth the level seen in China or Vietnam.

Shanmugaratnam said that India’s employment laws and land acquisition laws discourage firms from employing more people and becoming larger. “What it amounts to at the end of the day is anti-employment legislation. You’re protecting the 10 to 20 per cent of people in the formal economy at the expense of the 80 per cent without formal jobs.”

Shanmugaratnam said that India’s limited presence in the global export market, accounting for less than 2% of the total, offers significant opportunities for expansion through competitive market participation. Emerging economies like Vietnam and others have managed to increase their market share by attracting labour-intensive manufacturing industries that are relocating from China.

Updated: 03 Sep 2023, 02:16 PM IST