Latest speech from Subir Gokarn goes beyond inflation/growth concerns he has been raising for a while.
He touches on economic reforms needed for sustainable growth. He looks at 4 areas of growth: food, human capital, infrastructure and financial sector development.
On food, he says we need to boost supply and need another green revolution. Mentions a new initiative called National Mission on Protein Supplements which is interesting as we have another mission.
On human capital, we need to usher education reforms to realise so called demographic dividend. The record of moving people from agriculture to higher productive sectors has been poor. He says three things need to be done for this transition:
First, there is evidence to suggest that job security regulations in the manufacturing deter employers from hiring workers. There are clearly ways around this, but since they exist, their deterrent effect is probably being felt. Second, if job security is eliminated, workers must have access to a safety net of unemployment insurance. By all accounts, the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) is providing a tangible safety net for rural workers. It is time to think of cost-effective ways to extend safety net access to industrial workers as a concomitant to scaling down job security regulations. Third, large numbers of workers have to be trained and equipped to work in modern industrial environments. Whether this is to be done through traditional schooling or alternative methods is a matter of debate, but the primary objective should be to move from generic knowledge to work-oriented skills. The numbers involved indicate that the whole exercise is going to be a huge organizational and financial challenge, but it must be faced.
I think no one is really understanding the enormity of this challenge. This coupled with lack of institutions and massive governance deficit magnifies the challenge.
And now to the main topic. Role of infrastructure. We all know how critical role infrastructure plays in an economy. First he gives some nice statistics on power, water access and 4-lane road system.
He points all India average power deficit is 10% and peak deficit is 12%. An American would say “you kidding me” on reading these figures. It is going to be much higher than that. Definition of power deficit is critical here. It is higher in Northern and Western regions meaning power situation is better in south and eastern regions. No one is likely to believe these figures.
If this is not enough. Look at access of water figures. 96% of urban population has access to water! I am sure this would just mean people having taps is equal to access of water. Statistics on sanitation and roads are more realistic but likely to be overstating as well. For instance, what is called as two lane road system is mostly a single road divided into two.
He says the challenges are enormous as human capital moves to urban areas for work:
This leads to a larger point about urban infrastructure. As we look ahead at the country’s population trajectory, apart from the aggregates, it is very important to keep in mind that there is likely to be a significant shift from rural areas to urban areas. Chart 11 provides projections of the incremental contribution to the world urban population expected to come from India and China over the next few decades. Evidently, Indian cities are going to become the repository of a very large number of the young workers that the country will add to its workforce during this period. In a situation in which cities are already reeling under enormous pressure on all urban systems because of rapidly increasing population, their ability to cope with even larger numbers without both more resources and significant increases in their organizational and managerial capacities is doubtful.
In a nutshell, the infrastructure problem has two dimensions – sectoral and geographic. Each needs distinct focus in order to arrive at meaningful solutions. As far as sectoral imbalances are concerned, there are fortunately areas in which significant progress has been made. Over a period of time, policy clarity has been achieved and appropriate regulatory structures have been or are being put into place. This, in turn, has created the space for significant private investment to flow in, typically though not always in partnership with the public sector. In fact, for the past two years or more, infrastructure has been the largest contributor to growth in bank credit. This has given rise to some problems, which I shall address in the next section, but, it is a reassuring sign that new infrastructure capacity is being created.
Very well put.He discusses some programs like JNNURM and digitization land records work. They have led to some work on urbanization.
He has some interesting suggestions:
As reassuring and promising as all these programmes and initiatives are, they do not seem to be at a scale matching the enormity of the challenge. A significant restructuring of urban governance framework, which helps build the capacity to meet the challenge, is therefore a reform priority in this domain. There is plenty to learn from the experience of other countries where the quality of urban environment is noticeably superior to that in India. Some broad guidelines may include, for example, greater powers to tax with a consequent decrease in the dependence on higher tiers of government, and the creation of a professional cadre of urban management specialists, who spend their entire career running the city and can rise to levels of seniority comparable to other government hierarchies. Of course, cities exist in a socio-cultural context, so no model is strictly transplantable, but that does not mean that some widely applicable principles do not exist.
There have been other kinds of suggestions specifically in the Indian context, e.g., to convert the larger cities into Union Territories to give them some autonomy from political economy forces at the state level, which also tend to favour rural areas due to simple electoral arithmetic. Such ideas are worth examining. But certainly, any means of giving cities both greater autonomy in resource mobilization, along with greater managerial capability need to be pursued, even if this is to be achieved within the existing federal framework.
Having specialist urban managers is a nice idea and needs to be explored further. Looking at how badly the cities are planned we need to do something. Irony is (whether we like it or not), the areas developed in our colonial past in most cities remain the best planned. So, we clearly need to do something urgent.
The suggestion to create large cities into seperate regions is political hot potato. Most of these large cities are state capitals and we all know what that would imply. Most states have only that region to showcase their development and form bulk of tax revenues. But yes, we need to empower the power of these large cities and get proper accountable governance to run the show. They should not just be used as political bandwagons..
Interesting stuff from Gokarn.
Mostly Economics 
