Vikram Khanna points out that India’s performance in 2003 has shattered three myths about economic growth: that noisy democracies are incapable of growth, that FDI is necessary and that high-quality infrastructure is important.
He may be right if the frame of reference is just one year – but if India is to sustain this pace of growth over a decade or more then these issues become very important.
Coherent economic management can suffer in noisy democracies, and special interest groups can easily hijack reform. A stable government which need not worry about its survival on a monthly basis is necessary to be able to deliver sustained growth.
FDI may not be so important as the domestic economy is rather large. But FDI usually brings with it world-class technology, business process and best practices which provide a distinct competitive advantage to businesses, besides helping them to shorten the learning curve and secure access to foreign markets.
Perhaps the most important enabler of sustained economic growth is high-quality infrastructure: roads, airways, shipping lanes, electicity and telecommunications. India is still not one big common market; the way the US or EU are. For economic prosperity to move from the metros into the hinterland India needs to be connected like never before.
Bangalore, Hyderabad, Pune etc form the tip of the tip of the Indian economic iceberg and only high-quality infrastructure can unlock the potential of the country. We are seeing some examples of this happening already: better and cheaper telecommunications connectivity is moving everything from call centres to software development campuses further and further away from urban centres. But the real magic will be when mango farmers will be able to sell their produce not just in India, but in supermarket shelves across the world. Unless infrastructure improves dramatically, this is likely to remain a pipe dream.