Use Decisive Mandate to Build Our Savings Rate
Make growth, inflation and savings rate the holy trinity
I want to start by congratulating the new BJP-led government. The people have unequivocally spoken, which gives our new government the chance to purposefully drive their promised agenda. In this context, I am sharing some suggestions on the agenda in two areas––the first on the economy and the second, very brief ly, on education. Growth and inflation have been the two most important numbers that we all watch for. I think that this government should make it the holy trinity, by giving the savings rate the same importance and prominence. India’s savings rate is down from its peak of 37% by almost eight percentage points. This is a concern as without adequate and sustained savings, investments, which are a core driver of growth, will not happen. While I appreciate most macroeconomic measures are interlinked, it is important to appreciate that the savings rate is deeply dependent on economic stability and inclusion, impacting both the ability and the willingness of citizens and corporates to save. Creating conditions for stability and inclusion, through the right policy environment and its rigorous implementation, should be the key governance goal of the government. The critical importance of Infrastructure on the investment agenda is obvious. Unless we transform ourselves on the infrastructure issue, we are doomed to a bleak future. This is not merely a matter of land acquisition laws, but also includes issues related to structures of financing, processes for allocation of projects, other approvals, risk mitigation, execution on the ground etc. It also requires long-range planning and design of an in- tegrated infrastructure base for the country, including our cities. This must be driven by a vision of what we would like India to be in 25-50 years from now, including on the critical matter of environmental sustainability (which also has implications on our energy independence).
A crucial dimension of savings and investments is sharp control over distortive subsidies. I am not referring to expenditures on basic safety and security nets for citizens, which I think are necessary. The reference is to subsidies on power, fuel, fruit-less support for certain inefficient public sector companies etc. It also refers to implicit subsides in the form of leakages and condoned inefficiencies. Let me briefly touch on education, which to my mind is among the two most important areas for the long-run wellbeing of India (the other is health and nutrition). I think the most important issue in education is that we must reaffirm our commitment to an inclusive and high-quality public education system both at the school and higher education level. Private (for-profit) capital cannot address India’s fundamental educational needs, but mistakenly that seems to be our current default hope. We will require an increase in public investment in education, but even more, we will require execution of already articulated (and good) policy directions. Our continued and future prosperity as a nation is dependent on this.
In my assessment, addressing these (both economy and education-related) issues requires not only policy smarts, but most importantly political will and courage. The decisive mandate provides an opportunity of a lifetime.