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Last Updated: Tuesday, 29 June, 2004, 10:48 GMT 11:48 UK
India's economy - oil the nuts and bolts

By Kaushik Basu
Professor of economics, Cornell University

In Singapore, if you wish to set up a new business, the time it will take you to get all the clearances and get started is 8 days.

In Hong Kong it would take 11 days.

In India it takes 88 days.

Purely in terms of time, let alone the costs of clearing the legal and bureaucratic hurdles and the pressure on the heart, it cannot be easy starting a private business in India.

If government can seize this opportunity and fix the nuts and bolts, it can have a lasting effect on the well-being of the citizenry.

If, after you do get started, your firm runs into a dispute over contract violation, the time that it will take to have the contract enforced is one year in India, 180 days in Hong Kong and 50 days in Singapore.

But the real catch in India is not with starting or running a business.

It is with getting out of it.

If a firm becomes insolvent, in Hong Kong it takes one year to clear all formalities and close the firm; in Singapore less than seven months; and in India a little over 11 years.

Little wonder that Singapore and Hong Kong have new businesses springing up all the time and economies that have been surging ahead.

Holding forth

In India, politicians and their economic advisers spend a lot of time holding forth on the grander issues of the economy, like privatization and monetary policy.

Indian women
The new government has pledged to help the poor

But each of the three matters pertaining to private business that I mentioned above relates not to these grand policy issues, but to the nuts and bolts of the economy.

Of course, the grand policies are important (and I will turn to one of them presently).

But what is often overlooked is that the success of a nation depends also on what happens to these small things.

Between the new prime minister and the finance minister, India now has an unparalleled professional team at the head.

If government can seize this opportunity and fix the nuts and bolts, it can have a lasting effect on the well-being of the citizenry.

If people can find reward for their enterprise, rely on contracts and promises, and pay their bills and taxes without having to battle a labyrinthine bureaucracy, then government would not have to shoulder the burden of driving the economy.

It would run on its own steam.

Anti-corruption drive

My recommendation to the new government would be for it to concentrate on a few things and do these well.

It must be remembered that the ultimate reason for growing faster is to help the poor
First, make a fetish of efficiency.

Study the legal and bureaucratic structure that causes delays in the tasks that ordinary people do (paying taxes and bills, starting a small business, resolving a dispute) and streamline the procedures so as to cut down the task-time not by a little but to maybe one-tenth of what it takes now.

Second, go on an all-out drive to control corruption.

This will need intelligence and professional input.

In the past, India has gone about this so ham-handedly that it has brought certain industries to a virtual halt by creating endless regulations (that often have no perceptible effect on corruption).

The design of corruption-control has to be crafted very carefully, but if top functionaries of government are determined, corruption can be brought down substantially, and this should help industry rather than hinder it.

Tightening the nuts and bolts can push up the country's annual growth rate to 8% or 9%.

But to sustain such growth some complementary policies will be needed, the most important of which is to boost the investment rate from the current level of just over 20% to over 30%.

Fiscal planning

Through good fiscal planning this can be achieved in under five years.

This should be the third policy target.

India's finance minister, Palaniappan Chidambaram
Finance Minister Chidambaram - can he bring India up to the levels of east Asia?

Ideologues give easy answers to what caused India's growth rate to rise to the current average annual rate of over 6%.

In reality this was caused by a complex of factors, but one precondition without which this would not have been feasible was the rise in India's investment rate from 12% or 13% in the late 1960s to 22% or 23% 10 years later.

What India needs now is one more prodding to this to take it to the level found in east Asian economies.

Overcome diffidence

Finally, it must be remembered that the ultimate reason for growing faster is to help the poor.

And so, the fourth target has to be to craft policies that enable economically disadvantaged people escape poverty.

To see what a poor country can achieve one does not have to look far.

Bangladesh, despite being much poorer than India, is catching up on some basic standard-of-living indicators.

In 1990, the percentage of all primary school age children enrolled in schools was below 65% for Bangladesh and Pakistan, and around 80% for India.

Ten years later, Pakistan was at 67%, India at 83%, while Bangladesh had reached 87%.

Poverty is a disadvantage, true.

But Bangladesh's experience with education, and our diffidence that we can attend to such basic needs only after the economy has grown, shows that it can also be an alibi.

To read Kaushik Basu's future columns, bookmark bbcnews.com/southasia

Below is a selection of your views on this column.

Nice, pragmatic article. But didn't see any suggestion how to end corruption, so my two cents: 1. Run the country like a company with fixed deadlines to every goal. Run bug tracker to track down every bug and get it fixed within the deadline like you fix software bugs. For example, why do I need to make 10 trips to public works department to request them to fix potholed road and they asking for favor and bribe. Why can't I file a written complaint online/mail and they promise to address my issue in 10-5 days. That way I know who I should talk to if nothing happens in 15 days. Also, the government servant has no way to meet me in face and demand bribe and he knows his deadline to deliver. 2. Second, why the justice department takes 10-20 years to deliver justice to poor people. Many cases, people can wait for 20 years and die. What good is that justice after 20 years? Same thing happened to Mr. Rajiv Gandhi. Better not to talk about ordinary poor people. There are so many jobless lawyers around any court building. Why not hire more judges and deliver justice to people in a certain time limit. 3. Mr. Basu, can you advise the Govt. to address my issues and your issues within a deadline, because I hate endless projects.
Dhiren Pattnaik, India/USA

Most of the comments on Dr Basu's column have missed the issue he presented first...the importance of individual economic rights. The thing that separates most of the poor countries of the world from the wealthy is that these basic rights-to private property,enforcable land titles, freedom from arbitrary governmental interference-are critical to the advancement of any country, including India. India can and must directly address the issue of poverty through government expenditure, but this must coincide with the basic "nuts and bolts" reforms suggested by Dr Basu.
Anand, Australia/US

I enjoyeed reading Dr Basu's column. I cannot agree with him more. His recomendations are valid. It is not that the policy makers in the past were not aware of the same in the past or now. it is just that they did not care. I have always wondered why India possessing all the essential ingredients for progres, brain power, demoracy, freedom and a semblence of meritocracy never came anywhere near its true potential. The main raeson is most politicians have been self serving maggots. There are signs that contradictions of the past are are begining to ebb. I hope sooner than later the current political process encourages more and more self-respecting politicians to become policy makers. The largely cynical and self-centered middle class will have to engage themselves with love, compassion and reverence if Dr Basu's suggestions are to bear fruit and India progress and prosper.
Dr N Iyngkaran, malaysia

I am impressed by these never thought about procedural rigmoroles that India has. However, in addition to fixing aforementioned nuts and bolts, I would like to harp on "water conservation". Think about It rains 10 times as much in India compared to USA. The water resources are less than 1/5 of USA. This is after netting the population effect. Additionally, there is almost uniform distribution in USA, while in India there is disparity in even water distribution thereby making a concentrated growth.
Sumeet, United States

Theoritically, it is an excellent idea. But big question is how to implement it. Hope that somebody teaches the government to do it.
Krishna Acharya, UK

Kaushik's points are well articulated. There is a definite correlation between size and efficiency. India, both in terms of its economy and socio-political set-up, is quite diverse. Singapore and Hong Kong have a distinct advantage in this regard. It is no doubt that much of the Indian bureaucratic edifice needs a thorough shaking and restructuring. On the issue of corruption: recent revelations by Tehelka were received with much applause by Indian public; but nothing practically happened and worse still the media group was forced into financial troubles. The trouble is with the public and the cavalier attitude of the politicians.
Srikanth, India/UK

Wonderful column. Very clear definition of where things have to be improved and how. Looking forward to see more like this. Hope the author makes it a point that his idea reaches the appropiate person on time.
Subash, India

Easier said than done when it comes to corruption. Some points to ponder: 1.The problem is that most of the corruption exists and has to be handled by the state level govts. None of the state govts would be interested in addressing corruption. 2. You haven't given any suggestions on the judicial system. It is rotten and in turn breeds corrutpion everywhere else. 3. Also, any economic expert would inform that corruption is not an impediment to growth, though it breeds inefficiency. It is the form of corruption that prevents vast majority to use it as a means , which is most harmful. 4. If you take the corruption away and leave honest men with the useless document called the constitution (ask the swamps of happy lawyers how useless it is in decision making) , there will be no progress at all. Again , economists can confirm that honest governance need not be an efficient one.
Sandeep Saxena, India

It would be interesting to see how much of Bangladesh's success could be attributable to Grameen Bank and its successor organisations. These organisations have been very effective in tackling poverty without resorting to just handouts, a very unique "bottom up" driving not just of economic growth, but social awareness, pride in self etc. it also puts people in control of their own lives and instils generational change as opposed to large government programs that are erratic, unsustainable, and while they last, extremely corrupt.
Kirthi Ramakrishnan, USA

Your ideas are great and what you say is right, but it's not going to happen in India where politics or running the government is all about public pleasing. State governments give away free electricity and water to gather votes. The new government is already talking about reserving 50% jobs on caste basis in private sector(it is already there in public sector). And where allies in government, the left parties say they do not give damn to share markets and businesses.
Amit Akolkar, UK/India

Absolutely clear cut analysis. Yes the first focus of new government is to concentrate on building blocks of the govt and society. Work on eradicating corruption improving system to work better and simpler. Also the major focus areas should be on education and health which are failing apart. Though the author didn't mention, environmental balance and improving forests to increase level of ecological balance and water resources for the billion people of India is very much essential step otherwise we are very close making majority of the land into desert.
Chaithanya, Uk

Kaushik, You seem to be one of those who always will look at things as half glass empty, rather than half glass full. I think India is doing great, they are making an attempt and moving forward, please have a more positive outlook in life and if you can't than stop trying to create a negative feel for others, there is a difference in highlighting facts and writing news columns for personal gain. Please try and look at the positive developments in the last so many years and use your influence to get things done moving ahead instead of writing articles discouraging foreign investors to invest in India. Also being in Canada I've met a few more college professors of Indian origin who cant help but bitch about their country of birth, but have you really worked there in the last 10 years, don't go by hear say, if you have worked there you would know that a lot has changed in the last 10 years.
Amit, Canada

What a breath of freash air! - So many articles on how to fix the indian economy - this one stands out in its clarity and pertinence.
Sandeep Tiwari, USA

Kaushik has rightly pointed out correctly the point where the cancerous corrupted administration of India is destroying India. I migrated from Kenya in 1969 and wanted to make India my homeland. After educating in India and trying to start a small business with minimum finance became a nightmare. The cost of administration, corruption was virtually ate up all the finances of my plans. I finally gave up the idea all together and migrated to Britain. I recently visited India, hoping to see modern India. To my disappointment I still had to fork Rs100 'Bakshish' at the boder of Maharashtra and Gujarat to the police officers to let me in the Gujarat border. How nice 'Welcome to India'. These types of corruption needs to be eradicated through out India to develop travel tourism and bring in Investment
Jayantilal Patel, Uk

I absolutely agree with you that unless we redress the problems of poor people ,growth rate can not be enhanced substantially
Sharafat Ali Khan, Pakistan

I left India 4 years back and immigrated to Canada. Having worked in different capacities there in different industries and my quest for "further" left me with acquired insight and facts in different fields. I am in complete agreement with your revealation. Wonderful and factual. We all would like to see that great country of greatest people respected by the world. Reforms at a faster pace are to be brought in, nurtured and administered.
Jyotirmoy, Canada

Services and knowledge based work is the key business for India. The clients can be both - internatinal or domestic. This type of business needs better human interaction - and hence require easier dispute resolution, simpler processes and matured systems. I believe it will get there.
Harsh Vardhan, Us

I agree on Prof. Basu's four point program above, but often don't understand why addressing inter-regional disparities in India are ignored here? Oiling the nuts and bolts is crucial to any machinery, but what if some of its part has never been properly integrated into the system? Will bringing economic prosperity to North east and Kashmir not bring peace and prosperity to entire country? Will this not increase collective prosperity even if we don't grow as fast? Corruption can definitely be controlled from top, but isn't it something that is sustained from bottom? Further, what incentives do politicians have to curb corruption, if the civil society is so quiet about it?
SS, India

The Prime Minister has pointed to the "decline of morals and ethics in public life". Any progress on these aspects in our society will go a long way in achieving what Prof. Basu has so clearly outlined. While change at the level of individual people is needed, the state and the bureaucracy must clean up its act in order to get rid of the cynicism and frustration that pervades the mind of the indian public.
Robert John-Chandran, India/U.S.A

Mr. Kaushik Basu has put his finger on the right problem plaguing India's economy. India does not need a new ideology or new plan to expand the economy, what it needs is an army of people who are determined to do what they were hired to do. India will be a very fast paced, growing economy if only its public knew who can approve his/her proposal and that the government will not stop him/her from doing business as he/s visualised it.
Kirt Bhatt, United States

I agree with Mr.Basu's views. Corruption is big thing, that should go away. If top leaders are clean and transparent, it is easier to implement and enforce good corruption control. It has start at higher level people in power and politicians, not with lower level people. Good days will come, when politicians with good intentions and service attitude are in power. Then the sanctioned money for a plan/strategy will really go into implementation of the intended purpose. If the new government can work on population control, increase basic educated numbers and health awareness - it should help the country.
Ram V., USA

I think the ideas put forward by Kaushik are just what is needed to get countries like Pakistan, India and Bangladesh out of doldrums. Simple measures that affect the economy at a micro level are the way ahead. In fact, why not go further and reduce regulation to such levels that following them is a since! Lets face it, most people ignore most of the current regulations anyway.
Mashud Choudhury, Uk

Basu's "few" recommendations are commendable. But introducing fiscal discipline, removing corruption and overhauling education are by themselves uphill tasks.Apart from making efficiency a fetish, it is important the government spells what it wants to do. it is ironic that in a country with so many outlets for communication, what the government dishes out is trash propaganda material. it misleads rather than educates.the government must develop a honest communication policy which connects words and deeds and help change the nation's mindset, which is absolutely essential.If the west has done better than the east it is because of greater transparency and a strong communication machinery which can be, and unfortunately has been, misused as well. but then every good has its accompanying evil.
Buroshiva Dasgupta, India

Sunil Busgeeth, USA

I believe that the Indian Government should reduce bureaucracy and speed up political reforms to get India on the 8%-9% economic growth level.
Saav Yadav, United States



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