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Congress and economy

The economic resolution adopted by the All India Congress Committee at the Burari session is a reiteration of the party’s last two election manifestos. It combines a commitment to rapid economic growth with that to redistributive policies that would help make the growth process socially inclusive. There is a helpful explanation of the three sources of inflation — excess demand, improved prices to farmers and global commodity price inflation — that can help party members explain inflation rather than merely attack it. There is understandable concern about slow development of infrastructure that must be seized upon by the prime minister to improve ministerial leadership in infrastructure ministries. The renewed commitment to public spending in agriculture, to provide a much-needed productivity boost, the formulation of a “national manufacturing policy”, to deal with the challenge of slow-paced industrialisation, and a commitment to continue the effort to make India a knowledge-intensive society within a decade are all well taken. While the resolution’s commitment to “better management of the public sector” is good, the assurance that the public sector will be expanded should have come with some explanation of what role the Congress party sees for the public and private sectors in years to come. In defence production, for example, the public sector has woefully failed and encouraging domestic private investment would help.

The resolution’s commitment to an aggressive expansion of the manufacturing sector in the national economy is particularly welcome and timely. India has already paid a heavy price for attempting to leapfrog the conventional development process, by adopting a services-led growth strategy, to the detriment of manufacturing. The National Manufacturing Competitiveness Council has outlined a strategy to aggressively boost the share of manufacturing in national income from the present 16 per cent to 26 per cent by 2020. The cornerstone of this report was the strategy to revitalise the largely ignored small and medium enterprise segment of manufacturing, with a view to boosting sector-wide productivity and employment. The party’s call to adopt an “FDI-driven, manufacturing-led” growth strategy is reminiscent of China’s growth model enunciated in the mid-1980s. However, FDI cannot work in a vacuum and particularly in the case of China, foreign capital inflows were in response to enabling conditions created by the Chinese government. These included a commitment to develop world-class infrastructure, labour market reforms, creation of special economic zones, especially along the eastern seaboard which permitted agglomeration economies, favourable government procurement policies and, above all, a decentralised approach that allowed local governments a greater say in adopting policies that suited local conditions.

It is unfortunate that the economic resolution did not examine the link between economic performance and better governance. The improved functioning of regulatory institutions is vital to sustained economic growth. India still rates among the more difficult countries to do business in. Forget about getting FDI in, even retaining domestic investors in India is becoming a challenge. By and large, the economic resolution identifies all the challenges correctly, and also lists a large number of relevant policies. If there is better appreciation of the issues raised within the Congress party, the government would find it easier to implement policies that are required to sustain 9 per cent inclusive growth.