GeraltofRivia
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An interesting talk by Raghuram Rajan in UC Berkeley regarding the economical issues that need to be addressed to prepare India for the 21st century.
His talk covers a wide range of topics so I managed to note down a few key points:
He thinks that the current GDP growth rate of circa 7% is solid but is not fantastic and there are potential to grow a higher rate. The argument is that the world is currently in a growth phase of the cycle (averaging 3%) but Indian growth rate has been declining for the last 2 years despite that it is a lot more interconnected with the world economy than before.
The elements that he thinks that prevents India from growing more are (some of well known):
1. Lack of infrastructure - the infrastructure does not only improve physical connectivity and logistic efficiency of the country, it is also a key source of economical growth on itself. It is a "entry level" industry activity that low skilled labors can be switched from agriculture sector to construction sector (from "back-breaking" agriculture to "back-breaking" construction).
2. Ineffective power distribution. Overall India has sufficient power generation to meet demand but the inefficient/ineffective distribution network prevents the power from going to the demand).
3. Banking system - NPL, large proportion under state ownership, inefficiency, etc.
The elements that prevents these things getting addressed:
1. Over centralization in decision making - a lot of tactical level decisions (e.g. appointment of State owned banks) are made at national level i.e. PM's office. The process is inefficient and took the decision power from state level.
2. Lack of incentive to make decision in the bureaucracy. The anti-corruption law/regulation, while serving the good purpose, reduces the incentive of bureaucrats to take on any risks when making decisions for the fear of being accused of corruption.
He has talked quite a lot about education. His main point is that the whole education system needs to be improved and strengthened, more at the grassroots level than few top end institutions. The improvement at basic level would prepare the working population for the incoming industrialization. Also needs to be able to train the trainers and have a desire and strategy to attract and retain talents from overseas.
His talk covers a wide range of topics so I managed to note down a few key points:
He thinks that the current GDP growth rate of circa 7% is solid but is not fantastic and there are potential to grow a higher rate. The argument is that the world is currently in a growth phase of the cycle (averaging 3%) but Indian growth rate has been declining for the last 2 years despite that it is a lot more interconnected with the world economy than before.
The elements that he thinks that prevents India from growing more are (some of well known):
1. Lack of infrastructure - the infrastructure does not only improve physical connectivity and logistic efficiency of the country, it is also a key source of economical growth on itself. It is a "entry level" industry activity that low skilled labors can be switched from agriculture sector to construction sector (from "back-breaking" agriculture to "back-breaking" construction).
2. Ineffective power distribution. Overall India has sufficient power generation to meet demand but the inefficient/ineffective distribution network prevents the power from going to the demand).
3. Banking system - NPL, large proportion under state ownership, inefficiency, etc.
The elements that prevents these things getting addressed:
1. Over centralization in decision making - a lot of tactical level decisions (e.g. appointment of State owned banks) are made at national level i.e. PM's office. The process is inefficient and took the decision power from state level.
2. Lack of incentive to make decision in the bureaucracy. The anti-corruption law/regulation, while serving the good purpose, reduces the incentive of bureaucrats to take on any risks when making decisions for the fear of being accused of corruption.
He has talked quite a lot about education. His main point is that the whole education system needs to be improved and strengthened, more at the grassroots level than few top end institutions. The improvement at basic level would prepare the working population for the incoming industrialization. Also needs to be able to train the trainers and have a desire and strategy to attract and retain talents from overseas.
