India has to implement key reforms in at least three areas—energy, land and labour—to get its economy back on track. It also needs to expand the ambit of economic and political freedom
World Bank data suggest that India was ninth in the world in terms of new businesses registered in 2011. The cost of starting up a business is still high but it has steadily fallen from 70.1 percent of per capita gross national income in 2008 to 49.8 percent in 2012. The time taken to start a business in India has fallen from 33 days four years ago to 27 days in 2012. Newly released Planning Commission numbers show that India reduced extreme poverty by 15.3 percent in seven years; that is, 138 million people were lifted out of absolute misery between 2004-05 and 2011-12. In the same period, millions of Indians moved up the social ladder to be counted as middle class. Sales of luxury cars, designer clothes and high-tech gadgets have been growing at 15-20 percent. A Bain & Company report on luxury has been quoted as estimating the number of people with disposable incomes of over $100,000 to top 132,000 in 2013, up 60 percent since 2006.
So, is it time to bring out the bubbly? Not quite. In a competitive world, you gain only when you outpace your rivals, and not merely by doing better than before. Despite all the improvements mentioned above, India ranks a lowly 132 in the World Bank’s list of countries for ‘Ease of Doing Business’. Growth has stagnated at a decade’s low of near 5 percent. Reflecting the economic weakness, the rupee is plumbing record lows against the dollar. Industrial growth is barely above zero. Consumption demand continues to slump and investments have ground to a halt while retail prices continue to rise. According to Reserve Bank data, private listed non-finance companies’ sales grew just 4.1 percent in the March quarter. These companies are slowing production and cutting costs. India has the largest number of young people among major economies but does not have the mechanisms in place to train them or find decent jobs for them.
A recent survey by the Centre for the Study of Developing Societies (CSDS) for CNN-IBN shows that the number of people who are satisfied with their personal financial situation has dipped over the past two years. The dissatisfaction was most pronounced among the middle class. About a third of the 19,062 surveyed believed the country’s economic condition was “so-so”. Nearly half of those felt that the gap between rich and poor has widened. India’s Gini coefficient (which measures income distribution) was 33.9 in 2010 compared to 30.8 in 1994, indicating that income inequality has been rising.
(This story appears in the 23 August, 2013 issue of Forbes India. To visit our Archives, click here.)