Will Modi Turn To The Ten Things Needed To Deliver India’s 2050 Potential?

In the summer of 2013, I had the pleasure of meeting the then chief minister of Gujarat, Modi, ahead of him declaring his intention, amid widespread speculation he would, to stand for Prime Minister. At that meeting, he and his advisers asked what I thought about economic policy priorities for India. And to my surprise and excitement, within the hour, I was unveiling to a large audience, invited by him, my ideas for what India should do. It was followed by Modi giving his own ideas, which included hearing for the first time, his elucidation of “maximum governance, minimum government”, which sounded rather powerful and very apt for India. In subsequent weeks, I had some further follow up with his advisers as to whether I might undertake a role at the center of a number of international economists in bringing together ideas that they might embrace. I ended up choosing not to, not least as I didn’t fancy becoming part of another country’s election campaign.

Here we are six years later, and for Modi, five years later, with another term of office lying ahead. What do I think?

In recent days I re-read the Goldman Sachs paper I co-authored back in 2007 with the then chief economist of our India office, Tushar Poddar, titled “Ten Things for India to Achieve its 2050 Potential”. My ideas for the discussion with Modi and his guests were derived from that.

I hope in his second term, the returning Prime Minister is bolder about a lot of, if not all, these initiatives.

Let me reiterate the potential prize, which would not only set India on a path to easily become the world’s third-largest economy by 2050, but also possibly become as big as the U.S.

And linked to all of the ten areas, if India can significantly boost its productivity it could easily grow by close to if not more than 10 percent for many years in the future, which would allow it to become the world’s third-largest economy even quicker than I ever suggested.

1. Improve Governance

Has Modi done much here? He has reduced the number of ministries, but has he allowed for more effective policy implementation, delivery systems, all of which are crucial to achieving many necessities, such as better education, improve infrastructure, etc?

Has Modi succeeded with “maximum governance, minimum government”? Not yet.

2. Raise Educational Achievement

India’s demographic dividend will only ever be of any true help if all the young people receive a basic education, in which simple reading and writing are compulsory attainment objectives. As many doubters have often said the supposed dividend will always be a burden without better educational outcomes for the masses. I presume that the numbers that cannot read or write have declined since 2007, but I suspect, not dramatically. And we were talking 200 million at least that couldn’t read or write.

India needs to devise a credible fiscal framework where it can distinguish between—much-needed—public investment, and—too often—public consumption.

Otherwise, it won’t be able to have the framework for the ambitious spend needed for education and health.

3. Increase The Quality And Quantity Of Universities

How many Indian universities are recognised in the QS Top 100 universities of the world? Sadly, the answer is none. Its Institute for Technology in Delhi is ranked 172nd; this is simply nowhere near good enough for a country of India’s size. The U.K. has 18 in the top 100.

4. Control Inflation

On one level, this is an area where the country has achieved some progress, by adopting at least the broad principle of inflation targeting, although of course, under Modi, two well-regarded central bank governors didn’t stay around for very long. It may also be simply true that Modi was lucky, as during the five years or Modi’s first tenure, inflation remained under remarkable control virtually everywhere in the world, with occasional odd exceptions such as Argentina.

5. Introduce A Credible Fiscal Policy

I have already touched on this area, but I tried to persuade Modi’s advisors, and have publicly stated many times since, that India should consider some “Golden Rule” for its fiscal policy framework. If done credibly, it would allow markets to be more relaxed about the overall size of any one year’s fiscal deficit (or level of debt) as it would be easy for investors to distinguish between investment by the government for future growth benefits from that being undertaken to maintain more consumption type payments.

India has such huge needs in education, health, infrastructure and probably more, that they cannot be achieved under a simple framework that sticks narrowly to simple annual deficit targets.

6. Liberalise Financial Markets

This is a hot topic of course in current financial markets given the opaqueness of Indian finance, and varying estimates of debt levels and the efficiency of finance. It is also the case that since the financial crisis, and its consequences, too liberal control of the financial system might not be so wise, and indeed, politically infeasible. But India clearly needs to find a better system of allocating capital.

7. Increase Trade With Neighbours

One of my frustrating observations from my—easy to say—distant position, is how India seems to find it far too easy to pick battles with its very large, populated neighbours, but rarely pursues trade with them. Here’s two ridiculously crazy ideas, one of which I did suggest directly to Modi. Why not propose a free trade agreement with Pakistan, and genuinely try to dramatically change the relationship between these two nations? The second might be regarded as equally mad, why not propose to China’s President Xi, that India would like to have a more central role, along with China, in developing the next phase of BRI, China’s ambitious Belt and Road Initiative? Both things have the potential to transform Asia, and therefore world trade, and with it, certainly deliver quicker India’s rise to a wealthier nation.

8. Boost Agricultural Productivity

India continues to have a much larger rural society than most of the world’s largest economies, and within it, seemingly a lot of waste and inefficient agricultural production, and rarely organised in a way to benefit the country’s own consumers. More needs to happen.

9. India’s Famous Infrastructure Challenge

I haven’t travelled to India as frequently recently as I once did, but I hear and read stories of some successes. It goes without saying, given the challenges, there is so much more to be done.

10. Improve Environmental Quality

From everything I read and observe, India’s challenges with respect to environmental issues have become even larger. Since my meeting with Modi, I became highly involved in the global fight against antimicrobial resistance, having led a review for British Prime Minister Cameron, and the scale of India’s challenge in this area, like many others, is colossal. It intersects with its polluted rivers, its weak health infrastructure, the challenges faced by its complex civil service, and candidly, the sheer scale of these challenges seems to encourage some Indian bureacrats to resist too strong initiatives as it would be tough to change.

But as we have seen partially in China, as simple GDP growth goes on, and economies become bigger, you must focus on these, and other structural challenges, otherwise, the consequences are not good. In India’s case, its dreams might not be delivered.

Who knows, maybe Modi might even invite me back again! But most importantly, he has another chance to pursue some of these challenges with more determination.

Jim O'Neill is the former Goldman Sachs chief economist, who coined the term ‘BRICS’.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.