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India's economic growth can be limitless, if…: O'Neill

Ramesh Menon in New Delhi

United States Treasury Secretary Paul H O'Neill says the key to economic growth in India is to spread the rising productivity amongst more people and take it to the government, too.

"India's economic growth can be limitless if it manages steady, widespread productivity gains -- especially in sectors such as agriculture that have traditionally lagged," he said.

O'Neill urged India to lower tariffs, roll back regulation and fight corruption to boost economic growth.

"To unleash the potential for higher living standards and job creation, a nation's leaders must make an unflinching commitment to good governance, economic freedom and investment in people," he said.

Economic relations between India and the United States, the world largest democracies, should be promoted to give a better deal to its people," he added.

He was speaking in the Capital at a function organised by the American Chamber of Commerce and the Confederation of Indian Industry.

Neill said India can do this as productivity is at its heart the practice of implementing new ideas, in which the Indian people have an illustrious record of success.

"Mahatma Gandhi pioneered the vision of non-violence to effect change, one of the most influential and effectively implemented ideas of modern world history. In economic matters, Indian entrepreneurs have pioneered new technologies in India and the United States, and have shown great aptitude for invention and implementation," he pointed out.

Neill said that the ideas needed to unleash Indian productivity were out there being used by the industry and it was up to public and private sector leaders to identify those ideas, adapt them to India's unique cultural context, and implement them.

He pointed out that it sounded easy but was difficult to do as the private sector was unable to attract the investment to fund new ideas.

The environment did not support market experimentation and implementation of new ideas. Entrepreneurs and investors are intimidated by excessive regulation.

Lastly, the government did not effectively invest in education and good health which were prerequisites for raising their standards of living.

These failures were among the most prominent in the largest sectors of the Indian economy, such as agriculture, where entrenched interests resist changes that would benefit the greater whole of the Indian nation, he added.

Without mincing words, he said: "To unleash the potential for higher living standards and job creation, a nation's leaders must make an unflinching commitment to good governance, economic freedom, and investment in people. Without these principles in effect, even a people as capable and aspiring as the Indian people cannot succeed,"

Outlining what was required to make the Indian economy flourish, he said: "Good governance means ruling justly, enforcing laws and contracts fairly, respecting human rights and property rights, and fighting corruption."

"Encouraging economic freedom means removing barriers to trade with neighbors and the world, opening the economy to foreign and domestic investment and competition, pursuing sound fiscal and monetary policies, and divesting government from business operations," he said.

"Economic freedom also means recognizing that it is the private sector - individuals implementing new ideas and pursuing their dreams - that creates prosperity; not central planning or bureaucracies."

The relationship between India and the United States has become ever more vital, he said, as both were bound together by economic ties, inflows of products, investment, people, and ideas. Besides, both were in a common battle against forces and financiers of terror.

Describing his travels through India, he said he was struck by its extraordinary potential and the persistent challenges to economic progress.

"I have met with US businessmen investing millions of dollars in India, and rural Indian entrepreneurs who are drawing on micro-finance loans to create jobs that diversify their local, agricultural economies," he said.

"I have seen amazing examples of world-beating high-technology production facilities in Hyderabad's Hi-Tec City, and in the same day, I have seen an HIV/AIDS clinic struggling against a burgeoning HIV/AIDS epidemic, and a police project to enforce child labor laws and get more children into school," he said.

Neill praised India's high-tech facilities which demonstrated some of the highest productivity levels in the world. India also had leading technology and management institutes producing students capable of unmatched productivity and value creation.

Unfortunately, these well-educated local entrepreneurs and engineers, he said, represented only a small fraction of the population as a third of India lived on less than a dollar a day.

"Unproductive government programs waste money that could have been invested in job creation, sap private productivity with unnecessary and arbitrary interference, distort markets, and undermine public confidence in the nation's leadership," he lamented.

Neill said that the average import tariffs in India were over 32 per cent and more than three times higher than many other Asian economies - Indonesia, Malaysia, Philippines and Sri Lanka. Various indices of trade and investment restrictive rate India among the most restrictive countries in the world.

Corruption and bribery were frightening away honest businessmen and investors, he warned.

"The US investment in India fell from a peak of $737 million in 1997 to only $336 million in 2000. But the US investment in China went from $1.25 billion in 1997 to $1.6 billion in 2000. India's strong English language skills and democratic system of government - should make it preferable to US investors over a country lacking both," he said.

Neill pointed out that unreasonable regulation also deterred international businesses from entering new markets and creating value as no one wanted to invest time and money fighting a system that was unfriendly to success and feared competition.

The challenge for India, he said, was to create a reverse brain-drain as Indians bring ideas back to deploy.

"There are some excellent companies and organisations out there aimed to do just that - the technology firms that are setting up their business in India, or the organisations like Indicorp that bring educated Indian-Americans back to work with local communities to solve local problems," he said.

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