Taking India to the next level

Business Roundtable organised by The Economist and the Government of India

26 March 2008, New Delhi, India


Champions of Industry, Distinguished Delegates, Ladies and Gentlemen,

  1. PREAMBLE

 I begin by sincerely thanking the Government of India inviting me to visit India on this Mission. I also express my warm appreciation to Mr. Kamal Nath, the Honourable Minister for Commerce and Industry, Government of India and his colleagues in the Ministry of Commerce, for all support provided to the UN Secretariat on the substantive and logistical aspects of my Mission to India.

I am grateful to The Economist for having invited me to address this Roundtable.

Ladies and gentlemen,

To put the discussion in perspective, I would begin by first summarizing India’s achievement and the role of Business Community in it and the progress made towards reaching the Millennium Development Goals (MDGs).

I shall then deal with the four imbalances (economic, social, ecological and empathy) that may pose hurdles in the way of India reaching greater heights and in fully achieving the MDGs. In so doing I shall present the picture as it generally obtains in Asia.

I shall deal with the role of the investing community in helping the nation to surge ahead through corporate social responsibility and public-private partnerships.

And finally I shall leave with you two messages to ponder over.

III. INDIA’S ACCOMLISHMENTS

It is my honour to be in the sacred land of India, hallowed by the foot prints of sages like Bhagwan Mahavir, Gautama Buddha, Emperor Ashoka, Guru Nanak and Mahatma Gandhi. India is that wonder which has assimilated for millennia all major religions of the world and that land which has been the beckon light to the world in the fields of mathematics, science, literature, art, architecture, culture and philosophy, for centuries in the past.

And today, India’s secularism and plural society serve as international benchmarks. India is a beckon light to the countries of Asia as the celebrated and largest democracy in the world; as a country proud of its impartial Judiciary, independent Election Commission and of a fiercely vigilant media; as the home of a effervescent corporate sector (with many Indian companies becoming powerful international players, shaping and transforming global trade and global markets)  that has converted the country into an economic powerhouse with growth rates averaging 8-9 per cent per annum in recent years; as the citadel of a Government striving to usher in an age of prosperity and plenty and increasing economic and social justice for over a billion people. India has that intellectual prowess of scientists, engineers, economists, business leaders and thinkers that can match the best and the tallest.

But, to my mind, India can not and will not rest on its laurels. For its own sake and for the sake of many other nations, it has to seek even higher summits, not only of growth but of equity, where the role of the investing community is crucial. That is why I agreed to speak at this roundtable of “Taking India to the next level”. And to move to the next level, I believe, India has to achieve (and help other nations achieve) the Millennium Development Goals (MDGs) and the broader global objectives laid down in the Millennium Declaration, to which it is committed.

Progress so far has been spectacular in achieving some of Millennium Development Goals and good in many others. Major strides have been made in reducing poverty, particularly in rural areas; increasing enrollment in schools; improving the literacy ratio; expanding access to drinking water and better sanitary conditions; and reducing the prevalence of HIV among pregnant women.

  1. THE DOWNSIDE

These achievements, and an impressive economic progress over the past decade in India, are alas tempered by the fact that the share of the proportion of people living below the poverty line is pegged at 27.5 per cent and the last round of the National Family Health Survey shows that malnutrition has reduced by just one per cent (from 47 per cent to 46 per cent) in the last eight years[1], which implies that every second child under six years of age is underweight. Much of the available evidence is a sobering reminder that growth is not synonymous with reduction in poverty and hunger. India spends under 1% of its Gross Domestic Product on public health and expenditure in education also remains as low as 3.8 per cent of GDP. Thus while India has been setting the pace for the developing world, there is much to be done to extend the benefits of rapid economic and social development to all its people, in which I believe the investing community has a lot to contribute.

Like in several other parts in the Asia-Pacific region, in India, there are major challenges in the economic, social and ecological areas that may unravel the country’s continuing prosperity as well as meeting the Millennium Development Goals that satisfies the needs of future generations.  There are four kinds of imbalances in India as in the Asia Pacific Region that need to be addressed by the Country, to which I shall presently turn.

  1. THE IMBALANCES IN ASIA AND INDIA

Firstly, there are considerable economic imbalances within the country as it is in different parts of Asia. The Asia Pacific region is the most dynamic in the World and grew at an average rate of 8 per cent.  In 2006, about one-third of world exports came from Asia-Pacific while it counted for 27 per cent of the imports. Intraregional trade accounts for 50 per cent of the total trade in Asia-Pacific.  However, the performance of different sub-regions varies significantly in terms of economic growth. While East and North-East Asia recorded the fastest growth at 8.6 per cent, Pacific Island economies could only grow at 2.8 per cent. About thirty least developed and Pacific Island economies in the Asia-Pacific are experiencing growth rates that are insufficient to meet their development needs. Despite drastic reductions in levels of poverty, the region is home to some 640 million people living under 1$ a day and income inequalities have risen in 14 countries in the region out of 20 that were surveyed in a recent joint report produced by ESCAP, UNDP and ADB.

For India the picture looks somewhat familiar. Hark these figures:

(a) The performance of different states varies significantly in terms of economic growth and reducing poverty. The five poorer states of Bihar, Orissa, Uttar Pradesh, Madhya Pradesh and Rajasthan, with 40 per cent of India’s population produce only 25 of the total national output, while India’s richest five states of Gujarat, Haryana, Maharashtra, Punjab and Tamilnadu, with about 25 per cent of the population produce 40 per cent of the national output[2].

The gap in per capita income levels between the richer states (Gujarat, Haryana, Maharashtra, Punjab and Tamilnadu) and poorer states (Bihar, Orissa, Uttar Pradesh, Madhya Pradesh and Rajasthan) has widened over the past three decades.

The rich states have also grown over three times faster than poorer states so that by March 2004 itself the ratio of per capita income in the richest state (Punjab) to that in the poorest state (Bihar) has risen to 4.5 from 3.4 in 1970[3].

While the share of population living below the poverty line is 27.5 per cent nationally, Orissa has 46 per cent followed by Bihar, Chattisgarh and Jharkhand, all with about 40 per cent and Madhya Pradesh with about 38 per cent of their people living below the poverty line.  On the other hand Punjab has only 8.4 per cent of people below the poverty line, followed by Himachal Pradesh, Haryana, Kerala and Andhra Pradesh.

(b) Even with robust economic growth, this has not always translated into inclusive economic and social development.  For example, the poorest 20 per cent of people has only 8.1 per cent share in national income whereas the richest 20 per cent has 43.3 per cent of the income. While there is world class health care in urban and megalopolises of India, Primary Healthcare Centers serve only 21 per cent of the villages and medicines are not available in 74 per cent of the villages and 67 per cent of the population lack access to sanitation. Only 38 per cent of the population has piped water supply. Close to 487.2 million people in the India lack access to electricity[4].

(c) There are considerable intra-state variations in levels of poverty within the poorer states. For example, the mainly tribal inhabited areas of southern Bihar, southern Orissa, south western Maharashtra and southern Uttar Pradesh have poverty levels of more than 60 per cent. Thus apparently tribal areas are predominantly and distinctly poor[5]. The two states with the highest Gini Co-efficient for per capita consumption (indicating the greatest inequality) are Tamil Nadu (with Gini ratio of 0.398 in 1999-2000) and Maharashtra (with Gini ratio of 0.345)[6].

The second kind of imbalance that has to be addressed is social imbalance. In Asia-Pacific region, inequalities are rising rapidly and in many places, social grievances along the fault lines of ethnicity, religion and class continue with systematic discrimination against women and girls. Close to one billion people in the region lack access to electricity, while one in every six persons in the region lacks access to safe and sustainable water supplies. Despite medical progress, maternal mortality has gone up in some countries of Asia, and four million children die every ear before reaching the age of five.

The story in India looks frighteningly similar. I am proud that the Head of State of the world’s largest democracy is a woman. The President of the largest political party of India is a woman.  India had made seminal contribution to empowerment of women by reserving one third of all seats in Panchayats for women (leading to one million women getting elected to Panchayats) and legislating for protection of women against violence, but violence against women blots the national landscape. Take the case of female foeticide: sex ratio in the richest State (Punjab) is only 776; it is 803 in Himachal Pradesh, 807 Haryana and 862 in Gujarat. Despite medical progress, India accounts for the highest number of maternal deaths in the world.

Minorities have distinguished themselves in the fields of performing art, culture, sports (including cricket), politics and above all cinema. Out of twelve of India’s Presidents, four were from minority communities. However, the Report of the Prime Minister’s High Level Committee on Social, Economic and Educational Status of the Muslim Community of India in 2006 brought out sobering facts that  members of a minority community had literacy rates well below the national average[7] and their access to bank loan was two thirds and in some cases one half, of the amount accessed by other minorities. The 61st round of the National Sample Survey shows that though nearly a quarter of the rural population in India was mired in acute poverty in 2004-05, the Scheduled Tribes and Scheduled Castes fared much worse.

The Government of India is seized of these matters and various steps have been taken[8], to remedy the situation but there is a lot that needs to be done. Here the investing community must supplement public action.

The third kind of imbalance is ecological imbalance. The Asian and the Pacific region is suffering from a mounting ecological burden that exceeds its ecological carrying capacity, due rapid economic growth and rising populations, exerting growing pressure on natural resources which challenge economic and social progress. The region is a major contributor to climate change and is responsible for 34 % of global green-house gas emissions and this is expected to increase further. Asia-Pacific is an immediate and major victim of extreme climatic events as it accounted for 80% of global casualties in natural disasters in the last seven years.

Like the Asian and Pacific Region, India is also suffering from a growing ecological burden that exceeds its ecological carrying capacity, with economic growth averaging 8-9 per cent per annum and pegged at 9 per cent during the 11 Five Year Plan and a growing population, though the fertility rates are declining. Like in other parts of Asia, pressure on natural resources such as water, energy, land, forests and the ecosystems is rising in India. This may unravel sustainable development in India. Though per capita emission is very low, and India is responsible for 4.6 per cent of global carbon dioxide emission[9] but it is said to be rising by between 2 and 3 percent a year. And this is expected to exacerbate carbon dioxide emission, given its growth trajectory currently pegged at 9 per cent annually during the 11 Five Year Plan.

India is a major victim of extreme climatic events such as tropical cyclones, floods and droughts, and it is one of the top countries in Asia that suffers from climate-related disasters with profound environmental, social and economic costs and loss of human lives. India, like other countries in Asia, has to find a cost-effective and sustainable way to sustain its economic prosperity and social progress, while concurrently tackling climate change by preventing escalation of greenhouse gas emissions and adapting to climate change.

There has been a rapid increase in oil prices which have tripled in the last three years, reaching a record high of $ 111 per barrel during this month. Indian Industry with it technical and technological prowess should be galvanized to improve energy conservation and efficiency to make climate change actions compatible with lasting energy security. Like in other parts of Asia,  huge investments warranted in the energy sectors is a golden chance for the Investing Community in India to develop new innovations, clean technologies for industries, agricultural and other key economic sectors, for achieving environmental, social and economic sustainability. This will cause a paradigm shift. This shift would not be possible without the full participation of the private sector, which is a major driver for sustainable economic growth.  For example, the active participation of the private sector in the Clean Development Mechanism (CDM) of the Kyoto Protocol is crucial to the success of the CDM projects that reduce greenhouse gases emissions in India.

It is heartening to note that the Government of India has provided Rs. 71,121 crores into projects that could earn Industry 448 million certified emission reductions (CERs) or carbon credit by 2012[10]. However, figures reported in The Economic Survey 2008[11], also indicate a skewed CER market, with large and capital intensive industry cornering a major portion of the carbon pie. The huge chunk of CERs has emerged from merely 858 projects, indicating that, not small scale industries which are at a disadvantage in accessing cleaner and costlier technology, capital heavy projects were able to access the global carbon market to finance its transition.

The fourth kind of imbalance is empathy imbalance. Some argue, including The Economist dated 8-14 March 2008, that India’s progress, impressive as it is, would have been even better but for, what for want of a better word I say, the “brakes” put on by bureaucracy. Whether one agrees or disagrees with that view is a moot point but it is a celebrated fact that the Indian bureaucracy has some of the finest minds and has been a key element of the Indian Governance system to have held the national fabric into one. It deserves three cheers for the same. In my best judgment, the factor that prevents some elements of the bureaucratic firmament from being the best is “empathy imbalance”. Sizeable sections of the bureaucracy are extremely sensitive to the needs and aspirations of the marginalized and the disadvantaged. But there are many who do not empathize with the common people, who never seem to realize how much pain is caused, and cost incurred, by the common people to get their entitlements and rights as by law established. Be it getting a ration card, or an electricity connection, or mutation of land; or getting a copy of the record of rights or whatever, on and on a growing list, is not an easy task for the common people. If all those who are parts of the process that deliver basics services, could empathize with the plight of the common people, and respond to their feelings, I think delivery of basic services to the poor would improve dramatically, at almost zero marginal cost. And that will have seminal impact of the development of the country.

  1. THE SOLUTIONS: CSR and PPP

These four imbalances can be tackled by achieving the Millennium Development Goals, in letter and spirit, in which the investment community has a vital role to play.

The Millennium Development Goals are everybody’s business: they require collaboration, partnerships and the assumption of responsibility by all stakeholders, notably the private sector and the “Investment Community”. The trite proposition that “the true business of business lies outside the business” applies no where more than here. Business can only thrive in a stable and successful society. And then no government or institution can achieve these goals all by itself, because the goals are ambitious. As a mainstay of a successful society like India, Indian business has a vital role and a clear responsibility to help address the world’s most pressing problems.

  • The Investing Community in India can tackle many of the social imbalances. For example the engineering industry can address hunger by developing and marketing low-cost efficient water pumps, cooking stoves and energy sources. It can address Malaria by building mosquito proof structures and vector control at building sites. It can address education by building school infrastructure; developing technical training and curricula. Similarly the health industry can address hunger through health and nutrition extension services; caring for malnourished children; it can address Malaria by developing new drugs, diagnostics and vaccines; it can address education through health-care in schools. And so on. Indeed Indian companies have played a stalwart role in providing Anti Retroviral Drugs for “People Living With HIV/AIDs” at affordable prices in several parts of the World.

Achievement of the Millennium Development Goals by eradicating poverty will bring benefits to both societies and business. It will open markets at the “bottom of the pyramid”; a healthier and better educated population will lead to a more productive and reliable workforce to choose from; improved governance increases opportunities for investment by increasing what the Management Guru Prahlad calls “transaction governance capacity”. By managing ecological imbalance, the investing community will lower cost through less consumption of energy and raw materials which will ultimately show up as enhanced competitiveness. Indeed, over the past few years we have seen more and more Investing Communities around the world have come to recognize that taking greater responsibility and contributing towards sustainable development and poverty reduction is essential to secure their own future. Voluntary affirmative action for the upliftment of disadvantaged members of the minority communities is not a difficult proposition.

  • There are various instrumentalities for so tackling the four imbalances through accomplishment of the Millennium Development Goals. Corporate social responsibility can tackle many of the social imbalances. Around the world, CSR has grown both as a concept and in practice. Its moral validity is now compounded by a strong business case. Indeed, a value-based approach to business is becoming a market imperative. Yet, the momentum must continue. It is the involvement and commitment of leaders like you which enable the business sector to rise to the challenge of giving the “forces of the market” a human face. To date, more than 5,000 companies from over 120 countries have made a commitment to the Compact’s 10 principles apart from civil society and labour organizations, which have partnered with the UN – both on the ground and at the policy level. Although business and the United Nations have different purposes, our objectives increasingly overlap, namely, building infrastructure, developing markets, combating corruption, safeguarding the environment and ensuring social cohesion that I mentioned earlier. Indeed, this shared understanding lies at the heart of the United Nations Global Compact, launched in 1999 at the World Economic Forum in Davos, and which started its operations in July 2000.

UNESCAP, in close cooperation with the Global Compact Office, has launched a project to support Global Compact local networks, to get the Global Compact effectively implemented in the Asian and Pacific region. By signing up to the Global Compact and implementing its principles in day-to-day operations, companies can make a significant contribution to development including contributing to the Millennium Development Goals.

Tackling the economic and ecological imbalances by building infrastructure, developing sustainable markets, combating corruption, safeguarding the environment and ensuring social inclusion are not only important issues for the UN and its member Governments, but also for business. Public-Private Partnerships (PPPs) are increasingly being recognized as an appropriate approach to addressing those challenges. The process of globalization has fundamentally transformed the arena within which the United Nations operates. In response, the organization increasingly collaborates with non-state entities, including civil society and the private sector, and such partnerships complement the conventional instruments of international cooperation and development.

Let me illustrate the case of PPP in infrastructure development. The 11 Five Year Plan for India has estimated that the total investment required in power-related infrastructure, railways, roads, ports, airports, irrigation, water supply (both rural and urban) and sanitation would require a staggering Rs. 2060 Thousand crore during the 11 Plan Period. How do we finance such large investment needs?

The infrastructure development can take three forms: private good infrastructure; public good infrastructure and toll good infrastructure.

Private good infrastructure would be entirely in the hands of the private sector funded through both debt and equity. Public good infrastructure, (which includes rural roads, ports, railways, primary health care related infrastructure and public schools),  would need direct provisioning and resources for these could be raised through special purpose vehicles. Toll good infrastructure (such as express ways, bridges, irrigation canals, dams, electricity supply and rural telecom) has to be built through Public Private Partnership.  This requires the right policy framework, good regulators and well defined property rights. Despite difficulties PPPs serve us well. UNESCAP’s own experience in this area has been quite encouraging in hydro-power, urban water supply, and bio-diversity conservation.

Distinguished Speakers and Participants, Ladies and Gentlemen, I would like to come conclude by saying that,

Each of the countries in Asia has an important role in assisting other countries to address the imbalances I discussed.  India is no exception to this rule. Cooperation among all stakeholders, especially of the investing community as creators of wealth and employment, is essential given the increase in global interdependence, which has changed the way the world interacts, the ways it invests and trades, and the nature of the problems it faces. Governments are far more aware of how transnational and multidisciplinary problems are the most difficult ones to solve.  There are new pressures to find inter-national solutions to global problems.

Ladies and gentlemen,

It is time for us to urge India to play a greater role and to determine how it can contribute to promoting and strengthening countries and the United Nations to work in a more efficient and effective manner, in order to achieve the Millennium Development Goals.  I hope the outcome of this meeting will contribute further to enhancing and broadening cooperation amongst all stakeholders in the adventure of development and bring India to new heights.

I urge all business leaders in this illustrious audience to participate in this adventure.

I would like to leave with you two key messages:

One, for the public sector: we need the resources, technology and know-how of business to achieve the Millennium Development Goals by 2015.

Two, for business: CSR is not only the right thing to do; it is also the only long term sound business practice or as the UN Secretary General said, in another context, the “smart thing to do”.

Thank you for your attention.

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[1] International Institute of Population Sciences and Macro International 2007: National Family Health Survey 2005-06: India (Mumbai: IIPS) September 2007

[2] Purfield, Catriona: Mind the Gap—Is Economic Growth in India Leaving Some States Behind? (Washington: International Monetary Fund) April 2006

[3] Purfield, Catriona: loc. cit

[4] UNDP: Human Development Report 2007/2008 (New York: Palgrave Macmillan) 2007.

[5] Sachs Jeffrey D., Nirupam Bajpai and Ananthi Ramaih: “Why some Indian States have grown faster then others?” (Cambridge, Mass: Centre for International Development, Harvard University) 2002.

[6] “per capita Income Growth in the States of India”, MACROSCAN, http:/www.macroscan.com/fet/aug03/fet100803SDP_1.htm

[7] 25 per cent of Muslim children in the 6-14 year age group have either never attended school or have dropped out.

[8] Like setting up of National Minorities Development and Finance Corporation (NMDFC) and 20,000 merit-cum-means Scholarships for students belonging to the minority community.

[9] UNDP: Human Development Report 2007/2008 (New York: Palgrave Macmillan) 2007.

[10] Times of India, New Delhi, 29 February 2008, p. 15

[11] Government of India: The Economic Survey 2008 (New Delhi: Ministry of Finance) February 2008.