Geologists have an evocative term for majestic landscapes prone to tectonic shifts: catastrophic landscapes. India is in many ways similar: the economy is reaching new heights, but the forces playing out not so far beneath the surface have the potential to suddenly alter the terrain.
India has built up substantial momentum, but on a creaky substratum of weak infrastructure and poor services. The country's failure to deliver the public goods its policymakers promise and its constitution guarantees undercuts one of its greatest economic assets: its human resources. More importantly, the political-bureaucratic strata that shape this foundation for sustained growth are like molten lava: slow-moving, but occasionally explosive. Electoral pressure on leaders to perform is building as existing practices of making and implementing policy come under increasingly critical scrutiny. The combination led to some unpleasant surprises in the fall of 2010 and may well produce more if India does not move rapidly toward systemic reform that encourages greater transparency, accountability, and capability at all levels of government.
Economic prospects are often measured in terms of progress on particular policy changes: labor market reform, budgetary allocations to education and health sectors, financial sector reform, or rationalization of tax codes. This is the wrong calculus for predicting India's trajectory. The next set of economic reforms has to be political. It must consist of revamping the state's ability as an organization to deliver on the infrastructure, services, and policy context its citizens demand.
Surface and Substrata
"Incredible India" (the government's slogan for its global public relations campaign) has world-class airports, shiny high-rises, and world-renowned universities. It boasts five of the top 50 richest billionaires according to the 2010 Forbes list and a growing number of companies bailing out or buying out their "developed country" competitors. The country's economic growth has recovered from the dip it took in the past couple of years to almost break into the double digits. The IMF's October 2010 World Economic Outlook projects India's growth rate for 2010 at 9.7 percent, up from its estimate of 9.4 percent in July. India's National Council for Applied Economic Research upped its October projections for growth in fiscal year 2010-11 growth from an 8.1 percent forecast in July to 8.4 percent, mostly due to an increase in projected agricultural growth rates.
India, however, still lacks many of the fundamentals for sustained, distributed, inclusive growth. The electricity supply persistently lags behind the demand for power. Those who can fill the gap do so with generators and captive power plants, adding to entrepreneurs and households' basic costs of struggling doing business. Large swathes of some of the poorest rural areas have intermittent power at best, with obvious consequences for the prospects for modern agriculture, rural non-farm employment, and schoolchildren's ability to do homework at night. India's transport network is congested and crumbling. The interstate highway system formed by the Golden Quadrilateral and the North-South East-West corridors has knit some of the major cities together and eaten into the railways' share of freight transport, but the vast majority of roads are un-paved, rural, and accessible for just part of the year. Mobile phone use is growing rapidly, but the internet backbone required to move serious amounts of information around reliably is mostly limited to urban India. According to the latest data (2006) from World Bank World Development Indicators, nearly 70 percent of India's citizens do not have access to improved sanitation facilities and 12 percent do not have access to even minimally improved sources of clean water.
India's investment in one of its greatest resources, the "demographic dividend" created by its comparatively young workforce, is similarly lacking. …