The Economist in this week’s cover story cautions India for the need for reform.

It says (subs only):

Over the past year the Indian economy has grown by an impressive 9.2%, not far behind China’s 10.4%. At some point this year India’s growth rate should even outpace China’s…and the economy could soon overtake Japan’s and become the third-biggest, hebind only the United States and China.
Fast growth is essential to pull millions of Indians out of poverty. But there are so many alarming signs of overheating. If something is not done a hard landing will be inevitable.

The Reserve Bank of India has been too timid in cooling domestic demand. Now is the time to tackle the public sector. Infrasructure, such as roads and power, and public services, such as education and drinking water, are woefully inadequate and limit growth. About half of all Indian women are illiterate.

India needs to reform its absurdly restrictive labour laws, which hold back the expansion of its manufacturing sector. Plenty can be achieved by reform, rather than just spending. If these things are tackled then India can indeed match China’s growth.

The Economist, a pro-market magazine, is right in this case. The issue is not just about spending but improving the ability of the citizens, organizations and the infrastructure to match or exceed China’s growth rate.

What is worrisome for me is the talk of overheating with just a few years of growth above 7%. China has been doing above 8% for 25 years now. India not only needs to match China in one year but in decades to come if there is any chance of moving its citizens out of poverty.

Update: Amit at India Uncut links to an article by Niranjan Rajadhyaksha in the newly launched Mint which complements this one.

Crossposted at World is Green