India can grow like China if domestic issues settled: Nick Bloom
The share of manufacturing in India's gross domestic product can go up to 30 per cent if the country implements labour reforms and relaxes regulations, according to Nick Bloom, professor, Stanford University. He tells Dilasha Seth in an interview that India could grow as fast as China if the country sorts out its domestic challenges. Excerpts:
With India's economic growth down to 5.3 per cent in Q2, what are the deterring factors according to you.
Domestic issues are India's real problems rather than external ones. So my analogy is like, India is like a boxer with a hand tied behind its back. The government has tied the hand behind with labour regulations, permits, licensing, etc. So, if the second hand is unleashed, then India can grow faster.
Imagine that you are a businessman, and want to open a factory. It is really hard with so much of regulation, so you move to Singapore, Hong Kong or US.
Are you saying that if India addresses these domestic hurdles, it can tread a high growth path like China?
If the domestic issues are sorted out, India's growth rate could be at least as fast as China. The government could increase growth by getting rid of most of these regulations.
India's growth rate is lower than China's, as China is a more free market. There are much less labour regulations and the rule of law is very strong.
So what can drive India's growth in the medium rate is going to be how much the government can do to push through the retail FDI (foreign direct investment) and the land acquisition Bill.
The manufacturing sector has been a drag on the overall economy...
India has a very small manufacturing sector. Every country around the world, which have achieved a massive growth rate, is through manufacturing. No one has really been able to achieve high growth like agriculture to services.
The National Manufacturing Policy aims at increasing the share of manufacturing from 15 per cent to 25 per cent in the next decade. Do you think that is doable?
India's labour is way cheaper than China's. So people are moving out from southern China to inland parts of Indonesia. They would happily invest in India and India's share in manufacturing could possibly go up to 30 per cent if it eases the labour regulations, allow FDI and ease the licence procedure.
If I am a big multinational company and thinking where to set up my factory, I think of two options - India and Vietnam. India has cheaper wages than Vietnam, but Vietnam is a lot of relaxed place. There is some corruption, but I can get my way and run my basic business.
But if I go to India, I would sign a partnership with the government and I am worried about the uncertainty. I think there is a huge pool of people who wants to invest over this side. If you see the amount of money pouring over Vietnam and Indonesia and China, a part of that could come to India.
Image: Nick Bloom, professor, Stanford University.
Photographs: Courtesy, nber.org