Indian Economic Growth Striding

India’s economic growth has recovered from the depths of the financial crisis and the Indian economy grew 8.6% in Q4 fiscal 2010 (calendar Q1 2010) and 7.4% for the fiscal year ending March 31, 2010.  Other things equal – “ceteris paribus”, India appears set to resume its path to double digit growth.  But of course, it is not a ceteris paribus world.  Danger abounds.  What choices should India make?

With the potential onset of Peak Oil India needs to once and for all set aside traditional economic development models.  Just as in developed countries where a minority of Cassandras under siege are trying to fight against the prevalent deficit-cutting mantra because such policies are likely to leave the majority of the population worse off, Indian policy makers must confront the reality of Peak Oil, which leaves no room for India to build a carbon copy of either an Anglo or Euro consumption economy.

India’s Planning Commission, a quaint holdover from India’s socialism-light driven days, set the correct path in its 11th 5-Year Plan wherein it set “Inclusive Growth” as an explicit goal.  Inclusive Growth is perhaps a nebulous concept and it has rightly spurred intense debate among policymakers, economists, business leaders and the public.  While Inclusive Growth has not been explicitly defined, most people can understand that it means that the benefits of economic growth should flow directly to all the population strata.  It’s a refreshingly novel notion, especially in contrast to the “golden shower” policies of trickle-down economics that provided Western citizens a naughty short term guilt-driven high and a long-term gut-hole of dis-gratification.

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With the intervention of the global financial crisis, and numerous political calculus, India’s promise of Inclusive Growth remain short of expectations – the poorest have indeed shared in economic growth but inequality (as measured by the Gini coefficient) has increased.  Without boring on the details…considerable work needs to be started/sustained/expanded in the areas of education, infrastructure and social services aimed at the bulging poor.  But the concept of Inclusive Economic Growth needs to be expanded to incorporate an energy economy model that radically takes India’s growth story off the fossil fuel path because those fossil fuel supplies are just not available – there is no sense in beginning a thousand mile journey on a half tank of gas and no filling station on the map.

Although there is little explicit discussion of Peak Oil within the India policy apparatus, policy makers are, very slowly as is wont to happen in the vestiges of License Raj bureaucracy, trying to orient India’s growth towards a sustainable path.  Some of the most promising initiatives are traditional nuclear and solar.  And in the solar sphere there is a rising stir for distributed solar, a technology area that could have a transformative impact on rural residents and the poor by providing limited amounts of electricity for farms, households and even small businesses.

While I am generally not in favor of market intervention I favor it passionately in cases of market failure, and Peak Oil could be the biggest market failure of all time, which is to say it demands government intervention and the Indian government could do much worse than to provide support, direct subsidies or other mechanism, to spur the distributed solar market.  Such subsidies would certainly be a better investment than building white elephant Quadrangle highways.  How about some more railway infrastructure?

And if foreign investors see India moving more forcefully towards achieving Inclusive Economic Growth and a sustainable energy model, they should not fret, because the alternative will eventually breed chaos in a country of one billion plus up against a fossil fuel wall.  Witness the cracks in other developing countries, China included, when growth leaves too many as serfs.

On a final note, Mr. Tata, while I appreciate the singular Indian engineering feat that is that Nano, would you consider a grand historical gesture:  consign this 21st century People’s car to the dustbin of fossil fuel history? The People will be better served with a Tata BP (!) solar panel on every roof than a car, even a gas sipper, in every courtyard.

Certainly, India could do without this promotion of car culture: Superdrive, by Tata Nano

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