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Six key risks slowing down development: report

Special Correspondent

NEW DELHI: India is at an inflection point — the prospect of sustaining 8-10 per cent growth is achievable, but a number of basic challenges are acting as a handbrake on development and need to be addressed, a report released here on Saturday by the World Economic Forum’s ‘Global Risk Network’ and the Confederation of Indian Industry (CII) has said.

The report has pointed out that while it is well known that the existing infrastructure in India is stretched to its limits and that massive investments are required, there is also an urgent need for the government, the private sector and civil society to collaborate on governance reforms to eliminate corruption and ensure equity in the provision of basic services such as education, water and sanitation.

It has also found that while much can be gained by removing constraints inherent in inefficient government bureaucracies, complex tax regulations and labour market rigidities, the country’s decision-makers cannot assume that tomorrow’s growth story will read like today’s. For, although the economic fundamentals are in place, it is the political dynamics and scope of structural reforms that are more likely to shape the next chapter. These are among the findings of the report titled ‘India@Risk 2007’.

Published to coincide with the ‘India Economic Summit’ starting here on Sunday, the report features the latest insights into trends, potential consequences and mitigation relevant to six key risks facing India. These are:

1) Economic impact of demographics — India is facing a demographic dividend. What must be done to ensure it does not turn into a demographic liability? Can the ‘inequality trap’ be overcome and inclusive growth achieved?

2) Loss of fresh water (quantity and quality) — How best can India cope with increasing freshwater insecurity?

3) Economic shocks and oil peaks — How vulnerable is India to external economic turbulence? What exogenous crises would risk derailing India’s growth prospects (for instance, an oil price shock)?

4) Geopolitical risks: Globalisation versus protectionism — What happens if there is a backlash or retrenchment from globalisation? With the explosion of expectations, can India keep up with its own aspirations?

5) Climate change: The environment and challenges to India’s growth — Can India balance the complex trade-offs between the environment and growth? What are the risks and opportunities for India?

6) Societal risks: Infectious diseases — What must be done to combat the spread of high-mortality disease and pandemics? What if India fails?

According to CII Director-General Shamsher S. Mehta, “Along with national security, the three pillars of security — human, economic and physical — need to be raised to bring the economy to a position where the challenges can be met. The risks were identified because of their inter-connectedness, which magnifies their impact,” he said.

In preparing the report, more than 40 experts from business, academia, non-government organisations and policy-making were asked to consider the drivers of the recent period of unprecedented growth in India and the opportunities that exist, as well as the threats to the country’s continuing progress.

Three economic threats

Gareth Shepherd, who oversees economic and financial risks in WEF’s Global Risk Network, pointed out that while sustained 8-10 per cent growth for India is possible, “it is not a given.” “In the short term, three economic threats loom large: A rising rupee, an oil price shock and a collapse of asset prices [especially property or shares], triggered by a global re-appreciation of risk. In the medium and long term, risk mitigation should focus on building increased resilience via continued investment in basic infrastructure and education, as well as on inclusive growth, in order to reap the demographic dividend of a young, aspiring and growing populace,” he said.

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