A series of unconnected events has made me ponder on estimating the price India has been paying over many decades and continues to pay while our political leadership cutting across party lines remains afflicted with an acute, degenerative myopia.
The economic benefits of a modern, efficient retail system have been internationally well-documented and well-reported in India. Yes, the government continues to dither and takes one slow step forward only to retrace and go back two.
My somewhat informed estimate of the economic loss to the people of the country (by way of higher consumer prices) is about Rs 60,000 crore (Rs 600 billion) in 2007 (or about 4 per cent net higher prices paid by consumers on their overall spending through the largely unorganised retail channel). In addition, supply-side inefficiency losses in agri and some non-agri products could be in the range of another Rs 20,000 crore (Rs 200 billion). The lost potential for taxation for the government cannot even be easily estimated.
Across major cities in India, housing rents have gone through the roof in recent years. The problem was always acute in Mumbai and Delhi but now the malaise has spread beyond these two cities. A recent news report has made a startling claim that almost 16 million rentable houses can come to the market provided the draconian rent control laws are replaced with more modern ones that are equitable both to the landlord as well as the tenant.
The government, in its misguided zeal to protect the interest of older tenancies, has ended up adding hugely to the distress, not to mention the expense of the young, emerging middle income households for whom finding affordable housing remains a tough challenge.
Commercial rents in India are almost literally going through the roof. Yet, the government does nothing to bring more land to the market, update regulations pertaining to land use and the allowed floor area ratio so that the land itself can become more "productive" and thereby less expensive in terms of cost per developed square foot.
In the last 12 months alone, my back-of-the-envelope estimates would be that the Indian businesses would have saved at least Rs 4,000 crore (Rs 40 billion) in rental values in the top eight urban cities provided FAR norms were made even partly comparable to other land-deficient cities such as Hong Kong and Singapore.
As the composition of the economy becomes more services-oriented, the demand for urban office space will increase faster than the overall GDP growth rate and hence the financial impact on Indian business will become acuter even as the government continues to turn a blind eye on this pressing issue.
The recent spat between a West Asian airline and the state-owned carrier once again highlights the misguided notion that there must be a state carrier and its monopoly has to be protected, no matter how shoddy its performance and service are, and how much it costs the average Indian citizen in terms of higher fares being paid out each time she has to travel out of India since there is no long-term open sky policy in place.
Ironically, India has at least two really fine domestic airlines (Jet and Kingfisher) that are capable of giving any international airline a very good run for its money if only they were allowed to fly on international routes without any concern for protection of Air-India. My estimate is that Indian businesses/private citizens lose at least Rs 5,000 crore (Rs 50 billion) per year by way of higher international fares, which could have been reduced if the government were to allow more airlines/frequencies subject to physical limitation of the airport infrastructure.
On flimsy ideological and political considerations, the government has continued to stifle the participation of the private sector in the growth of educational capacity in India, especially at graduate and post-graduate level even as it has totally failed in its own duty to augment the capacity commensurate with the growth in population and aspiration of tens of millions of Indian parents wanting to provide better and higher education to their children.
What started as a trend in the mid 70s and picked up some momentum in the 80s and 90s has now become a torrent in the current decade. Most upper middle and upper class households having children approaching college-going age are now actively thinking of sending their children abroad even for post-school studies since they are not confident that their children can find space in a decent college in India even after scoring marks above 80 and 90 per cent.
Over 120,000 Indian students currently study outside India, costing their families over Rs 16,000 crore (Rs 160 billion) per year. This number is increasing year on year by over 15 per cent and hence it would not be long before more money is spent by Indian households in educating their children abroad than the entire budget of the government of India for higher education.
Sadly, the above is not even a complete listing of areas and the costs that the entire nation suffers on account of the misguided ideology of our political and bureaucratic leadership!
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