Restart Summary

What if the economic boom of the world's largest democracy could be reignited? Restart explores what went wrong and what India must do to get back on track.

1. Cultural Mindsets Impact Infrastructure Development

Indian culture, shaped by a socialist mindset, discourages exceeding bare minimums in infrastructure projects. This attitude traces back to Gandhi's preference for simplicity and has now entrenched inefficiencies.

For instance, the Rao Tula Ram Road flyover in Delhi was constructed with full knowledge that it couldn't handle the city's traffic. Such projects keep costs low but fail to address real needs. The result? Traffic jams that extend for miles, costing both time and money.

These limitations ripple through the economy, particularly in manufacturing. Vehicle delays are common due to long wait times at tax checkpoints. Indian trucks spend only 40% of their time driving, making domestic transport sluggish and leveling even higher burdens on manufacturers.

Examples

• Gandhi's third-class train travel popularized thriftiness.
• Rao Tula Ram Road bridge in Delhi was underbuilt by design.
• Manufacturers rely on international transit to bypass local inefficiencies.

2. The Shrinking and Unproductive Agriculture Sector

Indian agriculture, once vital, faces an identity crisis as farms become smaller and less productive. While half of the workforce is in farming, agricultural output now contributes less than 15% to GDP.

Farming no longer attracts the younger population. Farmlands average under two hectares, a far cry from economically viable sizes. For those who remain in agriculture, incomes fail to provide a secure livelihood, leading many to seek industrial jobs.

However, industrial opportunities are scarce. Indian companies resist expanding to avoid bureaucratic roadblocks and corrupt inspections. This disconnect leaves millions jobless or stuck in low-income rural economies.

Examples

• Farmland reduced to less than half since 1970.
• Farm sizes averaging less than half a football field.
• Industrial jobs capped by regulatory restrictions.

3. Late-1980s Overspending Nearly Collapsed the Economy

India in the 1980s seemed unstoppable, but hubris led to overspending under Rajiv Gandhi. The government dramatically increased expenditures, particularly for military purposes, under the assumption that growth was endless.

Such spending outstripped the country's ability to generate revenue. External debt soared from 258 billion to 700 billion rupees in just four years. India came perilously close to failing on its loan payments in 1991, triggering large-scale reforms.

Though fixing these economic follies was imperative, the reforms created unintended consequences. Devaluing the rupee increased costs for manufacturers who relied on imported materials, damaging local industries further.

Examples

• Military spending grew 50% under Rajiv Gandhi.
• External debt tripled between 1985 and 1989.
• Many manufacturers were priced out of accessing imported raw materials.

4. Economic Reforms Were Poorly Designed

The 1990s economic reforms were reactive rather than strategic, addressing superficial problems while missing deeper issues. One example is how the devaluation of the rupee hampered competitiveness without propelling local production.

Manufacturers couldn’t compete abroad due to half-hearted currency adjustments and simultaneously struggled at home, facing cheaper foreign goods. Import-export dynamics were lopsided, exacerbated by India’s dismal infrastructure.

Some industries, like IT, telecoms, and finance, thrived during this period. Their limited reliance on land and infrastructure allowed them to operate outside the heavy restrictions crippling traditional manufacturing sectors.

Examples

• Currency devaluation made local goods non-competitive abroad.
• Infrastructure problems forced roundtrip imports from Europe.
• IT industries avoided land-related hurdles.

5. Private Sector Contributions Fell Short

By the early 2000s, infrastructure became critical, but the government passed the buck to private players. Initially, this collaboration seemed promising, yet it soon faced challenges.

Private companies began avoiding investments in national projects due to regulatory bottlenecks, corruption, and delayed timelines. Some even exploited government support, escalating demands partway through projects.

Overcomplicated regulations burdened companies further. For instance, Rule 15 mandates lime washing standards, while Rules 11 and 130 redundantly track attendance data. These absurd requirements stifled efficiency.

Examples

• Investment in national projects dropped from 14% to 1% of GDP between 2005 and 2013.
• Rule 15 on lime washing created needless administrative tasks.
• Companies regularly inflated project costs mid-construction.

6. Trust Issues Between Government and Private Players

Partnerships between the government and private companies proved structurally weak. Consolidating responsibilities created conflicts of interest, resulting in substandard construction and inefficiencies.

A better model would separate roles: one company overseeing operations and another handling construction. Independent monitoring would minimize corruption, delays, and corner-cutting tendencies.

Citizens, foreign aid, and private players could jointly fund endeavors, offsetting risks that arise when the private sector bears all responsibility. Balanced collaboration ensures greater accountability.

Examples

• Projects had both operations and construction controlled by one entity.
• Independent overseeing could prevent regulatory overlaps.
• Financing from multiple sources could stabilize public infrastructure projects.

7. Allowing Private Control of Resources Backfired

When private firms gain control of essential resources, exploiting the public becomes inevitable, as seen in the electricity crisis around Tata and Adani. After winning bids to supply cheap electricity, companies later raised prices drastically.

The failure to maintain contracts affected thousands, with companies retaliating against pressure by reducing energy output, causing blackouts in vital regions. A free-market system, where resources are priced fairly and auctions are rigorous, could prevent such issues.

Additionally, environmental costs must factor into resource prices. Extracting coal from forests, for example, requires companies to pay for ecological damage, helping preserve fragile ecosystems.

Examples

• Tata and Adani's price hikes led to record electricity tariffs.
• Blackouts crippled western and northern India.
• Coal extraction exemplifies underestimated environmental costs.

8. Agriculture Policies Need a Refresh

Indian farms overproduce commodities like rice and wheat while neglecting other important crops. A deep focus on these two grains stems from lopsided government policies providing farmers with subsidized resources but little incentive for variety.

Meanwhile, issues persist in transporting vegetables to city markets. Without refrigerated trucks or sufficient cold storage, agricultural diversity remains stagnant.

Policy reform can pivot the agricultural sector toward higher efficiency and variety. With infrastructure improvements such as better irrigation and well-maintained road systems, farming would better reflect the population's dietary and economic needs.

Examples

• Continuous surplus of wheat and rice strains infrastructure.
• Subsidized tools discourage crop variety.
• Crops rot during transit due to insufficient logistics.

9. Overregulation Affects Every Corner of the Economy

A web of restrictive laws stifles innovation and scale across sectors. From manufacturers and farmers to large private companies, bureaucracy keeps industries from operating at their full capacity.

Easing these rules or modernizing outdated standards would foster growth. For instance, simplifying dual record-keeping rules like those in Rules 11 and 130 can save enormous amounts of time.

Such shifts toward reform would make resources not just available but functional, energizing industries that currently operate in survival mode.

Examples

• Rule 11 and 130 redundancy demonstrate wasted labor.
• Regulatory overreach targets businesses with over 99 employees.
• Relaxed rules would attract more private investment across sectors.

Takeaways

1. Push for cutting down bureaucratic hurdles and pare back redundant regulations to open up India’s industrial economy to greater efficiency.
2. Introduce agricultural policies promoting a mix of crops paired with logistics upgrades, such as refrigerated trucks and better irrigation systems.
3. Create stronger frameworks for partnerships between the public and private sectors, ensuring accountability and fair distribution of risks.