Diversity, democracy fixes India's demographic dividend: WEF

New Delhi, Dec.1: India is at an inflection point – the prospect of sustaining 8-10 percent growth is achievable, but a number of basic challenges are acting as a handbrake on development and need to be addressed, according to a report released today by the World Economic Forum's Global Risk Network and the Confederation of Indian Industry (CII).

While it is well known that existing infrastructure in India is stretched to its upper limits and that increased investment is required, there is also an urgent need for the government, 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).

Much can be gained by removing constraints inherent in inefficient government bureaucracies, complex tax regulations and labour market rigidities. Decision-makers cannot assume that tomorrow"s growth story will read like today"s. The economic fundamentals are in place, but political dynamics and the scope of structural reforms are more likely to shape the next chapter. These are among the findings in India@Risk 2007, a report prepared by the Global Risk Network of the World Economic Forum and Confederation of Indian Industry.

Published to coincide with the India Economic Summit, which starts today in New Delhi, the report features the latest insights into trends, potential consequences and mitigation relevant to six key risks facing India:

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 Freshwater (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 (e.g. an oil price shock)?

4) Geopolitical Risks: Globalization vs Protectionism – What happens if there is a backlash or retrenchment from globalization? 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?

"The six risks are intimately interlinked and generate many other threats to the Indian economy," said Shamsher S. Mehta, Director-General, Confederation of Indian Industry (CII), India. "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 interconnectedness, which magnifies their impact."

In preparing this report, more than 40 experts from business, academia, non-government organizations 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 India"s continuing progress.

"While sustained 8-10 percent growth for India is possible, it is not a given," said Gareth Shepherd, who oversees Economic and Financial Risks in the Forum's Global Risk Programme. "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, aspirational and growing populace.

A key priority highlighted in the report is water. "There is no doubt that the current water situation in India will get much, much worse unless different approaches are taken. India needs to explore opportunities for further public-private partnerships and develop a flexible and collaborative process to shape appropriate water policies and speed up governance reform in this sector," said Sylvia Lee, who oversees Environmental Risks in the Forum's Global Risk Programme.

The report concludes that for India – a country characterized by huge opportunities and ever-increasing regional and global interdependence – the imperative is for collective action to mitigate these shared risks. Ring-fencing is no longer an option.

India Economic Summit

The India Economic Summit is organized by the World Economic Forum in partnership with the Confederation of Indian Industry (CII). The Summit is taking place from 2 to 4 December, convening over 600 industry leaders and policy-makers from all sectors and from around the world. It will explore in depth the many facets of the country's economic, social and political transformation. The goal is to identify the opportunities and challenges that will shape India's future business environment.

The India Economic Summit is designed to generate insight and guide action to improve the alignment of India's development, industry and global agendas in the context of meeting the country's new growth expectations. Under the theme Building New Centres of Excellence, the programme
is organized around four thematic pillars: State and National Competitiveness, Inclusive Growth, Infrastructure Development and Risk Management.

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