Perspectives
WE KNOW about costs and benefits of immigration labour for the host countries, and costs and benefits of emigration to the countries of origin. One view suggests that the loss of skilled talent from developing countries exacts a great cost to those countries; prompting Bhagwati to propose a tax on skilled emigrants, referred to as the Bhagwati tax; another perspective shows that emigration from developing to developed economies can produce a win-win situation; skilled people living in the Diaspora can make a big difference to their countries of origin; we need to make this win-win situation happen.

Brain gain is more than remittances. India needs a knowledge economy to sustain its high growth rates, and to reduce its social and economic disparities; and it can develop a knowledge economy through leveraging knowledge networks. It was on this latter aspect that I made a power-point presentation on a panel with the Chancellor and President of the University of Houston, Dr. Renu Khator, Pro-Vice Chancellor of the University of KwaZulu-Natal, Dasarath Chetty, and Dr. Ramesh Patel at the 8th Pravasi Bharatiya Divas in New Delhi. Most of the data came from the World Bank.

India, with a 3.5% growth-rate from the 1950s through the 1970s, today hovers around an average of 8% growth per year. The high growth-rate is necessary for a growing population and a growing workforce; The World Bank projected that India’s Total Factor Productivity (TFP) will grow by more than 50% in 2020 than what it was in 1991/92. TFP is the nation’s capability to create and use knowledge. And, invariably, some people refer to the knowledge economy as ICT industries; the World Bank suggests that this concept is broader; the KE refers to how an economy channels and applies new and existing knowledge to raise productivity and total welfare; for this reason, the KE can reduce economic disparities.

But, first, India’s economic policies require some kind of transformation, as the knowledge initiatives and knowledge revolution depend on execution of the economic reform agenda initiated just over a decade ago. Professor Bhagwati argued that the Indian government’s inflexible policy framework was responsible for the abysmal growth-rate of about 3.5% from 1951 to the 1970s. The point that Bhagwati pursues is that India could have become a global economic powerhouse much earlier; this point I made last week. And he argued for the Indian government to drop this policy inflexibility.

Bhagwati believes that the sluggish growth diluted the attack on poverty, which was the goal of all governmental planning since Independence. And he argued that a sluggish economy cannot remove poverty through mere job creation.

At any rate, India may need to leverage its strengths to lead the way in knowledge creation and its application to enhance the welfare of the poor and the vulnerable. The World Bank sees India’s strengths as the following:

■ English-speaking knowledge workers.
• A large functioning democracy.
• One of the world’s largest domestic markets.
• Macroeconomic stability, free-market economy, active private sector, vibrant financial market, and a huge S&T infrastructure.
• A growing ICT sector.
• A huge and impressive Diaspora, producing valuable knowledge linkages and networks.
• Low-cost skilled workforce.
• Abundant raw materials.

And this list is by no means exhaustive. However, we cannot leverage the strengths unless we identify some weaknesses. In this context, we may need to examine the deficiencies of the economy; again, the World Bank identified some barriers to faster economic growth where India:

• Has a relatively closed economy in comparison with other Asian economies, where exports comprise a greater share of GDP.
• Has to attract more FDIs – India received $4.23 billion FDIs, while China got $53.5 billion a few years ago; but people argue that China’s expatriates are people who dominate the FDIs.
• Needs to speed up trade reforms.
• Needs to expedite procedures for entry and exit of firms.

Reviewing these barriers on a State-by-State basis may show that some of these barriers may not be relevant in some States like Gujarat. Chief Minister of Gujarat, Narendra Modi was very amenable to projects from the Diaspora, and outlined the fast pace in place to initiate projects in his State. Should this be the case for only Gujarat and a few others, then there may be uneven and unbalanced development in India. I want to continue this piece with a discussion on the pillars of a knowledge economy.