As one of the world’s fastest-growing economies, we could say India is in a great place. With expectations of 6.5 percent growth this fiscal in a world growing slower than that, maybe we should actually raise a toast. According to some, India is in a position to become one of the largest growth engines in the world.
However, before we celebrate, let’s consider this. We will need to grow at about 8 percent per annum for the next two decades to get a per capita income equivalent to what China has today. India is a story of tremendous opportunity and we have to ensure that opportunity is converted to reality over the next two decades for the common man in India to feel the impact.
Here is a list of a few things that we can do to achieve this dream. None of this is unknown to us and of course, we have already started making progress in a number of these areas:
- Articulate a policy road-map
- Faster time-to-market
- Innovative manufacturing
- Access to capital
- Future-ready workforce
Articulate A Policy Road-Map
Clarity of policy over the medium to long term has great benefits. It gives people a sense of where we are headed, what's likely to be in scope and not in scope and gives businesses the ability to plan over a longer term, including making capital investments. For this to work, all relevant bodies need to align what they do with the central government’s policy road-map. State governments, ministries, and regulators would need to work in tandem, considering how they can further this policy framework through their actions, prior to implementation. I would go as far as to say every such body should articulate what its policy blueprint is and how this ties in with the central government’s policy road-map. Most corporates in India are expected to do this by their shareholders — they need to set out a vision and a strategy to achieve that vision.
Why should not the citizen have the ability to understand what the government has planned over the next decade?
Within this framework, we could spur innovation with state governments assuming larger accountability. We should be looking at deploying some reforms in select states as an experiment before being widely implemented.
While the current government has made us proud by improving India’s ranking in the World Bank Ease of Doing Business List 2018, much remains to be done. India's induction into the Top 100 comes on the back of several bold reform measures including Goods and Services Tax, Insolvency and Bankruptcy Code, digital drive and involvement of states in faster clearance of projects. As per the report, India has adopted 37 reforms since 2003 with nearly half of these reforms being implemented in the last four years.
However, according to the World Bank, we still lag behind in areas like starting a business, enforcing contracts and construction permits. For example, while India has reduced the time taken to register a new business to 30 days from 127 days 15 years ago, the procedures remain cumbersome with over 12 procedures required, which is considerably more than in OECD high-income economies, where it takes five procedures on average.
Enabling faster-time-to-market setups for business, especially entrepreneurial start-ups with an environment conducive to incubation, innovation, and access to capital, could go a long way in improving sentiment, while also bolstering the economy.
The more we can embrace the digital world to smoothen processes, the more we will improve the ease of doing business.
India’s economy is largely services dominant with the manufacturing sector contributing a modest 16 percent to the nation’s gross domestic product, while China is at 40 percent. While the government’s Make in India initiative to vitalise manufacturing has provided a much-needed impetus to the sector, Indian manufacturing needs to improve productivity, profitability, and competitiveness by bolstering their operations to improve the productivity of labor and capital in order to seize more of the global market.
India also needs to transition to the innovation stage by building strength and scale in fundamental knowledge-creation through scientific/technological research and exploiting that through products and processes.
It ranks 66 on the Global Innovation Index.
Global economic growth is poised to create opportunities everywhere, allowing India to transform into a viable manufacturing alternative to China. However, for this to happen, Indian manufacturing needs to increase labour productivity and capital efficiency. If India’s manufacturing sector realised its full potential, it could contribute to over 25 percent of GDP by 2025, thus propelling India into the league of China, Germany, Japan, and the United States.
Rising demand, increased need for product diversification and low-cost production could help India’s manufacturing sector to grow six-fold by 2025, to $1 trillion, while creating up to 9 crore domestic jobs as per McKinsey’s report on the Indian manufacturing sector.
While the government can help the sector through reforms in land acquisition, provisioning of adequate infrastructure, easing duties etc. the onus, in this case, does not solely rest on them. Manufacturers must take it upon themselves to upgrade on three crucial fronts — namely — throughput of their prevailing assets, their technology and upskilling of their workforce.
Access To Finance And Capital
While traditional financing is in place in India, financing needed for SME, MSME, and infrastructure is still missing. The Indian economy still relies on banking. Banks, thus, are involved in the entire gamut of financing India Inc.
If the banks and NBFCs focused on extending credit to smaller players — given their network and access — other avenues can be opened up to Indian businesses for accessing credit to finance their capital needs. Large and mid-corporate credit, as well as infrastructure financing, can be undertaken by mutual funds, pension funds, and insurance companies.
We have too much money chasing too few companies and to change this, we need initiatives that deepen the existing Indian financial landscape.
Initiatives such as tax sops, particularly in case of credit and infrastructure funds, should be considered.
For all of the above to actually translate into action, we need a future-ready workforce that is gainfully employed. India’s biggest challenge is creating enough work for its growing workforce. Skill building under various national initiatives remains critical, both for new labour force entrants and existing workers. From addressing demand-supply mismatches to challenges in creating awareness, aspiration, and training, India will need to focus on creating a skill curriculum that can help establish a higher return on investment and could result in more sustainable benefits to both workers and employers. We need to think about skills in a micro way which looks at district-level skills requirements and what we can do to create appropriate skills in these districts. We also need to be forward-looking.
Merely training people for the jobs we see today will not address the rapidity of change and what that would do to future jobs.
Overall, we have an exciting future ahead. India is a place where the problems are often apparent but the opportunities not always so. We need to pick up our pace and lift ourselves up as a nation to deliver the growth we are capable of. We owe that to the 1.2 billion Indians who inhabit this incredible country.
Ajay Srinivasan is Chief Executive Officer at Aditya Birla Capital.
The views expressed here are those of the author’s and do not necessarily represent the views of Bloomberg Quint or its editorial team.