Moving towards the 8%-plus growth era

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September 22, 2015 12:30 AM

If India has to grow at a faster pace, we have to break into the ongoing and disruptive changes in a globalised and interconnected world

We have correctly identified the initiatives for growth—such as Digital India, Smart Cities, changes in labour legislation etc—and if these steps are implemented anywhere near the projected targets, India would be the fastest growing large emerging market in 2015 itself.We have correctly identified the initiatives for growth—such as Digital India, Smart Cities, changes in labour legislation etc—and if these steps are implemented anywhere near the projected targets, India would be the fastest growing large emerging market in 2015 itself.

Disruptive changes have impacted comparative growth parameters of many countries over the centuries. Industrial revolution changed England and many countries in the West. Railroad, roads and automobile growth changed the US.

In recent years, the increase in Chinese rates of growth has been phenomenal. It started in the 1980s with the Chinese accepting huge foreign investments, and the Kissinger era facilitating huge American investments. China’s share of global industrial output today is 30%, up from 7% in 2000. This growth cannot continue after the post-bust years. China did not make structural changes to respond to the world’s fall in demand, and may force disruptions owing to the Chinese domestic demand not being able to meet the fall in export demand. The yearly GDP growth of 12% in 2008 has already fallen to 7.5%, and is bound to fall further. In addition, China cannot match the 25% yearly export growth of the post-2002 years (after joining the WTO), and post-2008 has already shown a huge fall in the rate of growth. The Chinese market today is so big that its industrial production growth has to quickly converge to the world’s pace of 2-3%. The Chinese have been trying to deal with the global recession by investing hugely, leading to further overcapacity and producer price deflation, perhaps leading to increased dumping in countries such as India. Will they be able to sustain growth and what would be its impact on countries such as India, are the questions all economists are raising.

The recent disruptive changes of this century—as identified by McKinsey’s recent book No Ordinary Disruption: The Four Global Forces Breaking All The Trends—have been the vast consumer market created by online shopping, consumer goods market moving East against being strongly American earlier, and the shale oil and gas discovery reducing America’s dependence on energy imports. Also have been Facebook’s purchase of WhatsApp at a huge price, Facebook’s entry into mobile market and huge increase in advertisement share perhaps thus demonstrating the importance of applications, and the Mangalyaan mission showing India’s capacity of frugal innovation.
These developments indicate the huge changes in global markets at bewildering speeds, impacting businesses of large companies and the consequent impact on populations across the world. There is no reason to believe that these changes will slow down.

The book further analyses the current disruptive changes impacting the world, and those that would affect different countries’ growth parameters in the near future. Efficient management of these changes will determine different countries’ future growth. These are:
* The shifting focus of economic activity to the East, and within such countries to the urban areas.
* The acceleration in the scope, scale and economic impact of technology.
* Responding to the challenges of an ageing world.
* Greater global connections of trade, money and converged communication networks.

As against the present world trends in disruptive growth, let us examine India’s position so far.

India started moving beyond the Hindu rate of growth in the 1980s, and accelerated in the 1990s, with further liberalisation. Information technology (IT) was the first Indian disruption, when the state connected India’s IT, BPO, software companies to the world at minimal costs and huge speeds not seen in the country before that. This led to the IT industry contributing 8% of country’s GDP last year, up from almost nil 25 years ago. Telecom disruption post-2003 regulations with minimal costs ensured a 50-fold drop in tariffs, 100-fold increase in mobile numbers, and a 2% to 50% mobile teledensity increase in rural areas after 2007. The post-2003 phenomenon of mobile growth was completed in less than a decade. The enormous growth in communications contributed to 4% of India’s GDP from about 1% only a decade ago. The successful and inexpensive Mars mission has brought India to the forefront of satellite technology and frugal technological innovation, and would surely disrupt the world market in the satellite sector. It should encourage other technology sectors too, once we move to aggressive agenda on R&D, which is being planned now. A common thread in Indian innovations and disruptions is that they have so far revolved around services and communications, and have mostly led to reducing prices.

If we have to grow at a faster pace, India has to break into the ongoing changes in a globalised and interconnected world. And the last Indian disruptive changes show that we have the wherewithal to implement these changes in a country with a demographic dividend and vast improvement in technological and general education levels. We are today concentrating on bringing out these changes by launching initiatives such as Digital India, Smart Cities and working towards ease of doing business, increased labour productivity through change in labour legislation etc. We have therefore correctly identified the programmes for growth and if these steps are implemented anywhere near the projected targets, India would be the fastest growing large emerging market in 2015 itself.

India’s projected growth model is currently also concentrating on the services sector—where we have a natural advantage—and productivity growth in these areas due to better communications will lead to higher productivity in the entire economy and jobs, and would be different from the model of large-scale capital investment and state-led push for manufacturing exports in China, East Asia and many other regions of the world. However, growth does require effective and targeted implementation of identified initiatives mentioned above. The current growth levels leave much to be desired.

Once effective implementation starts, we should move into the 8%-plus growth era.

The author is former chairman, the Telecom Regulatory Authority of India

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