Post-Covid recovery: Jump-starting the economy

By: |
April 11, 2020 4:10 AM

India needs to stay in a war-time mode for three years. Govt needs a special team to focus on recovery

It should mandate the team to look at each major component of the economy and come up with solutions that can reduce obstacles and increase attractiveness for fresh investment. It should mandate the team to look at each major component of the economy and come up with solutions that can reduce obstacles and increase attractiveness for fresh investment.

By the time the world, and India, conquer the current pandemic, substantial damage would have been caused to all countries. India would be no exception. The process of restoring the economy, and then, getting it back on a higher growth trajectory than what has been achieved in recent years will take enormous resolve, extraordinary thinking, and a sustained Herculean effort. The only silver lining is that India’s political and bureaucratic leadership can take advantage of this situation to shed a few dogmas, remove the beyond-repair deadwood, and lay the foundation for a more innovative and vibrant ecosystem.

Hence, post the immediate focus on controlling this contagion and providing whatever immediate stimulus is feasible under the circumstances, the government effort must focus on strengthening the nation’s socio-economic foundations. And, also prepare a blueprint for building a new, vibrant India. Thus, it may be a good idea to have two sets of teams in place—one that is focused on the immediate (containing the contagion and re-opening of India), and another focused on the post Covid-19 response for the next three years.

First advice is to have this suggested second team (charged with rebuilding of India) staffed with the best talent (political, finance, industrial, and social) both from within India (cutting across political/ideological lines) and from outside.

The next advice is to stay in a war-time mode at least for the next three years. In this mode, the government should consider drastically pruning the list of public holidays at national and state levels, substantially increase the capacity of the judicial system by increasing the number of working days as well as significantly enhancing the strength of the judiciary and finding ways to appoint a large number of “subject matter experts” in services such as the IAS and IFS, and in key ministries.

It should mandate the team to look at each major component of the economy and come up with solutions that can reduce obstacles and increase attractiveness for fresh investment. These include:

Manufacturing: Parliament should urgently consider modifying the Land Acquisition Bill to make it even more financially realistic and prudent. Concurrently, the centre and the states should work very closely to develop a new cluster of MSME-oriented industrial estates in at least 400 out of the 750 odd districts. These estates should be of an appropriate scale, ranging between 250–1,500 acres each with the state governments providing basic infrastructure (masterplan, internal roads, power—grid and auxiliary generated, waste and effluent treatment, provision for shared service utilities such as rapid-prototyping workshops, banks and other financial services, vocational training facilities, warehousing and logistics, and transport connectivity for the workforce from the estate to the nearest town. Further, unlike currently, no land should be sold in these estates, but leased out (with lease rent linked to production value of the specific manufacturing unit). So that acquiring space does not attract speculators, and also if any unit goes out of business, the space can be immediately leased to a new user.

Each state should be encouraged to do an analysis of where the manufacturing opportunities lie within the state and in each such industrial estate, and then have highly detailed project reports (of a better quality than what have been done in the past) made available to current and prospective manufacturing-segment entrepreneurs, so that, hopefully, the new manufacturing investment in India will be the state-of-the-art & industry 4.0 version.

If this infrastructure can be established within three years, it can spawn 2,50,000 or more new manufacturing MSMEs that can create 8-10 mn new jobs and provide a much stronger foundation for “Make-in-India”, while also adding substantially to the states’,and, therefore, the national GDP.

Agriculture: The government, with some success, has been trying to create more value for those engaged in agriculture. A close linkage with downstream food-processing is one area that the taskforce should focus on. To encourage larger investment in food processing and allied services, perhaps the government can come up with an investment promotion scheme on the lines of Textiles Upgradation Funds Scheme (TUFS), wherein new manufacturing investment get interest subvention support, thereby substantially bringing down the cost of capital for new entrepreneurs and existing manufacturers wishing to expand or install new food processing capacity. With India already producing (by and large) more food than it can consume, it is imperative to process a substantial part of the output so that millions of new non-farming jobs can be created and also create more opportunities to export value-added food products.

Services: The services sector which accounts for nearly 62% of the national GDP, has to be considered for rebuilding and strengthening on priority. Some of the urgent actions (for a few segments within the services sector) are as under:

Retail: This sector has shown criticality and resilience during this period. The government must address the artificially created divide between “organised” and “mom & pop retail”, between physical retail and e-commerce, and then between foreign-owned and Indian-owned companies. There is a symbiotic relationship between all formats, all scale, and all kinds of ownership-models in retail. An upgraded, efficient, technology enabled, modern retail ecosystem is a necessity for India.

Hence, no further energy should be expended on the format and operational model of India’s private retail. Instead, focus should shift to making the distribution and retail ecosystem more efficient and responsive (especially when faced with emergencies such as the current one). This is one sector that can create millions of jobs within the next three years, while attracting as much as $25-30 bn in fresh investment (in existing businesses and entry of new foreign players).

Food services & hospitality: This sector is one of the most impacted ones with the Covid-19 outbreak and needs urgent support if millions of livelihoods have to be preserved. The taskforce should specifically create a sub-group that can work closely with those engaged in this sector to come up with action steps that can save this vital part of our economy from decimation.

Healthcare: This can be one of the most vibrant “new” growth drivers. The current crisis has been an exceptional “stress test” for the strengths and limitations of India’s healthcare ecosystem. A sub-group should work closely with leading players in this entire ecosystem (pharma, medical equipment and consumables, diagnostic equipment, medical furniture and accessories, healthcare technology, hospital waste management, and healthcare). The current situation can be innovatively used to rebuild the Industry 4.0 equivalent of the healthcare system which can create millions of new relatively high-value adding jobs and export opportunities.

To achieve all of the above, and much more, India would need additional financial resources. The government has to ruthlessly cut flab (centre and states), divest heavily with determination and urgency, make India more attractive to venture and other capital, and then be aggressive in finding other internal and external sources to raise additional funding even if it may lead to further weakening of the rupee or may require further tightening of belt.

The writer is Chairman, Technopak Advisor. Views are personal

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