The reform agenda unleashed since the onset of the pandemic has reflected India’s priorities in ushering in sustainable and inclusive growth, through targeted policies to drive private-sector-led investment and growth
By Amitabh Kant
Sustained growth is key to India’s future. We have seen economies in East and South East Asia transform themselves within a generation by ushering in reforms and policies to promote private-sector-led growth and investment. South Korea grew at an average rate of 9.6% in the three decades between 1960 and 1990. China, between 1980 and 2010, grew at a rate of 10%. While India has witnessed a substantial transformation since the 1990s, our average growth rate for the past 30 years has been 6.5%. Investment rates (as a percentage of GDP) averaged close to 33% in South Korea and 37% in China during the corresponding periods. In comparison, India’s average investment rate has been a shade below 30% in the three decades since 1990.
Going ahead, raising investment levels is crucial to India’s growth story, as they raise productivity and efficiency. It is only through a vibrant private sector that India can achieve its growth targets. The fallout from the coronavirus pandemic-induced recession provided India with a once-in-a-lifetime opportunity to usher in reforms and position itself as an integral part of global value chains.
However, a strong political will was required to make tough decisions, which would unleash India’s potential and put us on a high growth trajectory. The structural reforms introduced in 2020 will go a long way towards pushing India towards a high growth trajectory. Reforms in agriculture, mining, manufacturing, labour laws, and foreign direct investment were pushed through in the past year. These reforms have been on the anvil for many, many years now, with demands for these reforms coming from a multitude of stakeholders. The introduction of these reforms is reflective of the political will of the Modi government to bite the tough reforms’ bullet.
The Union Budget FY22 reiterated this commitment to push India towards a high growth trajectory. For the first time, we are seeing privatisation enter the lexicon, rather disinvestment. This is a huge signal to investors and observers of the Indian economy. Many have termed this as India’s big-ticket reform moment, with privatisation in the centrestage.
The push towards privatisation has also been complemented with a sharp increase in public investment in infrastructure and asset monetisation, which is likely to ‘crowd-in’ private investment, rather than ‘crowd-out’. The reform agenda unleashed since the onset of the pandemic has reflected India’s priorities in ushering in sustainable and inclusive growth, through targeted policies to drive private sector-led investment and growth.
Manufacturing and exports have long been recognised as critical to India’s growth story. However, our share of manufacturing in GDP remained broadly stagnant, and our competitiveness in global markets slowly eroded. With global supply chains being reforged, this emerged as a huge opportunity for India to take its rightful place in global supply chains. An orientation towards exports, quality, cost-competitiveness, and creation of global champions is necessary to seize this opportunity. The production linked incentive schemes will enable size and scale in manufacturing and exports. Complementary to these schemes have been reforms in labour laws, which encourage companies to expand employment, and the upward revision in the MSME definition, allowing firms to undertake greater investments, without fear of losing their MSME status.
Over the past decades, India has always played catch-up with the world in terms of technologies and industries. Consequently, rather than capitalizing on sunrise sectors of growth, India would enter sunset industries, further dragging our competitiveness down. Technology is likely to play a much greater role in our lives in the coming decades than it has in the past. We are on the cusp of the Fourth Industrial Revolution, with technologies such as artificial intelligence, blockchain and the internet of things (IoT) expected to permeate our lives. India must be at the forefront of this technological revolution. I have long said that India needs to go from a data-rich country to a data-intelligent one. NITI Aayog’s National AI Strategy notes that India is well placed to become a leader in the application of AI in social sectors. India presents use cases in various sectors that have the potential to impact close to 40% of the global population if these solutions are scaled-up globally.
Differing levels of human capital development have been found to be a key explanation in income differences between countries. Economists have termed this ‘social capabilities’ or ‘social infrastructure’. The level of human capital development in an economy is an important determinant in the adaption and diffusion of new technologies. While many have rightfully lauded the growth stories of East Asia, the plaudits have focused on the performance of these countries in boosting investment, manufacturing, and exports. Yet, the improvement in human capital development outcomes in Japan and South Korea, for instance, have been just as important. Therefore, investments in human capital development must focus on outcome-based indicators. The Union Budget FY22 delivered on these fronts. A new scheme, the Pradhan Mantri Atma Nirbhar Swasth Bharat Yojana, has been launched with an outlay of Rs 64,180 crore over six years. Mission Poshan 2.0 has also been introduced. As many as 15,000 schools will be strengthened to include all components of the National Education Policy, and which will serve as model schools in their regions, guiding and handholding others to implement the NEP.
Complementing social infrastructure is physical infrastructure. This is another avenue where public investments must accelerate, as public investments in infrastructure carry with them a significant multiplier effect. This will enhance our competitiveness in logistics.
While we have made significant strides in ensuring ease of doing business, as evidenced by our 79 position improvement in the World Bank’s Ease of Doing Business Index, a lot still remains to be done. Overlapping regulations, multiple clearances, and compliance burden add to the costs of doing business in India. Action will be required by the state governments to ensure India is one of the easiest places to do business in the near future.
The next few years present opportunities for India to embark on a high growth trajectory, driven by the private sector. Finally, policies have been ushered in to encourage size and scale in manufacturing, promote sunrise industries, encourage the application of frontier technologies through the creation of platforms for the private sector to build innovations, and promote sustainability. With enhanced private sector play, a new era of growth and prosperity can be ushered in.
The author is Chief executive officer, NITI Aayog
Views are personal