Episode 6 of PGIM India Mutual Fund presents Livemint ‘Amend, Adjust and Adapt’, looks at what India needs to do to be in the lead and claim its space as a global superpower in the next decade.
The Indian economy has been on a roller coaster ride in the past few years, from recording highs of 10 per cent growth in Gross Domestic Product (GDP) to a steep 9-10 per cent slump this year caused due to the Covid-19 pandemic. As the government pumps in the much-needed fiscal stimulus to boost the economy and long-term policy revisions take effect alongside, are we on the right path to becoming one of the global superpowers by 2030?
The latest episode of PGIM India Mutual Fund presents Livemint ‘Amend, Adjust and Adapt’, a series of high-powered panel discussions to find success mantras for the new normal, looks at ‘India at 2030: Ready to breakout?’. The series is moderated by noted journalist and Founder of Editorji, Vikram Chandra.
If India wants to be one of the global leaders, economic strength is as important as military strength. “Our economy has been shaky in recent years, and is scheduled to shrink by 10 per cent post pandemic as per the International Monetary Fund (IMF). The IMF prediction for next year is that we will grow by 8 per cent, but that is still 2 per cent behind from where we were at before the pandemic. So, the first order of priority has to be to get growth back in the economy and sustain it for two decades or so and also to create more jobs," said Meera Shankar, Former Indian Ambassador to the US and Germany.
There is an opportunity staring at it in the form of replacing China as a manufacturing hub. “There is an opportunity because the world is looking to de-risk overdependence on a single economy, that is China, for supplies. But to avail that opportunity, I think I need to be proactive," she added.
But for this, India needs to focus on reducing the cost of doing business to attract foreign investors to set up base here, where there is a major gap.
The Covid impact
The Covid-19 pandemic came as a major blow to our economy, but experts are upbeat about India’s recovery and laud the government’s efforts to help the economy recover from the jolt.
“Let’s keep the fiscal stimulus to 2 percent of GDP. Some of it should go into cash transfers, both rural and urban poor and spend a bulk of it, almost 1 per cent, on infrastructure. Housing is another area which will create employment too," said Arvind Panagariya, Professor of Economics and Director, Raj Center on Indian Economic Policies, Columbia University.
One of the principal takeaways from the pandemic for India has been an identification of the factors that are pulling us down, which are taken for granted when you are climbing the ladder to being a superpower.
“The aim of foreign policy is not to acquire geopolitical power but to create an enabling environment for domestic development. We need to prioritise issues like public health, equities, literacy and education to enable the economy to take off and for India to become a superpower," said TCA Raghavan, Director General, Indian Council of World Affairs and Former High Commissioner of India to Pakistan & Singapore.
The bright side
But experts feel we are on the right path. Some of the big reforms that India has been waiting for since long have been pushed through in the last 2-3 years setting the stage for sharp growth ahead. “Insolvency and Bankruptcy Code (IBC), GST, knockdown of the corporate profit tax to 17 per cent for new manufacturing firms and 25 per cent for the rest, labour codes, agriculture reforms, medical education reforms are some of the big ones," said Arvind Panagariya, Professor of Economics and Director, Raj Center on Indian Economic Policies, Columbia University.
In fact, with India’s per capita growth crossing the 2000-dollar mark, we are at the tipping point for non-linear growth. And the banking and labour reforms are going to act as building blocks to help the economy power ahead if we get the policies right for the next 5-10 years.
“Historically, in all such countries where per capita crossed this mark, the level of progress tends to be non-linear. Growth can pick up manifolds from here, consumption increases significantly and there is a lot of vibrancy that comes into the economy. This can really be an inflection point from India’s point of view," said Kumaresh Ramakrishnan, CIO – Fixed Income, PGIM India Mutual Fund.
With the US Presidential elections taking place, can India consider a long-term partnership with the US regardless of their domestic politics? “We have had a strategic partnership with the US for many years now but the elements of that partnership have been getting stronger. There is a bi-partisan consensus in the US about building the relationship with India. Different administrations, whether republican or democrat have built this relationship over the years overcoming the strategic gaps of the past," Shankar said.
Shift of focus towards agriculture and manufacturing
India is a 2-2.5 trillion economy and the three major verticals that constitute it are services (65-70%), agriculture (over 10%) and manufacturing (15-17%). The focus areas for the next 10 years which will put India on the right path to becoming a global superpower is a focus on manufacturing and agriculture too.
“Services is the single largest engine fuelling India’s growth over the last many years. In this year, when services took a big knock, it is agriculture that is helping India do well. It is critical to take the 3 segments together, of which we need to develop the manufacturing capabilities to claim its rightful place among other emerging markets," Ramakrishnan said.
Our democracy and pluralism are big pluses, and a slew of structural improvements during the lockdown with a focus on agriculture will reap benefits in the long term. “India has a way of disappointing all the optimists and confounding all the pessimists. We are in that middle zone and at the moment it looks like we are going to stay there. A slew of structural improvements have happened because of the slowdown and there has been focus on the agricultural side. The cumulative effect of these will show up in terms of higher sustainable growth and better productivity going forward."
The path ahead
The biggest bottlenecks are the bureaucracy and reforms needed in State administration, which need to be addressed. Privatization of banks is another area that needs to be looked into to boost growth.
Investors are upbeat about all other areas. “Thirty two per cent of our economy is controlled by the central government, state government and PSUs. I would not invest into the value chain driven by that ecosystem. The rest of the economy is fair game and there is ample opportunity everywhere else. It is about productivity, driving the experience curve, lowering your unit costs and expanding your markets - that’s a broad strategy that works across sectors in India," said Rahul Bhasin, Founder and Managing Partner, Baring Private Equity Partners India.
In conclusion, India’s supply chain saw a huge shock in the form of the pandemic, which we are coming out of now that the workers are returning and supply response is returning. A calculated 2 per cent boost in GDP due to fiscal stimulus can add billions of dollars to capacity output and speed up recovery.
“Going forward, this year will look topsy-turvy with a 9-10 per cent decline in aggregate over the full year. But I am very upbeat in the longer term, as a lot of the reforms have been done. I am very optimistic. So, post pandemic, I see a growth of about 8 per cent or so," Panagariya concluded.
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