The policies we should prioritize to truly transform our economy5 min read . Updated: 04 Jan 2021, 05:39 AM IST
India must encourage industry, innovation and technology to make the most of new opportunities created by recent reforms
As India’s economy continues to open up, the early signs are indicating a faster-than-expected recovery, which bodes well for the coming quarters. To truly transform India, there is no way out but through sustained growth. We must also ensure that this growth is inclusive, sustainable, regionally balanced, and primarily driven by the private sector, with the government acting as a facilitator. The structural reforms introduced in 2020 will go a long way in pushing India towards high growth. Reforms in agriculture, mining, manufacturing, labour laws and foreign direct investment rules were pushed through last year. These have been on the anvil for many years, with demands coming from a multitude of stakeholders.
Manufacturing and exports must play a critical role in the growth story. With global supply chains being reforged, this emerges as a huge opportunity for India to take its rightful place in them. An orientation towards exports, quality, cost-competitiveness, and the creation of domestic champions is necessary to seize this opportunity. The recently launched production-linked incentive (PLI) scheme will go a long way towards driving growth in manufacturing and exports. Complementary to this scheme have been reforms in labour laws, which encourage companies to expand employment, and changes in the definition of micro, small and medium enterprises (MSMEs), allowing firms to undertake greater investments without losing their MSME status and the associated benefits. Reforms in agricultural marketing, combined with a ₹1 trillion agriculture infrastructure fund, will improve links between farmers and markets, enabling them to earn higher returns. Commercial coal mining, finally a reality after many decades, will improve India’s domestic competitiveness in the coal industry, reducing reliance on imports. The moves made in 2020 have found comparisons with the reforms of 1991 in terms of their scale and potential impact. Just as the effects of the 1991 reforms were felt for many years, the reforms of 2020 have the potential to drive growth for years.
However, this is not to say that the job is done. Over the past decades, India has always played catch-up with the world on 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 in the past. We are on the cusp of the Fourth Industrial Revolution, with technologies such as artificial intelligence (AI), blockchain and the internet of things expected to permeate our lives like never before. 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.
In terms of mobility, the future of mobility is clean, connected and shared. India must be at the fore of this revolution. Related to this is energy storage, which is likely to become a huge industry. Advanced chemistry cell batteries and solar photovoltaic equipment are areas where India must become a leader to enable the transition to a green economy. At the same time, incumbent and new industries must seek to build the principles of the circular economy into their value chains. Sustainability is likely to be a key challenge, and India must be prepared for a smooth transition to a green economy.
Differing levels of human capital development have been found to be a key explanation in income differences between countries. Economists have termed this as ‘social capabilities’ or ‘social infrastructure’. The level of human capital development is an important determinant in the adaption and diffusion of new technologies. Whilst 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 continue and focus on outcome-based indicators. This government has launched several path-breaking initiatives in health, such as Ayushman Bharat, the creation of 150,000 health centres, and Poshan Abhiyaan to combat malnutrition. We finally have a New Education Policy in over three decades. These measures must be backed with adequate funding and a robust monitoring mechanism, based on outcomes, to drive human capital development.
Complementing social infrastructure is physical infrastructure. Public investments in this avenue must also continue, as they have a significant multiplier effect. The government has already planned ₹100 trillion of investment in the infrastructure sector. High costs of logistics erode our competitiveness against other nations. By promoting an efficient, multimodal transport network, a significant competitive advantage can be gained. Digitization of our ports and the completion of ongoing freight and industrial corridor projects will lead to a reduction in India’s logistical costs. Looking ahead, technology must be seen as an important lever to drive efficiencies in logistics.
Efficiency must also be improved in government processes. While we have made significant strides in ensuring the ease of doing business, as evidenced by our 79 position jump in the World Bank’s Ease of Doing Business Index, a lot remains to be done. Overlapping regulations, multiple clearances and delays in decision-making add to the costs of doing business. Action will be required by state governments to ensure India becomes one of the easiest places for business. They must also take the lead in instituting land and labour reforms, complementing the PLI scheme, to achieve size and scale in manufacturing.
The next few years present opportunities for India to embark on a high-growth trajectory. Policy must continue 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 innovate, and promote sustainability. These policy moves must be complemented by investments in physical and social infrastructure to usher in a new era of growth and prosperity.
These are the author’s personal views.
Amitabh Kant is chief executive officer, Niti Aayog