In the margins
Opinion | An economic paradigm reminiscent of our licence raj
Our economy seems to be losing its diversity of investments and vibrancy of competition
Over the past four months or so, a series of big-ticket foreign investment announcements have been trumpeted by the Indian government. On paper, the news sounds good: a total of about $27.7 billion has been promised by major foreign multinational corporations or investment firms. To put that into context, foreign direct investment (FDI) in India was about $50 billion in the last fiscal year.
Two caveats are in order. First, the monies will not all land in India in a single fiscal year, but, in most cases, will be spread out over time. Thus, Google’s promised investment of $10 billion, the largest of the recent spate of announcements, is slated to be delivered in tranches over the next 5-7 years.
Second, a promise does not always translate into reality. For example, Taiwanese high-tech giant Foxconn has promised a $1 billion investment. If you having a feeling of deja vu, you would be right: Foxconn has made similar such announcements many times in the past, but the big bucks have not been forthcoming. A useful analogy is with the long series of Vibrant Gujarat summits. In 2017, for example, only about 10% of the funds promised in the various memoranda of understanding (MOUs) signed actually materialized. In 2019, that ratio fell to less than 1%.
Moreover, when one looks a little closer, some curious features begin to emerge.
Of the total $27.7 billion of promised investments, a staggering $27.4 billion would be in the information technology (IT) and business process management (BPM) sectors—that’s 99% of the total. These investments, if they materialize, may generate growth in these sectors, but here’s the rub: IT and BPM directly account for a mere 1% of India’s total workforce. In other words, even if we have a spurt in economic growth arising out of these investments, it is likely to be “jobless” growth in essence.
For example, last fiscal year, the IT and BPM sectors added about 200,000 new jobs. If we make the heroic assumption that new investments add as many extra jobs, that is a mere 0.05% of the country’s total current employment. Meanwhile, where are the large new investments in labour-intensive manufacturing for exports? That is where high productivity, plentiful jobs would be created. They are nowhere to be found in the recent spate of announcements. By contrast, recent large investments in China have been much more diversified across sectors and more conducive to employment creation there.
Another curious feature emerges: of the total, a whopping 63% of the announced investments are in a single business, Reliance’s Jio Platforms. Not only is a huge chunk of new investment going into one basket, most of it is being squeezed into one corner of it.
There is a striking irony in all of this. Readers will recall that two of the main charges in terms of economic management, or mismanagement, of the erstwhile Congress-led government of PM Manmohan Singh was that the growth it created was “jobless”, and that it fostered what was alleged to be “crony capitalism” through opacity in matters of governance, such as the allotment of licences in telecom and mining. The coming to light of several corruption allegations related to allotments, as well as the sense that there was an unhealthy nexus between big business and the government at that time, worked to sour the public mood against the Singh government, and almost certainly contributed to its crushing defeat in the 2014 general elections.
In the lead up to and following his monumental election victory in 2014, Prime Minister Narendra Modi had promised a change—“maximum governance, minimum government”—implying no cronyism, a level playing field for all businesses, and rationalized regulation, as well as promising a bounty of new jobs to young Indian aspirants.
Fast forward to today, and it would seem the country awaits a fulfilment of that commitment. To be absolutely clear, there are no allegations of corruption or wrongdoing of the government in its dealings with industry, nor any suggestion of wrongdoing by the latter. Yet, levels of business competition in India do not appear to be rising as they should. The market footprint of Reliance, and especially that of Jio, for example, has become increasingly pronounced in its areas of operation. From being the new kid on the block, Jio has morphed over the past three years into the biggest player by far, the undisputed leader in an oligopolistic telecom market that it has come to dominate.
The implications of such dominance to a competitive environment, which is a prerequisite for high productivity, high-quality growth and top-notch jobs—to say nothing of fairness—cannot escape notice.
Despite the call for a “new India”, the economic paradigm today does not seem much better. In some ways, it is worse—with growth tanking, in the midst of a spiralling public health crisis, and an ill-conceived turn toward self-reliance. The hope of India becoming a major manufacturing hub for exports remains a pipe dream. For instance, India’s much touted success as the world’s largest producer of personal protective equipment (PPE) has failed to generate noteworthy export sales, as Indian-made products are deemed substandard for use in quality-conscious markets abroad; some say that a lot of Indian PPE is unfit for domestic use. All of this sounds depressingly like the bad old days of India’s licence raj.
Vivek Dehejia and Rupa Subramanya are, respectively, a Mint columnist and an economist and commentator.
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First Published:26 Jul 2020, 08:01 PM IST
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