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Business News/ Opinion / Views/  Five priorities for India Inc could help us reach ahead of the curve
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Five priorities for India Inc could help us reach ahead of the curve

A world in flux offers an opportunity to make this ‘India’s century’ by working on five themes that’ll prepare us for the future

Photo: MintPremium
Photo: Mint

No, this isn’t just another business cycle. The world is changing—and India more than most places. As in previous periods of great change, such as the oil crisis of the 70s, and the breakup of the Soviet Union and India’s economic liberalization in the early 1990s, this time feels different. The spread of technology, climate change, and the rise of Asia are just three of the forces that are re-shaping the global economy.

India is well placed not only to adapt to these changes, but to use them to catalyse truly sustainable and inclusive growth. This could be ‘India’s Century’. There is potential to create 600 million new jobs and increase per capita incomes sixfold by 2047.

To get there, effective government action is required, in the form of improving our human capital and physical infrastructure. But the private sector also has a massive role to play. India Inc has come into its own over the past 30 years; that said, it can still raise its game.

Here are five priorities.

Take sustainability seriously: According to a recent McKinsey report, securing effective decarbonization (to 1.9 GtCO2e by 2070) would require India to spend $7.2 trillion on green initiatives. That is an enormous sum, but it also implies enormous potential. About 75% of the industrial capacity that will exist in India in 2050 is not yet built; that offers a chance to build sustainably from the start. For business, the opportunity to become global leaders in areas such as green steel, hydrogen, carbon capture and clean tech is very real, as these are all nascent industries. In the automotive sector, for example, India is a major exporter of two- and three-wheeled vehicles. It could use this position to lead the change to electric vehicles (EVs), particularly in markets similar to its own, such as Africa, Latin America, and Southeast Asia. Experience around the world shows that companies that set decarbonization targets can mobilize their organizations and act on value- creating opportunities.

Re-ignite capital spending strategies: In recent years, most capital expenditure (capex) in India has been driven by government spending and by public-sector companies. Moreover, growth in net fixed assets has been low, and the productive base of many large companies has grown little, if at all, in real terms. Companies that stitch together defensible plans can execute capex projects faster and more cost-effectively, positioning themselves for sustained growth. Given rising interest rates, this won’t be easy, but high asset-utilization rates make it urgent.

Accelerate the innovation engine: India jumped from 81st in the 2015 Global Innovation Index to 40th in 2022, and performs well above expectations given its level of development. There is room for even more improvement. Indian companies account for less than 40% of total research and development (R&D) spending, compared to more than 65% in other large economies. For a start, companies can examine themselves and learn of their ‘innovation quotient’ (IQ), which evaluates their readiness, strengths and execution capabilities. Large manufacturers could incentivize innovation among their suppliers by offering grants for breakthrough innovations.

The greater potential, however, may be in collective action. Companies could work together to create innovation clusters—economic hubs where capital, expertise and talent collaborate on new or nascent technologies. Clean energy, smart mobility and water adequacy are three high- potential areas.

Build digital technology capabilities: The global tech services market is expected to grow about 5% annually in the coming years: Cloud and digital services alone represent a $600-700 billion opportunity by 2025.

With low-cost data and more than 800 million internet users, India’s digital consumer sector is growing fast: India’s consumer digital economy could be a $1 trillion market in just a few years. The government’s Open Network for Digital Commerce effort may help, by cutting costs and enhancing interoperability. But it will be up to business to make e-commerce and digitization a reality for most Indians. In 2022, e-commerce accounted for less than 8% of retail sales.

The common denominator to enable all this is talent, both to re-skill workers in traditional tech services, which are expected to decline, and to take advantage of new opportunities. One promising approach is to create industry-wide skilling and certification mandates, working with industry groups such as Nasscom and SaaSBOOMi, in high-growth digital areas such as artificial intelligence, machine learning and product management.

Recognize that resilience and growth go together: In the near term, Indian companies can strengthen their resilience by building stronger relationships with suppliers and localizing operations. They need to get agile in their working approach and build partnerships that prepare them to address disruptions, such as energy security, cyber shocks and weather events.

Over the medium to longer term, business leaders can build positions that would enable them to take advantage of new and emerging opportunities. As global supply chains shift, India could use its low labour costs and manufacturing expertise to capture up to $1.2 trillion in global trade flows by 2030. Promising sectors include automotive, electronics, semiconductors, chemicals and medical devices.

With India’s growing workforce, relatively strong fiscal position, deep capital markets and ever more confident business sector, the country today may be in its best position ever to deliver the broad-based prosperity our founders dreamt of 75 years ago. Success, however, is not assured by that alone; it will only come with focused and effective action.

Rajat Dhawan is McKinsey & Company’s managing partner in India

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Published: 16 Jan 2023, 10:46 PM IST
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