From international organizations like the World Bank to big investment banking and consulting firms like Goldman Sachs, Morgan Stanley and AT Kearney; there is a plethora of major agencies across the world which have come up with great figures for the Indian growth story and for the future. While they may differ in their estimates by some percentage points, they all send out one resounding message; India is poised to take over the world.
The last decade or so has been a good one for India. We have had good rates of GDP growth, there has been a rapid increase in the average income levels of the Indian middle class. This has resulted in a general sense of optimism in the country. We have grown to be one of the most important players in the world in the field of services. We were one of the few countries which were less affected by the global financial downturn. The stock market in India, which is an important indicator to how the economy has been performing, has been living a dream, having grown at an incredibly fast pace, creating wealth for multitudes. FII infusion of wealth in the country has been phenomenal. India today is the favorite destination across the globe for FIIs to pump in their money. It has been a cycle of events: FIIs put in their money in India; this resulted in improved and encouraging performance by the industry which had the effect of increasing the confidence of local investors. All in all, this has resulted in the capital markets scaling previously unheard of levels and still poised for more.
The last decade saw an increasing number of international mergers and acquisitions by Indian firms in deals worth billions of dollars. The Tata Steel acquisition of Corus, Tata Motors taking over the iconic Land Rover and Jaguar, Hindalco acquiring Novelis, the UB group acquiring Whyte & Mackay; the journey has been simply amazing. These and other deals brought economic value to the country and improved India’s prestige in the eyes of the world, heralding the beginning of a new world order, where India would play a major role, but more importantly, these deals increased the confidence of the average Indian and made him proud to be an Indian.
But if there is one aspect that can stake claim to be the single biggest opportunity facing India, it will have to be the immense talent pool of the youth of the country. Whereas worldwide countries are anticipating a shortage of their working populations, India has a demographic advantage no other country has. India today is one of the youngest countries of the world with almost 55% of its population below 24 years of age. This shift of the age structure towards a younger population has significant implications for economic growth. It implies an increase in the labour force of the country which is a crucial input factor in any economy. If we can generate enough employment opportunities, this would lead to generation of surplus savings and investments which would further accelerate growth. Even putting economics aside, the sheer bulk of talented minds available at India’s disposal is so unbelievably vast, it stretches the limits of possibilities. This is a generation of individuals that have grown up in an era where the Indian economy really took flight. And it is in this opportunity that there lies India’s biggest challenge too; the challenge to fulfill the aspirations of its youth. The demands of this chunk would be huge; for they have seen the change happening and their dreams are new. And India will have to meet those demands.
A very important aspect we need to look into is to reform the education system of the country. We need to identify that there is something fundamentally missing in our education system. The quality of education in the country, be it science or the arts has been rapidly declining. Our current system of education is producing classes of individuals who are very good at database kind of knowledge but not so much when it comes to innovation. We boast of world class educational institutes but we are among the least innovative countries even when compared to other developing countries. As a result, we end up as mere suppliers of manpower to developed countries instead of being technology leaders. While this brings prosperity in the short term, it is not the most sustainable way for an economy to grow. Our gross domestic expenditure on research and development is less than 1% of our GDP. This is much below developed economies like Japan and the US and our rival and neighbor China’s which is close to 2%. We just cannot be satisfied with doing the back office work of Multi National Companies and let them reap the benefits of our sweat. Spending on R&D must be given adequate attention if we are to build a sustainable success story. More importantly, however, we need to overhaul the education system as a whole. It cannot happen in a year, even a decade may not be enough, but a start needs to be made. It is not okay to be mediocre when we have the potential to be the best. An environment fostering innovation needs to be built up.
Today, India ranks as the 4th largest economy in the world, behind only the US, China and Japan. While this is a remarkable achievement no doubt, we must also remember that on a GDP per capita basis, our rank is at an abysmal low of 129th among 183 countries. Here, it is important to know that India’s growth story since its independence has been a unique one. Traditionally, when an economy starts taking shape, it is the agricultural sector which contributes the most to its growth. Gradually, industrialization picks up pace and the manufacturing sector becomes the main contributor. Manufacturing takes care of unemployment and poverty issues owing to its high labour intensive nature. Then, when a substantial number of industries have been set up and a sort of saturation has been reached, the services sector becomes the primary factor in the economy. This is how developed economies of the west became what they are today. India’s story has been different. We did start with the agriculture model and moved on to manufacturing but before a strong industrial base had been set up in the country, the focus shifted to the services sector. The issues of poverty and unemployment, which might have been dealt with had a strong growth taken place in the manufacturing sector, never happened. The services sector has contributed a lot to the country’s economy no doubt, in fact, it has been the driver of the proud figures of nearly double digit growth rates that we have seen; but without the strength of a good manufacturing set up, the success story looks incomplete and lop sided. Today, over 60% of our population is engaged in agriculture which contributes a mere 16% to the GDP; 50% of our capital stock lies with the industry which contributes around 30%; and over 50% of our output comes from the services sector. A great challenge lies ahead of India in strengthening its agricultural and manufacturing sectors while maintaining its edge in the services and this must be realized in the coming decade.
Social inequality is another major challenge the country is facing today. The last decade saw the meteoric rise in wealth of several big businesses and individuals. In the last decade, we saw a doubling of the income per capita which is now close to Rs. 40000. The number of High Net Worth individuals (individuals with an investible surplus of 1 million dollars or more) in India grew at a faster rate than the global average. At the same time, World Bank estimates that close to 40% of India’s population falls below the international poverty line of $1.25 per day. Over 70% of Indians live at less than Rs 100 a day. These are disturbing figures. This growing divide between the rich and the poor poses yet another problem for the government. India cannot rise without alleviating its poor. A country with an unequal distribution of benefits and opportunities cannot ensure stability for its citizens. Development should be of an inclusive nature, the effects percolating down to the last strata of society. An initiative such as NREGS, though facing issues regarding rampant corruption and reduced labour mobility, has created a wage floor for the poor and unemployed. There are also regional disparities to consider, while some states have done well, others have fallen behind. Creation of SEZs to reduce regional imbalances is a good step in this direction.
Sustainable development of the country would also involve doing so in an environment friendly way. Growth in the west was invariably associated with ecology damage and large scale pollution. It is in this context that India could be a pioneer and formulate a new model of technological growth while maintaining its rich ecosystem. The signs are already there. India has a vocal “green” constituency and there have been increasing instances of public demands for better environmental quality. The industry has also taken the cue and many industrial houses have volunteered for environment friendly operations, cutting down on emissions, managing industrial waste and increasing focus on the ‘triple bottom line’. However, the government needs to do more to encourage the small and medium sized enterprises to adopt better and “greener” technologies. There is also a need to formulate a long term national policy on environment protection taking into consideration the concerns of the industry and the general public which is the major stakeholder in this debate.
The basics are all in the right places. We have a vibrant democracy in the front seat, a private sector which has new found strengths and confidence to compete with the best in the business, a growth which is primarily consumption based (rather than export led growth) which was one of the main reasons why we were able to withstand the fallouts of the financial crisis and still maintain a growth rate which was 2nd in the world. What is needed is some fine tuning in certain areas. There have been issues regarding the implementation of government schemes and widespread corruption in the country. The bureaucratic and political set up needs to be much more transparent and accountable in the eyes of the public. All these point to the need of reforms in the country. Political reforms, judicial reforms, labour law restructuring and infrastructural rebuilding are some of the steps needed to give the economy a big boost in the right direction.
We follow shortcuts in every walk of life. Nation building is one aspect where this will not work. This is one task for which we have to put our feet in the mud and heave together. There is much work to be done. There is a lot of struggle involved but we have the hearts and the minds of our youth to count upon. And that if harnessed well would be an unstoppable force, one that could push the country to newer and never before dreamt of pinnacles of wealth and prosperity.
The last decade or so has been a good one for India. We have had good rates of GDP growth, there has been a rapid increase in the average income levels of the Indian middle class. This has resulted in a general sense of optimism in the country. We have grown to be one of the most important players in the world in the field of services. We were one of the few countries which were less affected by the global financial downturn. The stock market in India, which is an important indicator to how the economy has been performing, has been living a dream, having grown at an incredibly fast pace, creating wealth for multitudes. FII infusion of wealth in the country has been phenomenal. India today is the favorite destination across the globe for FIIs to pump in their money. It has been a cycle of events: FIIs put in their money in India; this resulted in improved and encouraging performance by the industry which had the effect of increasing the confidence of local investors. All in all, this has resulted in the capital markets scaling previously unheard of levels and still poised for more.
The last decade saw an increasing number of international mergers and acquisitions by Indian firms in deals worth billions of dollars. The Tata Steel acquisition of Corus, Tata Motors taking over the iconic Land Rover and Jaguar, Hindalco acquiring Novelis, the UB group acquiring Whyte & Mackay; the journey has been simply amazing. These and other deals brought economic value to the country and improved India’s prestige in the eyes of the world, heralding the beginning of a new world order, where India would play a major role, but more importantly, these deals increased the confidence of the average Indian and made him proud to be an Indian.
But if there is one aspect that can stake claim to be the single biggest opportunity facing India, it will have to be the immense talent pool of the youth of the country. Whereas worldwide countries are anticipating a shortage of their working populations, India has a demographic advantage no other country has. India today is one of the youngest countries of the world with almost 55% of its population below 24 years of age. This shift of the age structure towards a younger population has significant implications for economic growth. It implies an increase in the labour force of the country which is a crucial input factor in any economy. If we can generate enough employment opportunities, this would lead to generation of surplus savings and investments which would further accelerate growth. Even putting economics aside, the sheer bulk of talented minds available at India’s disposal is so unbelievably vast, it stretches the limits of possibilities. This is a generation of individuals that have grown up in an era where the Indian economy really took flight. And it is in this opportunity that there lies India’s biggest challenge too; the challenge to fulfill the aspirations of its youth. The demands of this chunk would be huge; for they have seen the change happening and their dreams are new. And India will have to meet those demands.
A very important aspect we need to look into is to reform the education system of the country. We need to identify that there is something fundamentally missing in our education system. The quality of education in the country, be it science or the arts has been rapidly declining. Our current system of education is producing classes of individuals who are very good at database kind of knowledge but not so much when it comes to innovation. We boast of world class educational institutes but we are among the least innovative countries even when compared to other developing countries. As a result, we end up as mere suppliers of manpower to developed countries instead of being technology leaders. While this brings prosperity in the short term, it is not the most sustainable way for an economy to grow. Our gross domestic expenditure on research and development is less than 1% of our GDP. This is much below developed economies like Japan and the US and our rival and neighbor China’s which is close to 2%. We just cannot be satisfied with doing the back office work of Multi National Companies and let them reap the benefits of our sweat. Spending on R&D must be given adequate attention if we are to build a sustainable success story. More importantly, however, we need to overhaul the education system as a whole. It cannot happen in a year, even a decade may not be enough, but a start needs to be made. It is not okay to be mediocre when we have the potential to be the best. An environment fostering innovation needs to be built up.
Today, India ranks as the 4th largest economy in the world, behind only the US, China and Japan. While this is a remarkable achievement no doubt, we must also remember that on a GDP per capita basis, our rank is at an abysmal low of 129th among 183 countries. Here, it is important to know that India’s growth story since its independence has been a unique one. Traditionally, when an economy starts taking shape, it is the agricultural sector which contributes the most to its growth. Gradually, industrialization picks up pace and the manufacturing sector becomes the main contributor. Manufacturing takes care of unemployment and poverty issues owing to its high labour intensive nature. Then, when a substantial number of industries have been set up and a sort of saturation has been reached, the services sector becomes the primary factor in the economy. This is how developed economies of the west became what they are today. India’s story has been different. We did start with the agriculture model and moved on to manufacturing but before a strong industrial base had been set up in the country, the focus shifted to the services sector. The issues of poverty and unemployment, which might have been dealt with had a strong growth taken place in the manufacturing sector, never happened. The services sector has contributed a lot to the country’s economy no doubt, in fact, it has been the driver of the proud figures of nearly double digit growth rates that we have seen; but without the strength of a good manufacturing set up, the success story looks incomplete and lop sided. Today, over 60% of our population is engaged in agriculture which contributes a mere 16% to the GDP; 50% of our capital stock lies with the industry which contributes around 30%; and over 50% of our output comes from the services sector. A great challenge lies ahead of India in strengthening its agricultural and manufacturing sectors while maintaining its edge in the services and this must be realized in the coming decade.
Social inequality is another major challenge the country is facing today. The last decade saw the meteoric rise in wealth of several big businesses and individuals. In the last decade, we saw a doubling of the income per capita which is now close to Rs. 40000. The number of High Net Worth individuals (individuals with an investible surplus of 1 million dollars or more) in India grew at a faster rate than the global average. At the same time, World Bank estimates that close to 40% of India’s population falls below the international poverty line of $1.25 per day. Over 70% of Indians live at less than Rs 100 a day. These are disturbing figures. This growing divide between the rich and the poor poses yet another problem for the government. India cannot rise without alleviating its poor. A country with an unequal distribution of benefits and opportunities cannot ensure stability for its citizens. Development should be of an inclusive nature, the effects percolating down to the last strata of society. An initiative such as NREGS, though facing issues regarding rampant corruption and reduced labour mobility, has created a wage floor for the poor and unemployed. There are also regional disparities to consider, while some states have done well, others have fallen behind. Creation of SEZs to reduce regional imbalances is a good step in this direction.
Sustainable development of the country would also involve doing so in an environment friendly way. Growth in the west was invariably associated with ecology damage and large scale pollution. It is in this context that India could be a pioneer and formulate a new model of technological growth while maintaining its rich ecosystem. The signs are already there. India has a vocal “green” constituency and there have been increasing instances of public demands for better environmental quality. The industry has also taken the cue and many industrial houses have volunteered for environment friendly operations, cutting down on emissions, managing industrial waste and increasing focus on the ‘triple bottom line’. However, the government needs to do more to encourage the small and medium sized enterprises to adopt better and “greener” technologies. There is also a need to formulate a long term national policy on environment protection taking into consideration the concerns of the industry and the general public which is the major stakeholder in this debate.
The basics are all in the right places. We have a vibrant democracy in the front seat, a private sector which has new found strengths and confidence to compete with the best in the business, a growth which is primarily consumption based (rather than export led growth) which was one of the main reasons why we were able to withstand the fallouts of the financial crisis and still maintain a growth rate which was 2nd in the world. What is needed is some fine tuning in certain areas. There have been issues regarding the implementation of government schemes and widespread corruption in the country. The bureaucratic and political set up needs to be much more transparent and accountable in the eyes of the public. All these point to the need of reforms in the country. Political reforms, judicial reforms, labour law restructuring and infrastructural rebuilding are some of the steps needed to give the economy a big boost in the right direction.
We follow shortcuts in every walk of life. Nation building is one aspect where this will not work. This is one task for which we have to put our feet in the mud and heave together. There is much work to be done. There is a lot of struggle involved but we have the hearts and the minds of our youth to count upon. And that if harnessed well would be an unstoppable force, one that could push the country to newer and never before dreamt of pinnacles of wealth and prosperity.
