A Pathway For Economic Reconstruction

Earlier this week, the National Statistical Office (NSO) released the estimates for Q1-FY21 gross domestic product (GDP).

As predicted by the economists, the figures witnessed a sharp contraction of 23.8 per cent, and the country is looking at the government to share a vision for its revival.

The situation is dire. If the economy doesn’t see a turnaround by the next year, we would be in for a long-term depression.

Economic liquidity would be down, and the progress made in the last decade in terms of infrastructure, economic reforms and governance systems would be lost forever.

In this article, we analyse some possible steps that the government can take to improve the economy.

Marketing Support For MSMEs

When the Covid-19 relief package was announced 100 days back, Micro, Small and Medium Enterprises (MSMEs) appeared to be the biggest beneficiaries.

An approximately 4 lakh crore boost in the form of loans, funding and labour benefits is a real lifeline for the cash-strapped MSME sector.

This ensured survival, not growth. A true transformation of the country via MSMEs needs a much deeper engagement to identify the gaps that they face.

To fulfil the war-cry of ‘vocal about local’, there is a critical need to globally compete on both quality and price.

This requires organised development and marketing support to the MSME-groups to deploy their products at scale in the international market.

This would mean government support in the form of international platforms for MSMEs, export support, and international partnerships to identify potential areas of growth.

Investments in Enabling Infrastructure

Industries across the world moved their production to China in the 1990s and 2000s in the lure of cheap labour, availability of land pools, and administrative ease.

Now with the anticipation of supply chains moving out of China, the likely beneficiaries will be nations which offer ease of transition.

Nations like Vietnam, Myanmar, Bangladesh, Turkey, Brazil et cetera, are eyeing such investments.

This necessitates a need for better enabling industrial infrastructure in India, via ensuring land chunks, roads, in-land transportation services, power availability, access to ports, digital penetration, and availability of supporting raw material industries.

This has to be a joint focus area for both the Central, and state administrations with both sides doing their bit to attract investments.

Judicial Reforms: Enforcing Contracts

A key criterion for foreign investment in a country is the ease of doing business, converted to a ranking by the World Bank.

Though India continues its upward march in the annual ranking, climbing up from 130 to 63 in the last four years, the country continues to remain a laggard (at 163 among 190 countries) when it comes to enforcement of contracts.

The main cause of this sluggishness is the high pendency in Indian courts. Further, economic and commercial cases are usually complex, require economic expertise in their handling and disposal, and hence require more judicial time.

Alternative and speedier forms of dispute resolution like mediation and arbitration, though popular in other countries, are yet to become viable options in India.

If India is serious about inviting foreign investments, judicial reforms for the resolution of commercial disputes is a must.

A Focussed Sectoral Approach In The Economy

While the above points talk about systemic improvements, the economy also needs prioritization of certain sectors to attract international investments and technological support.

Pharma and Electronics offer easy and quick wins for India towards our quest to increase exports and reduce import dependence.

While India is the world’s 11th largest pharma exporter, we still depend heavily on China for our active pharmaceutical ingredient (API) requirements.

The recent announcement on setting up pharma parks is a brilliant step towards realising this goal.

However, further interventions in the form of lower taxation, technology support from research institutions and export support via favourable trade partnerships will set the ball rolling for the industry.

We need to create pharma SEZs to nurture a pharma ecosystem in the nation.

Similarly in the domain of electronics, there is a basal dependence on imports in the electrical components like circuit chips, LEDs, batteries, et cetera.

The last five years have added novelty to the Indian manufacturing industry with international firms like Apple, OnePlus, and others moving parts of their assembly lines to India.

This, however, is only a partial win. Electronics is an economy of scale and requires long-term investments and policy coherence. Governments need to ensure cheaper power, access to capital in terms of subsidies, loans and tax benefits and transportation networks to drive mega investments by private players for land, capital and technology.

These investments also have a spillover impact on the industries for medical equipment, solar energy, and automobiles.

The recent deregulations in labour laws and easing of the permission regulations by states of UP and Gujarat are some bright spots towards this, but other states too need to rise up to the opportunity.

Innovation-Driven Collaborations

Back in 1984, when Hero and Honda got together to build two-wheelers for Indian consumers, it was based on a clear arrangement of mutual benefit.

Hero’s deep understanding of the Indian psyche and business and Honda’s cutting edge technology seemed like a perfect match.

Now, 10 years post them having parted ways, Hero Motocorp is the undisputed market leader with world-class R&D and 46 per cent market share.

2020 is the year to explore more such partnerships with international players.

With the pandemic, industries across the world are struggling to keep their finances strong.

In these times, India offers a large market for consumer goods, along with a cheaper human capital of both engineers and labourers.

To ensure sustained growth, we need to build a culture of excellence and innovation, and this is India’s opportunity to negotiate international partnerships with the key being an exchange of technological prowess.

Leveraging diplomatic channels and learning from the best would be a wise move in these times for long-term capacity building.

Conclusion

The call for a ‘self-reliant’ economy came at the time of a global crisis, and the recent GDP numbers have offered India the necessary reflection on her future, and the economic downturn has jolted it into seeking new loci of growth.

This has shaken off years of accumulated dust on the shelves of policymakers, and at the same time, has brought to the forefront the need for a resilient economy and strength in its political, social and economic structure.

This could be the starting point of building the legacy of a ‘New India’.

This requires ownership. Not just from the government, but the citizens at large. This vision of ‘building India for the world’ has to sink into the mind, heart and gut of every entrepreneur and worker.

Are we up to the task? Let time be our judge on this.