‘How India Will Shape The New Global Order’ By Jayant Sinha

Jayant Sinha, Minister of State for Civil Aviation, Government of India

Humanistic principles, the pursuit of truth, and social equality appear to be under siege around the world - as we just saw in the US and French elections, the Brexit Vote, the rise of extremist parties in Europe, and in the depredations of global terrorism.

And at this juncture, during these uncertain times, it is India’s turn to be the flag bearer, the vanguard of the new global order.  We are at a profound moment in India’s history – a time more poignant with possibilities than any other time in the last three decades.  It is a time, when we have a single party majority in the Lok Sabha with a mandate from the people to build a new India.  It is a time, when we have a decisive and visionary Prime Minister who is determined to forge a bright future for India.

It is a time, when the world is looking to India, to India’s leaders, to India’s young and talented workforce, to all of us, to provide leadership for the next chapter of global growth.

If it is India’s turn now, how do we provide this global leadership?  How do we become a Vishwa Guru? What do we do to drive sustainable growth in India and around the world?

To answer these questions, I will touch on three themes.  First, I will describe how India’s economic development is inherently frugal and sustainable.  Second, I will show that it is India’s great (for-profit and non-profit) innovators and entrepreneurs that are actually driving our frugal development model.  And, finally, I will explain how our government, under the extraordinary leadership of the Honorable Prime Minister, Shri Narendra Modi ji, has developed a new, pro-poor / pro-market role for the Indian state thereby helping forge a new future for India and the world.

INDIA’S FRUGAL DEVELOPMENT MODEL CAN DRIVE SUSTAINABLE GLOBAL GROWTH

In a slowing global economy, India is ready to seize the baton and become a key contributor to global growth. In the next decade, India is likely to contribute almost as much as China and more than twice as much as the US in terms of absolute economic growth.  Moreover, India’s economic development model is frugal in its use of natural resources, carbon, and capital.  The products and services developed in India for Indians are likely to be used widely across the developing world, where the majority of humanity resides.  Thus the Indian frugal development model is going to contribute to global growth not only in quantitative terms, but also in defining a more sustainable growth trajectory for the developing world.

On a purchasing power parity basis (the best measure of economic output – and based on IMF forecasts for 2017), the world’s three largest economies are China ($23.2 trillion), the US ($19.4 trillion), and India ($9.5 trillion).  If, for the next decade, the Chinese economy grows at an average annual growth rate of 5%, it will contribute an additional $14.5 trillion to global GDP.  If the Indian economy grows at average annual growth rate of 8%, then it will contribute $11.0 trillion; at an average annual growth rate of 2.5%, the US economy will add only about $5.4 trillion to the global economy.

The numbers tell one part of the story.  More importantly, India’s growth in economic output is likely to be qualitativelydifferent from the manufacturing and investment-driven development model followed by East Asian countries.  It appears that our model will require much less energy, natural resources, carbon emissions, and capital per unit of GDP – it is thus showing the way towards frugal and sustainable growth.  Given the historic Climate Change treaty signed in Paris, nothing could be more important for the planet.

India conserves resources and uses them carefully because we have no choice. We have only 2.5% of the world’s land mass, 4% of the fresh water, yet over 17% of the global population and cattle. Our land is needed for agriculture, it tends to be expensive, and real estate prices are high.  We impose high carbon taxes and most of our resource inputs are fairly priced.  Manufacturing-driven economies, on the other hand, tend to be much more resource-intensive.  For instance, as per World Bank and Resources for the Future data, China currently utilizes 52% more energy per unit of PPP GDP than India.  Moreover, the data suggest that China uses 3-4 times more steel and cement than India for each unit of PPP GDP.  China’s carbon emissions per unit of PPP GDP are 78% higher than the emissions for India.

India’s capital productivity is also much higher than that of the other major economies. India has among the highest real interest rates in the world today, with capital priced so that savers have an incentive to put their money into savings accounts.  While some Indian business groups are over-leveraged, Indian companies are generally conservative in their borrowings.  Government and financial sector debt is also lower than that of most major emerging market countries.  India’s debt to GDP ratio (including the financial sector, and as per McKinsey Global Institute data) is only 135%; it is 282% for China; 160% for Brazil; 154% for South Africa; and 88% for Russia.  It is 269% for the United States.

Accordingly, here in India, we are able to generate relatively rapid GDP growth with fewer natural resources, use less carbon space, and require less leverage. This is good for India and good for the world.

BECOMING THE NEXT WORLD’S ENTREPRENEURIAL ENGINE

How do we in India do this?

The quest to deliver affordable products and services for a vast, young population drives India’s frugal development model.  Moreover, India has an open, market-driven economy.  As a result, we have a competitive and specialized manufacturing sector, a vast non-tradable services sector, and an employment-intensive but relatively small agricultural sector.

India produces a wide range of inexpensive items designed for aspiring middle class consumers: mobile telephony, financial services, ice creams, shampoos, motorcycles, small cars, heart operations, ultrasound machines, consumer appliances, generic pharmaceuticals, doorstep delivery of food, and so on.  Such affordable products and services are intelligently designed by world-class firms to fit the needs of Indian consumers without sacrificing reliability or necessary functionality.

A well-developed innovation ecosystem encompassing research labs, incubators, serial entrepreneurs, flourishing venture capital firms, and supportive regulators is springing up to produce a steady stream of new industries.  In e-commerce, Amazon, Flipkart and Snapdeal have developed an innovative, marketplace-oriented business model that is based on cash-on-delivery rather than upfront credit-card payments.

These e-commerce giants have brought hundreds of thousands of small producers and merchants online by providing inventory management, logistics, payment, and financing services.  Today a sari produced in Surat in western India by an artisan producer can swiftly find its way to a buyer in Arunachal Pradesh in far northeastern India.

Similarly, payment banks are transforming the financial landscape by providing low-cost, convenient bank accounts that are accessible from the kirana store and in every post office.  In an exciting boost to the green economy, Indian entrepreneurs are working on developing electric motorcycles and scooters that could lead a mass migration away from fossil fuel driven transportation.

Importantly, India’s entrepreneurs are starting to make a huge difference in the lives of those at the base of the economic pyramid as well. As you know, most of the world’s poor live in the hinterlands of South Asia and Sub-Saharan Africa.  According to the World Bank there were some 1.4 billion people living in extreme poverty at less than $1.25 per day.  The number swells to over 2.6 billion when we include those living in moderate poverty at less than $2 per day.  Over a billion of these poor people live in South Asia alone, a number that exceeds the total population of Africa.  Climate change and shifting weather patterns are putting their traditional agricultural practices at risk, reducing farm incomes, and further increasing poverty.

India’s poor desperately require lighting solutions, fuel for cooking, affordable and accessible health care, clean water, elementary education, and financial services.  In the past, government programs to supply these needs have generally not been effective and have struggled to provide quality services in poor areas.  India’s entrepreneurs in financial services, in health care, and in energy services are coming up with solutions that meet the needs of the people of the base of the pyramid.  Bandhan Bank, Narayan Hridulaya, and D.light are examples of companies in these sectors that have solved the problems of the poor.  Each of these companies is scaling up massively.

India’s innovators and entrepreneurs are building a frugal and innovative economy that works for not just the people at the top of the economic pyramid, but also for those at the base of the economic pyramid.

Therefore, just like the United States is the entrepreneurial engine for the Most Affluent One Billion on the planet, India now has the opportunity to become the entrepreneurial engine for the Next 6 Billion people on the planet.  This is the Next World and we can be the leaders in serving this Next World.

HOW OUR GOVERNMENT IS REDEFINING THE INDIAN STATE

So if we have the opportunity to become the leaders of the developing world, this Next World, what is our government doing to make it happen?  I come now to my final theme.

Both the Honorable Prime Minister and the Honorable Finance Minister have stated over and over again that we are a pro-poor government.  India’s poor have the first right to the government’s resources and all our efforts must be oriented around eliminating poverty in India.  This is not a political necessity; this is our moral responsibility, our RajDharma.

Now because we are a pro-poor government, we are also a pro-market government.  We want to ensure that our markets develop well, that we follow pro-competitive policies, and our companies become world-leaders. Only if our markets flourish,only if our entrepreneurs build great companies, only if we create millions of jobs for our young people, and only if we generate sufficient tax revenues and economic surplus, will we be able to serve our poor and eliminate the curse of poverty and deprivation from our country.

As we follow our pro-poor, pro-market policies, we have to move the Indian state away from being a Nehruvian sarkar to becoming a Kautilyan sarkar.  The Nehruvian or mai-baap sarkar has been the ruling ideology for most of independent India.  In fact, it is deeply rooted in India’s long history of Rajas, Maharajas, Nawabs, and Sultans – it is associated with feudal, dynastic rule.  But we must challenge this orthodoxy because the Nehruvian sarkar is neither serving the citizen nor the state well.

The citizen is poorly served by the Nehruvian sarkar that focuses on entitlement programs. Hundreds of academic studies have shown that these programs do not work as planned.  Nearly seven decades after Independence, we still have hundreds of millions of people living in extreme poverty, over 40 % of our children are malnourished, our young people are worried about securing quality jobs, we are facing a public health catastrophe through non-communicable diseases, and our cities are becoming unlivable.  No wonder we are frustrated and angry. We all want India to do much, much better.

Is there a way out of this mess created by this socialist / populist Nehruvian sarkar?  Can we find a way to foster India’s entrepreneurial economy while lessening the heavy hand of the Nehruvian sarkar?

Yes, there is a way to redefine the role of the Indian state.  Simply put, we must move from a Nehruvian sarkar to a Kautilyan sarkar. The government has to get off the playing field and let the citizens be the players.  We cannot have the state be the umpire and also play most of the game while citizens watch from the sidelines.  The role of the state has to be defined as establishing and enforcing the rules and letting citizens be the players on the field. We must have minimum government, maximum governance.  Our state has to be policy-driven, non-discretionary, and rule-based.

Thus the state must ensure the rule of law, property and tenancy rights, and financial inclusion in every village, slum, and mohalla in the country.  Indeed, our government is strengthening the judiciary and the police across the country. The state must strengthen our regulatory bodies and make sure that they are independent.  That is exactly what our government is doing with RBI, SEBI, TRAI, the new Real Estate Regulator, NHAI, and so on.  The state must ensure necessary public infrastructure through investment and land acquisition. Our government is doing that by massively stepping up investment in roads, highways, bridges, railways, and digital connectivity.

The Kautilyan sarkar also plays a subtle, but vital role in market development. Such market development is crucial to enable our entrepreneurial economy to flourish. Markets develop when important “public goods” are provided.  By public goods or market infrastructure, I mean that the benefits of such items cannot be fully monetized by those who fund them.  This is true for a range of goods, such as creating transparent rules for pricing of energy services; or protocols for administering certain new procedures in the health care system.  The private sector will invest in such public goods only up to a certain extent, which will always be short of what is socially optimal.

So we need coordinated action between the state and private companies to build market infrastructure and help entire industries get off the ground. This solves an important prospective market failure: the “absence of collective action”.  In the absence of coordination, some of the capital that is needed for the market to develop may not materialize.  Entrepreneurs and private capital may hesitate to invest if they believe that market infrastructure – such as regulation, rules under which licenses are granted, or access to public health facilities or franchises are under-developed or unclear.  Our government is doing that with Aadhar, BHIM, UDAN, and facilitating the growth of electric vehicles.

So before the games can begin, before the players decide to take the field, before the crowds fill the seats, the Kautilyan sarkarhas much to do.  The ground has to be green and pristine, comfortable seating and facilities are required for the spectators, the rules of the game have to be defined and explained to the players, the pitch has to be prepared, the scoreboard has to be set-up.  And, finally, the two umpires in their white coats armed with light meters (and with the help of a third umpire back in the pavilion) walk onto the field.

Only when all this is done, can the players get on the field.  Yes, they will score delightful centuries, astonish us with their athletic catching, and bewilder the batsmen with their penetrating bowling.  But it is the umpires, groundsmen, and cleaning crews that make it all possible. So it is with a modern-day, efficient state that supports innovators and entrepreneurs.

Being such a sarkar takes a lot of work, perhaps more work than being a Nehruvian sarkar.  Citizens are treated with dignity, corruption is reduced, and the fiscal situation improves dramatically.  The state is lean and focused on value-added activities.  This is the rightful role of the state – and the only way to build a great nation.

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I will conclude now.

India’s economic destiny is to provide frugal products and services to the Next 6 Billion, the Next World.  We are already one of the world’s leading producers of IT services, generic pharmaceuticals, small cars, and motorcycles.  We will soon become a manufacturing hub for electronics and defense equipment.  As we export our frugal and innovative industries across the developing world, we will likely spur growth and development for other countries in the developing world also.  Such economic growth is consumption-driven and demand-led.

India also offers a template for redefining the role of the state in the Next World.  We will run a rules-based, technology-driven state that enables markets to flourish through well-regulated competition.

Thus India is poised to provide fresh impetus to global growth.  India’s economic growth will be significant in terms of its absolute contribution to global economic activity.  But India’s development model is uniquely innovative, frugal, and green.  As other developing countries begin to follow India’s frugal model, it could potentially drive much more sustainable and equitable growth for the entire planet.