5 things India must do to become a $5 trillion economy

Amitabh Kant, the CEO of NITI Aayog, presented these views at the Morningstar Investment Conference held in Mumbai in September 2019.
By Morningstar |  08-11-19 | 

If you look at the last 5 years of India's economy, on an average, India has grown at about 7.5%. Growth in recent times has dipped. But whether it's cyclical or structural is the question.

The challenge for India is really to grow at high rates over a 3-decade period. It's not just about a $5 trillion economy till 2024, or a $10 trillion economy by 2030. The challenge for India is to grow at 8% to 9% per annum, year after year, for three decades or more. Only then can we lift a very, very young population above the poverty line. India's average age is 29, and rarely has a country not created wealth when it has such light dependency burdens.

Post-World War II, Japan, Korea, Taiwan, and China have all grown at high rates for long periods of time.

What must India do to utilize this light dependency burden and grow at rapid rates?

#1. Increase ease of business and ease of living to enable the private sector to create wealth over a long period of time.

Over the last four years, the government has scrapped a number of laws; over 1,300 to be precise. We've done away with a lot of procedures, rules and regulations. We've tried to digitize the Indian economy. We've tried to see that every single department of the government speaks to its applicants digitally.

Through a series of reforms, India has jumped up 65 positions in The World Bank Ease of Doing Business. No other large country has been able to do this.

We've jumped up 65 positions, but our challenge is that in the next two years we must reach the top 50 and in the next five years reach the top 25.

India is a very, very large country. It's bigger than 24 countries of Europe, plus another 30,000 kilometers. The challenge is making it easy and simple at the state level and getting them to compete with each other in the spirit of competitive federalism.

The first year we did this, on hundred outcomes of ease of doing business, Gujarat was No. 1. The next year, Andhra Pradesh, and the third year, Telangana.

Backward states like Jharkhand and Chhattisgarh did massive reforms, huge reforms across labor, across a range of sectors to come fourth and fifth. And my belief is that if the eastern part of India becomes extremely reformist and has the zeal to change, then India on a consistent basis will grow at high rates.

This spirit of competitive federalism - ease of doing business to health, education; and ranking states accordingly helps to make good governance as good politics, and puts out the data in public domain. This is something which we will continue to do unabated in the days to come.

There are about 115 districts of India which remain backward in parameters such as education, health, maternity, infant mortality, skill, agriculture and nutrition. Many of them are in the eastern part of India. We call them the aspirational districts of India and make them compete on a real-time basis. That is, we capture their data on a real-time basis, and we make them compete on 49 indicators across education, health, nutrition, skill. And we rank them, we put their ranking in public domain on a dashboard called ChampionsofChange.gov.in. We capture their performance on incremental performance, on delta, how it's changing every month, every day.

We give awards to districts that do well; every month we give them Rs 10 crores of untied fund and we've seen a huge improvement by just making them compete and putting out real-time data in the public domain. Policy decisions can be based on that real-time data. And that is driving change today. By lifting these 115 districts above poverty line, India will automatically grow.

#2. The process of urbanization has been a very major driver of growth across the world.

Cities account for just 3% – just 3% of the earth land mass, but they account for 82% of the global GDP. The process of cities is important because cities are centers of growth, they are centers of dynamism, they are centers of innovation, and they bring in a spirit of economic growth.

The process of urbanization has ended across America. It's ended across Europe. It's nearing its completion in China. But the process of urbanization has just begun in India. In the next 5 decades, India will see more urbanization than what we've done in the last 500 years. And therefore, if you go by the latest McKinsey study, every minute as I speak here today, there are 30 Indians moving from rural areas to urban areas and Mumbai is a great example of that. And by 2050, you will have 700 million Indians getting into the process of urbanization.

Therefore, the challenge for India is really to create two-and-a-half Americas, two-and-a-half Americans in a far more innovative and sustainable manner. When America urbanized land gas water were cheaply available. America had the luxury of living in New Jersey travelling to New York guzzling gas. It had the luxury to create cities like Atlanta where 99% of the people travel by car, nobody cycles, nobody walks, but that's not possible anymore.

Many of the lessons of good urbanization come from Singapore which recycles its water – almost 12% of recycled water is used for human consumption. It comes from a city called Yokohama where almost 42% of the waste was reduced by a lady Mayor because she was able to do household segregation. It comes from a city called Kitakyushu in Japan which became – where Dokai Bay on which it was based became absolutely yellow from the Blue River. It became yellow and the women of Kitakyushu rose in revolt against the administration of Kitakyushu. And the Ministry of Trade and Industry METI of Japan, which is the most powerful ministry in Japan, worked in partnership with the women of Kitakyushu to create the most recycling and the smartest city and everything is recycled in Kitakyushu today.

The challenge in India is that we must plan and urbanize. How do we recycle our water? How do we recycle our waste? How do we ensure that we do innovative and sustainable urbanization for tomorrow?

These are key challenges because cities will create growth, cities will be the key driver of India's growth, they will be the engines of taking India forward, and this is important to understand.

#3. India cannot be speaking in lieu of protectionism. We cannot keep looking at the domestic market. We need to penetrate global markets.

We exist in a globalized world. In a globalized world, we work on value chains. Vast number of countries have grown and prospered because of globalization. Globalization has enabled large sections of population to be lifted above the poverty line. Poverty would not have been eliminated in China but for globalization. China has grown on the back of exports. It would not have happened in Japan; it would not have happened in Korea. All these countries have benefited from globalization by penetrating the American markets. They've all penetrated American and European markets on the basis of exports.

India must learn the art of size and scale, of manufacturing to size of scale and to penetrating. India's share in global export is less than 2%.

The mindset of most Indians is that we have a large domestic market, therefore, whatever I produce will be sold here. But at whatever price you sell in the domestic market, when you export, you get 10x. So, the real unit value realization comes from exports. Therefore, the size and scale of manufacturing has to be pushed.

India needs to create 5 or 6 large autonomous economic zones where there is no labour law, no land law and allow people to produce to large size and scale without restraining them in any manner. The second is our ability to push out goods for exports in very fast time. So, the cost of logistics must fall sharply and there, technology must come into play. The cost of logistic in India is still high, which we must bring down.

One of the key things we've done is to open up our economy to foreign direct investment.

In the last 5 years, we opened up our economy to a range of areas from real estate, to defense, to insurance, to pension funds. Every single sector of the economy we opened up.

In the last five years, India's FDI has grown by 66%, at a point of time where FDI across the world has fallen by 13%. This will enable the Indian economy to benefit from forces of globalization.

#4. Participation of women in the workforce is a key driver of India's growth.

India cannot grow at high rates over a 3-decade period without gender parity. In India, only 26% of the women work; the worldwide average is 48%. If such a major chunk of the population is not working and we consciously don't put women into positions of power, it will be very difficult for India to grow.

We must give more opportunity to women consciously. And each one of us must ensure that women are put into position of power, so that India becomes a nation of gender parity. Without that, India will not grow. It's not possible. And if India was to reach that worldwide average of 48%, you will add $700 billion to your economy.

#5. Reforms in Agriculture.

It's not possible to grow over long periods of time without some very major structural reforms in the agriculture sector because that's where close to 58% of India lives. You can't keep growing on subsidies, you can't keep going on just giving assistance to farmers without ensuring better markets, without putting technology, without contract farming and so on. Agriculture sector reforms are critical.

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