This degree of dispersion can undermine India’s aspiration of achieving a developed nation income level by 2047 as this target requires an accelerated and, more importantly, a sustained growth of at least 7-8% continuously till the centenary year. Economic swings are also undesirable as they introduce friction and inefficient churn, undermine policies, and infuse ominous uncertainty among investors and spenders. However, consistency of growth is often not accommodated in economic policymaking. For consistently high growth, India’s economic strategy must prioritise structural changes that enable steadiness of growth along with pace.
A strategy aiming for steady growth must be built around some core principles viz. ability to shape the market, resilience to shocks and cycles, and flexibility of industry and workforce. Realising these principles in the Indian economy requires concentration on three critical areas.
Firstly, few other national capabilities are as instrumental in shaping and creating markets as scientific innovation. Throughout human history, primacy in scientific progress has endowed considerable power over the vagaries of supply/demand. The industrial revolution, internet boom, and brands like Apple underscore the importance of this capability. Ranked 39th in the Global Innovation Index and spending only 0.65% of its GDP on research and development (compared to 1.39% globally), India has lagged significantly on this front.
A broad-based upgrade in higher education outcomes is required to cultivate intellectual abilities necessary for R&D and create opportunities for innovation. Regulatory and programmatic interventions to create an ecosystem of collaborative research and to retain scientific talent are critical to foster innovation. However, India’s innovation potential will remain sub-optimal until the private sector (currently contributing just a third of R&D expenditure) becomes a proactive partner in enabling R&D.
While the government can support with tax incentives and risk backstopping, Indian companies must appreciate the importance and benefits of adopting innovation. Many research areas like materials, genetics, space etc. provide a ripe opportunity for Indian businesses to leapfrog ahead of even developed countries.
Secondly, for building resilience from external disruptions, a broader domestic demand and supply pool must be developed as globally distributed value chains bring greater exposure. A handy solution is focusing on growing up and down the value chain in traditional strength sectors like pharmaceuticals, automobiles, IT, chemicals etc., along with newer areas like electronics and consumer goods. The policy legacy in these sectors makes them suitable for capitalizing on existing expertise, assured markets, navigating trade barriers etc.
Ruggedising the massive MSME base in India, which is most vulnerable to the churn from the erratic swings, can also be ensured through this approach, while promoting their adaptability to changing market demands through fiscal incentives and shared infrastructure.
Thirdly, cultivating dynamism in the workforce can smoothen spending cycles and reduce friction from the swings. This requires mobility in work and security in transition for the worker pool. India should reorient its skilling system to make it more mobile and responsive by embedding the flexibility for workers to move vertically and horizontally on the skill matrix.
This may require the government to play a larger regulatory role by uniformly defining and harmonizing skills categorisation, assessment, progression, along with legislating training/progression mandates, disclosures, information exchange etc., supported by fiscal and policy incentives. The private sector must become more involved with training the workforce they need within this framework.
Concurrently necessary is a robust social security net, wide in scope and coverage, which distributes socio-economic risks in worker transition. Safety nets vary widely across the world in their features like healthcare, pensions, unemployment support, housing, childcare etc. A model that suits India will have to be developed through a societal discourse, especially as it involves a long-term fiscal commitment.
Focusing on these three vital areas can place India’s 2047 journey on a steadier footing. In an increasingly uncertain world, the race will be won by the fast and the steady.
—The author, Mohitkumar Daga, is an independent public policy consultant. The views are personal.
