Forget catch-up, think futuristic, go big

"Catch-up" and "limited resources" are constants for our economy post-independence

Catching-up” is difficult. Matt Andrews (Harvard) writes “hope of widespread and dramatic catch-up is not realistic”. Top countries by GDP/per-capita GDP continually dominate the global economy. Despite development, others become relatively “poorer”. Similarly, limited resources mean we progress but don’t “break out”. Despite notable successes —vibrant industries, entrepreneurs, Green Revolution, ISRO, IT — there remains a gulf vis-à-vis the developed world.

Covid-19 has dramatically altered the scenario. The pillars of the global economy — multilateral trade, offshoring, long supply chains — are under question. Technological disruption has accelerated — Satya Nadella commented that two years of transformation happened in two months. Even last century’s “brain drain” may reverse. Indian research prowess and response under crisis has been top-notch. Given the scale of response needed and with fiscal prudence rightly a lower priority, we also have the resources to make massive game-changing investments.

For epochal and effective “break out”, we need to make considered investments – look into the future, anticipate trends and identify gaps that India can fill on a long-term, sustainable basis. China anticipated and filled the manufacturing-offshoring gap. We need to identify new gaps, and fast. “Leapfrog” instead of “catch-up”.  Shift from a “me-too” to a “me” strategy.

Man-machine continuum/autonomous technology/AI-ML: The gig economy upended traditional markets.  Emerging technology — automating, supplementing and extending human capabilities, will make previous revolutions seem inconsequential. India, given its geographic spread, population and urban concentrations desperately needs this in every sphere — in urban transport, education, medicine, governance.  An ecosystem of research and production needs to be developed to foster these technologies. Foreign entrepreneurs and companies can be attracted by giving preferential access to the Indian market — maybe a three-year head start on competition, for those committing to conduct research and produce here. This requires serious preparation — choosing technologies to prioritise and ensuring that best-in-class players come to India.
 

This is where we need to compete, and catch up with China, not just on assembly plants.

Genetics-biomedicine-healthcare: India has been a marginal player in this vital sector for the future — clinical trials not research, cheap medical tourism, generics. We cannot handicap ourselves by being restricted to low value-add activities. Covid has shown our research potential. We must double up on research and pull top-end scientists into India. Create “medi-zones” and help set up cutting-edge studies in genetics/bio- medicines, even if it means offering heavy subsidies. Investment is needed to provide the right ecosystem — infrastructure, IP rights, operational flexibility to attract top talent. Let India lead developments in cancer, MS and genetic cures. Path-breaking research naturally helps equipment manufacturers and the hospital sector.

Data localisation: AI, bio-genetics or machine-learning — research runs on data. India has immense pools of data but it needs to be marshalled for India and Indian ventures. Data localisation laws are long overdue.  Companies and researchers that invest in India get privileged access, especially to government/public data.

Broaden “Make in India” to bring it all together: India’s enormous industrial strengths are underutilised with an undue focus on replacing Chinese manufacturing. That can become a pricing race to the bottom against countries like Vietnam. While also encouraging shift of manufacture from China, the real focus should be on establishing manufacturing that plays to our strengths — pool of trained talent, rule of law, ancillary industrial competence, entrepreneurship and leveraging domestic demand.

Some possible changes:

• Subsidise (tax breaks, free land) entry by large players in “future important” sectors like biotech, AI-ML.
• Change defence offset rules: Instead of Indian players producing low-end parts, force vendors to set up 100 per cent owned companies with committed dollar and technology investments as part of supply contracts.
• Build local event specific manufacturing capabilities — 5G/6G; space; energy storage.
• Fashion an India-centric regional manufacturing network integrating the subcontinent (ex-Pakistan) and even IndoChina into an Indian supply chain.
• 3D printer effect: leverage our huge domestic demand as a driver for developing customised manufacturing.
• Investment in R&D and quality control will be foundations for our efforts.

Agriculture: No break-out tactic is possible without an agricultural production strategy — guaranteeing food security and improving our rural economy. Since the Green Revolution, our agricultural performance has been a mixed bag. Research has stagnated. We need to rationalise agricultural research — radical modernisation, focus and reward outcomes and remove wasteful duplication. We urgently need innovative land reforms wherein we reconcile small “legal” holdings within “large holding” farming practices that utilise economies of scale and allow initiatives like sustainable farming to flourish. This can be a variation of cooperatives or local REIT structures where hard work is reflected in rewards but the risks and costs are spread over a larger base.

Human capital: Investment into the future will come to nought if we do not get human resource management right. The fourth Industrial Revolution will disrupt economies. We need a welfare umbrella to buffer the impact. Unemployment benefits need to be institutionalised. We have to recognise the patchy performance of our skilling initiatives and sub-optimality of government as a delivery channel. The government should specify requirements and monitor quality but execution needs to be delegated to the private sector. Workers need to feel secure through disruption — monetarily and in their ability to retrain and adapt.

Narendra Modi has helped our poorest citizens dream — of a home, a toilet, being “included” in the financial system. With the resources available for post-Covid stabilisation, he can help the economy “dream” — of leading the pack and not playing catch-up.

The author is an international investment banker