Smaller peers racing ahead

India must focus on pvt investment, exports for higher growth

A forecast of global growth till 2030 conducted by economists at Standard Chartered Bank has concluded that five economies in Asia and two in Africa will grow at 7 per cent over the period. While the economists conclude that India will be one of these economies, it is useful to note how it performs significantly below some other competitors. The economists predict, for example, that by 2030 Bangladesh will have a per capita income higher than India’s. Meanwhile, Vietnam, which has a per capita income of only 30 per cent more than India now, will by then have a per capita income of above $10,000 a year and be almost twice as rich as India on a per capita basis. Though all such projections are subjective and not to be taken as definitive, the comparison to its peers is not reassuring from an Indian point of view. It is no longer enough to be satisfied that India is beating China or other “large” economies when smaller peers are doing so much better. What can be done to ensure that India manages to outperform its competitor economies over this period? 

When considering sustainable routes to growth between now and 2030, the Standard Chartered economists predict that economies that can export commodities or manufactured goods will do well. This is worth considering, given that both Bangladesh and Vietnam have done better than India in terms of exports growth over the past few years. Part of the reason is a lack of competitiveness of Indian manufacturing, including but not limited to the apparel sector. A turn towards protectionism in recent years has not helped, as it minimises the incentive to lock India into global supply chains. Arbitrary behaviour with investors, including those who have made big investments into such infrastructure-creation sectors as e-commerce, can also be considered a disincentive in this respect. The next government will have to reverse this impression, and instead work towards creating the notion that India is a stable environment for foreign investment and foreign trade, and as a location for components of the global supply chain. 

The broader question is how growth can recover without an increase in private investment. Investment currently is well below the heights it scaled in past years, and has been relatively stagnant over the past four to five years — albeit with some minor signs of revival in the last few quarters. It is important to try and ensure that investor confidence is revived. It is also important that private corporate savings increase so that companies have more wherewithal to make these investments. Considerable capital is still locked up in the system — the debt overhang from the boom and stimulus years has not been completely worked out, and many balance sheets are still burdened. But the need is to create more investment opportunities and possibilities for earnings, including through exports. New capital expenditure — especially when it’s not merely for maintaining existing facilities — will create jobs, thus boosting households’ financial savings. This must be priority if India is to be a best-in-class emerging economy. It is also important to ensure that the workforce is prepared for growth and opportunity — in other words, education, skilling and health need to continue to be priorities for the government.