India Inc could play a lead role in our economy’s global emergence

Source: The post is based on an article “India Inc could play a lead role in our economy’s global emergence” published in the Live Mint on 13^th July 2022.

Syllabus: GS 2 Indian Economy. Issues and Challenges Pertaining to Growth and Development; Industrial Policy

Relevance: Role of India Inc. in Indian Economy

News: In recent years, India has emerged as one of the world’s fastest growing major economies. It is expected to be among the top 3 in the next 2 decades.

In this context, the Government of India (GOI) announced its aim to move from the status of a $3.2 trillion economy to a $5 trillion economy within this decade.

Journey of India’s growth so far

(A) Pre-Independence: The British Raj had impoverished India till India became Independent. In this context, the Former PM Manmohan Singh once commented, “The brightest jewel in the British crown was the poorest country in the world in terms of per capita income at the beginning of the 20th century.”

(B) Post-independence: The government established a number of public sector enterprises (PSEs), especially in the heavy industries sector, which were called the “temples of modern India”.

(C) Post-1991: The economic liberalization allowed the private sector to play a pivotal role in a free market economy.

(1) The services sector was focused. Therefore, the sector grew and thus contributed more than half of India’s gross domestic product (GDP) at present. The sector also attracts 55% of foreign direct investment (FDI).

(2) Initially, the manufacturing sector remained laggard. However, in recent years, the government has launched Skill India, Digital India and Startup India initiatives and has been focussing on “Make in India, Make for the world”.

(3) The government is focussing on major infrastructure and logistics projects for India to leapfrog into a new era of growth. This is because Former US President John F. Kennedy once said, “American roads are not good because America is rich. America is rich because American roads are good.”

Key challenges remain for Indian enterprises

First, India’s ease of doing business climate remains inadequate. For example, industrial projects find it difficult to get contiguous land parcels and timely environmental and regulatory clearances.

Therefore, India’s manufacturing sector could increase its share in GDP from 15.3% to 17.4% in 2 decades ago. In contrast, Vietnam’s manufacturing sector more than doubled its share of GDP in the same period.

Second, the cost of doing business in India is high. There are various regulatory and bureaucratic procedures that ultimately hurt India’s image and chances of becoming a preferred global manufacturing destination.

Third, India’s labour productivity is very poor. For example, Manufacturing productivity in Indonesia is twice India’s, while in China and South Korea it is four times higher. This happens due to ‘chalta hai’ (anything goes) attitude.

Fourth, there are inconsistencies in the government’s policies. For example, Court judgements had cancelled 2G licences and coal block allocations.

Way Forward

The government should ensure ease of doing business. For example, it can adopt a single-window clearance system for regulatory approval and other aspects.

In order to compete globally and move up the value chain to more value-added categories, there is a need that Indian firms work on scale and quality

We need to fix the labour productivity issues. There is a need for upskilling of our workforce in order to become an attractive destination for global manufacturers.

Indian enterprises should be given support and encouragement to expand their operations on a global scale here in India. This will encourage global prospective investors to look at India as a favourable manufacturing destination.

The government should make robust policies which remain consistent because it is fundamental to investor confidence. It is good that the government has ensured regular auctions of coal blocks for commercial use.