The gap between India’s potential and reality is reflected by the fact that the India Story continues to be defined, quote-unquote ‘emerging’ for three decades since 1991. India’s $ 2.8 trillion economy is at an inflection point. Hindsight, they say is 2020 and the year has many lessons. Here are five takeaways for Budget 2021.
Invest in Human Capital: India’s strength is the scale of 1.3 billion aspirations. Yet, successive regimes have flailed at investing in developing human capital. The state of health care and the broken education system is illustrated by the ranking in the latest UN Human Development Report and the findings of the fifth National Family Health Survey. Take education. Literacy is necessary but not sufficient. What is critical is years of schooling. India with 6.5 mean years of schooling fares poorly — Malaysia, for instance, boasts of 10.5 years and Korea 12.2 years, Brazil and China 8-plus years. Last week, the Health Ministry released the NFHS report. Malnutrition levels persist across states and have worsened in some — the under-five mortality rate is over 50 (per 1,000 births) in many states. The aggravation of stunting and wasting has long-term consequences.
How can a nation betting on demographic dividend justify spending barely 1.5 per cent of GDP for health and 3.1 per cent of GDP for education — and the levels have been static for nearly a decade. No economy has prospered without investing in human development.
Leverage Low Rate Regime: The aspiration of a $5 trillion economy rests on how India finds ways to fund it. Global interest rates are at their lowest, yo-yoing between sub-1 per cent and negative yields. Over $17 trillion of global savings is locked in negative yielding debt paper. Global pension funds and sovereign funds are hurting and hunting for returns, and India could align its potential and market conditions to raise resources. There is an opportunity for India to monetise assets and opportunities. It could house its PSEs in a sovereign trust or fund and raise debt against assets — and use the trust for strategic sale of public sector units. It could invite investors opportunity to invest in the infrastructure push — either through bonds or via Infrastructure Investment Trusts housing ready and running highway and other projects.
Reposition Make in India: Ideally, India and any economy would want to produce the bulk of consumption demand. The mindset of globalisers though has been to view India purely as a market for their goods. If India can re-craft land and labour policies, it could leverage cost economics of for production and the scale of domestic market to align competing compulsions and benefit from the global China-plus-one reconfiguration of supply chain economics. And there are opportunities — for instance, renewables, electric vehicles and 5G telecom services. India will be a big market as the EV sector expands to touch $800 billion by around 2025. The transition to 5G is another opportunity. Currently, India hosts over a billion mobile phone users of which 600 million are estimated to be smart phone users. If India crafts a smart scheme a la the productivity-linked incentive scheme, it could be part of the commoditisation of components and eventually transition to a global hub.
Induct Skills Apprenticeship and Certification: India’s economy hosts contrasting extremes — large scale unemployment and jobs for which skilled personnel are hard to find. The crux is the skills gap which demands a model which allows people to earn as they learn and re-learn through an apprenticeship programme for newcomers and re-skilling for those in the workforce. The need for such a model acquires urgency in the light of the many disruptions — from climate change to technology adoption — which could render those stepping out of college inadequate and those with jobs redundant as allocation of capital for automation displaces human interface. Budget 2021 affords an opportunity to design a tax-based incentive scheme which enables employers to fund skilling and for job seekers to learn anew and renew skills
Wall the Data Ant-hills: The derailment of the IPO of Jack Ma led Ant group, the series of actions on tech companies in Europe and in the US represent an emerging and paradigm shift in public policy on data across political economies. Verily these moves — riding on the percept of controlling market monopolies and trust issues — are heading towards localisation of data for purpose control, storage, usage and monetisation. The trends have consequences for India. Already, large companies across India — in the financial sector and on factory floors — are rapidly inducting technology for repetitive, cognitive and predictive processes and analysis. Data spewed by a billion phone users, online-shopping and digital transactions make India data rich even as it aspires to prosperity. It needs to urgently fix the gap in data protection and privacy, and move towards a system enabling Indians and Indian entities first charge on data generated and transition eventually to a system to leverage data as a public good.
These are not all but some of the takeaways. Every political economy will and does face competing crises and contradictions. What matters is alignment of policy and aspiration. India has been held back not by what it could not but what it could but did not.
Author of The Gated Republic, Aadhaar:
A Biometric History of India’s 12 Digit
Revolution, and Accidental India