Posts in How to Take Notes – Newspapers

Service sector – driver of India’s growth

Service sector – driver of India’s growth

https://indianexpress.com/article/opinion/columns/service-sector-jobs-economy-covidan-unserviced-sector-6571279/

(Friends, these are the basic points. Please don’t worry too much if you don’t remember the statistics. Read the entire article and understand how service sector has contributed to the economy.)

  1. The share of manufacturing in India’s GDP has remained stagnant around 16 per cent for nearly three decades.
  2. India’s growth story has been driven by services, which has a 55 per cent share in the economy.
  3. Services exports have outperformed goods exports in the recent years, due to which India’s share in the world’s commercial services exports has risen steadily over the past decade to reach 3.5 per cent in 2018 — twice the sector’s share in the world’s merchandise exports,1.7 per cent.
  4. The Centre rolled out a whopping Rs 20.9 lakh crore stimulus package to pull the economy out from the ravages of the pandemic. The package had a strong focus on the MSME sector, employee provident fund, power distribution companies and taxation, among other affected areas. Most of the stimulus package is in the form of funding and loan opportunities and, injecting liquidity to the market.
  5. The sector’s significance in the economy continues to grow with its share amounting to two-thirds of total FDI inflows into India and about 38 per cent of total exports.

 

 

What internet means to an island economy

What internet means to an island economy

https://www.livemint.com/news/india/what-internet-means-to-an-island-economy-11598278668106.html

(Friends, I’ll show how to take notes from this article a bit later.)

24 Aug 2020 Deborshi Chaki

The Andamans just became one of the last Indian territories to get high-speed net. Will new businesses come up?
While the internet in itself will not solve persistent developmental challenges, it does offer a pathway to amplify economic transformations which are already underway.

MUMBAI : On 10 August, when the Prime Ministerinaugurated India’s first 5G-ready undersea optical fibre cable network between the Andamans and Chennai, life came full circle for Sunil Gupta. Around a year ago, he had made the difficult decision to wind up his startup in Bengaluru, a B2B tech platform for the tourism industry, and return to his hometown Port Blair in order to spend more time with his ageing parents.
“I had to close the company because the internet was dismally slow in Port Blair which makes remote working impossible,” said Gupta, who has since his return has opened a tourist hostel for budget travellers in Wandoor beach about 25km from Port Blair. But with data speeds set to improve dramatically once the undersea cable becomes fully operational, Gupta said that those plans have suddenly changed.

“Once connectivity improves, then it doesn’t really matter whether one is in Port Blair or in Bengaluru, rather the cost of operations will be less in Port Blair,” he said.

The 2,300km submarine optical fibre cable link, a long-standing demand among the local population, will deliver a bandwidth of 2×200 gigabits per second (Gbps) between Chennai and Port Blair, and 2×100 Gbps between capital Port Blair and the other islands. Though the internet arrived in the Andaman and Nicobar Islands via satellite connectivity in the early 2000s, data transfer speeds during all these years have been rudimentary.

While users in the Indian mainland upgraded to superfast digital ecosystems, the islands have remained in the 2G era (Lakshadweep will also get an undersea cable soon). Though technically speaking 4G service is available on the islands, it seldom worked. In the absence of proper connectivity, internet bandwidth, a precious commodity in the islands, was kept largely for the exclusive use of the local government machinery, leaving a large portion of the local population without any form of digital connectivity.

Now, the arrival of the undersea cable is expected to usher in an IT and ITes revolution on the islands. The islands have a high literacy rate of 86.6% and a ready workforce made up of a large English-speaking young population. While the internet in itself will not solve persistent developmental challenges—ranging from geographic remoteness to a heavy reliance on the government for the supply of goods and services—it does offer a pathway to amplify economic transformations which are already underway. The internet may finally offer the islanders a reasonable shot at diversifying beyond tourism.

A decade long wait

Located around 1,200km from the Indian mainland in the Bay of Bengal, the Andaman and Nicobar Islands, a former prison colony, carefully chosen for its sheer inaccessibility and remoteness, served as a natural prison for more than a century. The nearest continental landmass from the Andamans is the coast of Myanmar, which is about a day’s journey by sea from the capital Port Blair.

The island group is India’s largest union territory and is centrally administered by the union government through a lieutenant governor, the highest-ranking official of the local administration. The islands are scattered across an 800km zone from north to south. The main island clusters of Andaman and Nicobar are separated by high seas and lie to the north of the Malacca Strait, a busy sea route through which one-third of the world’s sea trade passes. Over the years, the islands have emerged as a sought-after tourist destination as well as a strategic point in the Bay of Bengal for the defence forces and currently serves as the headquarters of India’s first tri-services command, which is headed by all the three services on a rotation basis. While the National Optical Fibre Network (NOFN) initiative began in 2011 to provide broadband connectivity to over 200,000 gram panchayats across all 26 states and union territories, it did not include the Andaman and Nicobar Islands due to technical challenges. Telecom providers in the islands, therefore, were left to rely on expensive satellite connectivity to provide 2Mbps speeds. The high cost meant digital connectivity remained out of reach for a large section of the population.

3G services provided by the state-run BSNL and by private operators worked only intermittently. Uploading a single file could take hours. “For years, it was simply impossible for local businesses in the islands to stay competitive due to the lack of proper connectivity,” said M. Vinod, president of the Andaman and Association of Tour Operators. “Right from managing flight and hotel bookings online to accepting payments digitally, everything was a big challenge,” he said, adding: “But we expect things to be markedly better in the coming months.”

Lt General A.K. Singh, former lieutenant governor of the islands who played a key role in getting the project sanctioned, agrees. “It is a defining moment, a game-changer in multiple fields—education, health, governance, e-initiatives. The feeling of isolation which prevailed among the people will reduce; business opportunities will enhance. The islands are well placed for establishing call centres & BPO industry. The people are multilingual and there are no labour issues. In anticipation of the undersea cable, we had started foreign language classes to prepare our people. The possibilities are immense,” he told Mint.

The idea of optic fibre connectivity to the islands was first introduced by the erstwhile Planning Commission in 2010, following which it constituted a technical committee for studying the existing available bandwidth, future requirement and the strategy to be adopted for providing adequate bandwidth through reliable connectivity to the islands.

The technical committee after conducting several rounds of discussion with stakeholders such as the Indian Space Research Organisation (Isro), the ministry of defence and the local administration submitted its report to the Commission in January 2011. In its report, it proposed provisioning submarine optical fibre connectivity to six major islands which include Port Blair, Havelock, Little Andaman, Car Nicobar, Kamorta and Campbell Bay and satellite connectivity for other islands.

As per the proposal, the six islands were to be connected through one of the existing consortium cables passing through the region to the Indian mainland. Based on the report of the technical committee, the Planning Commission, in April 2011, conveyed its in-principle approval for laying the undersea optical fibre cable to connect the six major islands. Soon after, the Andaman and Nicobar administration prepared a proposal and invited bids for implementation of the project including its operation and maintenance for 15 years on a turnkey basis. The financial bids of the project were first opened in March 2013, with an initial estimated project cost of ₹413.55 crore. However, the project went into cold storage soon after and was revived only in 2016 under the Modi government.

A strategic asset

In addition to improving digital connectivity to the islands, the project is expected to provide heft to India’s strategic ambitions in the Indian Ocean region, where China’s dominance has been on a steady rise.

Over the years, the Chinese have steadily increased their presence in neighbouring Myanmar. In 1992, China is believed to have established a SIGINT (signals intelligence) gathering station on Great Coco Island to monitor Indian naval activity and missile launches in the Bay of Bengal. In addition to that, the Chinese are believed to have constructed an airstrip in the islands for surveillance-related purposes.

“The Andaman Nicobar Islands are like an unsinkable aircraft carrier of India in a very strategic location in the Bay of Bengal, overlooking the sea lines of communication (SLOCS) and the Malacca Straits,” said Lt. General Singh. “Communication was a huge challenge even for our defence forces. The three-tier security around the islands will be greatly facilitated. The west coast of the islands, which is very sparsely inhabited, can now be continuously monitored using technology,” he added.

When conceived, it was also suggested that the undersea cable connectivity be extended from Kolkata to the Andamans, in addition to Chennai. The resulting ring-like structure will reduce downtime of the optic fibre cable significantly, which takes a relatively long time to repair and restore given the complexities involved. Additionally, Trai had also suggested that the connectivity from Kolkata may be used to route traffic from the entire North-Eastern region of the country directly to Chennai, bypassing the large fault-prone terrestrial part of the international connectivity from Kolkata to Chennai. Trai had further argued that the optimum fibre network may also be used to provide connectivity to the South Asian Association for Regional Cooperation (Saarc) nations such as Nepal, Bhutan and Bangladesh. Further, connectivity could be extended beyond Chennai to Sri Lanka and the Maldives via submarine cable. Experts say that the project, if extended by another 1000km eastward, will open up a host of opportunities for India in the Asean region and help counterbalance China. With this, experts feel that countries such as Myanmar, Laos, Cambodia, Vietnam too will eventually connect their respective digital highways with the project.

In conclusion

With digital connectivity already up significantly in several pockets in the Andaman and Nicobar Islands due to the cable, the transformative impact of the project has begun showing results.

The islanders say that dealing with rising covid-19 cases, which poses an extinction threat to the indigenous tribes of the island, will be relatively easier now. In the absence of proper connectivity, locals claim that the infections have been on a steady rise as people are forced to venture out for daily chores risking themselves and others. Alongside, students who have returned to their homes from the mainland continue to sit out of online classes in the absence of internet connectivity. But that may not be for long. With digital connectivity set to improve, it is the service sector which harbours the highest level of anticipation and hopes regarding newer job opportunities and new possibilities.

“When I arrived (in the islands) in July 2013, I witnessed first-hand the great challenges faced by the people there. Communication was one of them,” said Lt General Singh. “To see the project get complete is very satisfying,” he added. In the long-run, it may also turn out to be an important milestone in India’s long-standing Look East policy, an effort to cultivate extensive economic and strategic relations with the nations of Southeast Asia in order to bolster its standing as a regional power.

Above all, the long-awaited project will create a sense of integration and confidence among the islanders, who are living in one of India’s remotest corners and who have until now been disadvantaged and deprived of their ‘right to internet access’–a fundamental right no less.

Nutrition is India’s next big headache

(Friends, I’ll show how to make notes from this article a bit later)

Nutrition is India’s next big headache

25 Aug 2020

 https://www.livemint.com/news/india/nutrition-is-india-s-next-big-headache-11598365269835.html

Amir Ullah Khan, Saleema Razvi

Covid could leave behind a silent food crisis that will put the demographic dividend at risk. What can be done?
Food insecurity must be closely monitored in the months ahead. Data sets generated by the national sample survey should include questions on people’s food and nutritional distress

Several months into the pandemic, the long-term effects of covid-19 are only just beginning to surface. In at least a small subset of patients, symptoms persist for months, resulting in fatigue and even permanent damage to the lungs, heart or the brain. The long shadow of the pandemic may thus stay with us for many years to come.
But it is in the realm of nutritional deficits—amplified substantially by the economic fallouts—where this shadow may be the most pronounced and have the most far-reaching effects. Hunger and malnourishment is tragic in any case, but in the long run, they also strike at the root of the demographic dividend that India has been banking on.

Even if the eventual covid death toll is low, the disease could still play havoc with India’s prospects if it triggers a rise in the share of the population that grows up without adequate nutrition, resulting in an inevitable spike in wasting and stunting. That eventuality would also damage the handsome gains that the country has made in the recent past fighting widespread malnutrition among children and women.

The roughly 12 million new entrants into the workforce every year and the 26 million new babies need quality education and, more importantly, adequate food and nutrition to be productive and independent. Neglecting these two requirements will turn the dividend into a disaster.

In the aftermath of the pandemic, Oxfam estimates that an additional 100 million Indians are vulnerable to food distress. Those particularly hard hit are women and women-headed households. Many of them will go hungry soon, if not already. The neo-poor, those who had earlier earned decent wages as taxi drivers and hotel workers, are now unable to buy wholesome food.

Surveys and estimates indicate that 30% of urban India has run out of all savings, which means that their food distress will only grow substantially in the months ahead. Rural India, covered by the PM-Kisan and MGNREGA, has fared relatively better. But with the relentless growth in infections, and the acceleration in the number of job losses, the food crisis striking the country is eerie and silent.

In the patriarchal family structure that India has, children (and the girl child in particular) and women will bear the brunt of this calamity. At least 21 million women underwent pregnancy under the shadow of covid. The ripple effects could emerge in various horrifying ways in the future and needs to be addressed right away. The country’s stimulus package promised large amounts of money as loans that will take time to reach the poor, but hunger is an immediate problem as former Reserve Bank of India governor Raghuram Rajan also pointed out recently.

The current reality

Why did malnutrition and malnourishment go up even as the economy started growing at a steady pace after 1991 and at a fast clip after 2004? If per capita incomes were growing all around, and consumption levels were increasing dramatically, why would the average Indian not spend on food and nutrition? The paradox is even more baffling in urban areas. High malnutrition rates are common even in urban India, with nearly 25% stunted.

India’s children consume large amounts of carbohydrates, very little protein and almost no fruits or vegetables. The uninformed nutrition debate remains a shouting match between animal versus plant-based food advocates, and what we end up with is a situation where less than 15% of children get eggs to eat and only the rich get to consume dairy products.

It is rare for parents to understand that a balanced diet for a child is at least as important as the quantity and quality of food consumed. The dietary quality of the India population is marked by a declining demand for fruits, vegetables and animal proteins, which are the main source of essential micronutrients in the diet. Disruptions in supply chains during covid also mean limited access to perishable foods particularly. This shortage in supply would automatically lead to households shifting to nutrient-poor diets.

Efforts made through public food distribution programs typically deliver non-perishable staples, oils, and pulses, which could only increase the inclination toward poor-quality diets. The International Food Policy Research Institute’s studies show that nutrient-rich non-staple foods are up to ten times more expensive than staple foods in most poor countries. With reduced incomes, households very quickly move to buying the cheapest calories to eat—the aim being to maintain quantity and not quality. As a result, anaemia, stunting, wasting and other nutritional deficiencies are bound to increase.

And in a country like India, which is already home to the world’s largest population of malnourished children, this effect is going to be even more pronounced. In the 2019 Global Hunger Index, India ranks 102 out of 117 qualifying countries. Even Bangladesh at 88 and Pakistan at 94 perform better than India.

How did India get left behind in this race? Why does India have the highest number of undernourished people in the world (almost 24% of the total)? A comparison among countries in the emerging world shows that China which was at the top at the turn of the century rapidly reduced the numbers of undernourished, while India’s numbers have simply plateaued (see Chart 1). One of the most worrying fallouts of 2020 may be the reversal of even this modest progress in maternal and child health.

The disruption of the cooked meal programme, in particular, could worsen the already existing under-nutrition in children. With schools closing, access to the mid-day meal scheme—a free nutritious meal for approximately 100 million children between the ages of 6-14 years—was also halted.

The Centre had earlier advised states to distribute dry rations to the beneficiaries of the Integrated Child Development Services (ICDS), but national and local lockdowns have led to the closure of many manufacturing units which make the raw materials for the mid-day meal scheme.

Roots of a slide back

Ever since the nutrition crisis was highlighted by the HUNGaMA report and termed a national shame in 2012 by the then Prime Minister Manmohan Singh, India has seen significant improvements in the indicators. Over the last fifteen years, after the District Level Health Survey in 2004 showed that 53% of children in India’s worst-affected 100 districts were underweight, there has been a steady decline in these numbers.

The mid-day meal scheme, the national health mission, MGNREGA, the rise of women’s self-help groups and a decisive movement by the government toward setting up the POSHAN Abhiyan have all resulted in tangible improvements. Nutrition had finally gotten its due, with rigorous efforts from the government to reduce child mortality and improve nutritional interventions.

The wins have been fairly substantial. In the north-eastern states, where two-thirds of infant deaths occur, persistent communication and outreach have resulted in a significant increase in early initiation of breastfeeding. The percentage of stunted children under 5 came down from 48% in 2005-06 to 38.4% in 2015-16 (see Chart 2).

However, at the same time, there has been a rise in the national share of children who display symptoms of wasting—from 19.8% to 21%. A high increase in the incidence of wasting was noted in Punjab, Goa, Maharashtra, Karnataka, and Sikkim. Wasting refers to a process by which a debilitating disease causes muscle and fat tissue to “waste” away. Apart from India, only three countries in the world have wasting above 20%—Djibouti, Sri Lanka, and South Sudan.

Ways forward

Give this mixed progress report and the threat of a pandemic-induced slide back, there are at least some steps that India can take to protect and preserve its demographic dividend.

Firstly, we need to monitor food insecurity closely in the months ahead. Large datasets generated by the national sample survey (NSS) should include detailed questions on people’s food and nutritional distress. We should also carefully record antenatal visits, anganwadi worker outreach and the impact on women’s health. In a situation where we cannot supply mid-day meals, the anganwadi centers should ramp up the provision of dry food ration, and maybe even double or triple the quantity. Cash transfers have been known to have a positive impact on nutritional outcomes and that is what India has not used effectively until now in its pandemic support policy for the poor.

Secondly, the Integrated Disease Surveillance Program (IDSP) is our central disease monitoring network. Curiously, the IDSP’s weekly updates have disappeared after the twelfth week of 2020. The IDSP must continue to publish weekly updates to help keep a check on future disease outbreaks.

Thirdly, on the agriculture front, our godowns are stocked and overflowing with 77 million tonnes of food grains. If not now, when are we going to use this reserve?

Fourthly, immunisation, public health screening, family planning and other such programmes should be resumed fully with physical distancing and other safety protocols in place. The prevention of wasting in children can also be easily integrated into the mandate of the existing health infrastructure, especially in cities.

Finally, given the importance being given to the new National Education Policy (NEP), it is important to underline the fact that it fails to acknowledge the importance of school education in the healthy development of a child. We have 159 million children below 6 years of age and they are so much more vulnerable today that they were last year, with the prospect of high nutritional and learning deficits. We often ignore the strong correlation between educational outcomes and the level of nourishment.

Undernourished children have learning difficulties, are inattentive in class and, in today’s context, have lower immunity levels making them vulnerable to infections. The ICDS should have been underlined in the NEP and financed sufficiently to provide balanced diets, supplements and physical exercise for India’s children.

The economics behind the impact of undernutrition and malnutrition on the demographic dividend needs to be reiterated. Substantial economic returns from investing in interventions to improve the nutritional status are proof that poor nutrition is bound to cause economic losses, especially in India which is a young country. Under-nourished children score poorly on tests of attention, fluency and memory, which is important to consider given the strong linkages between cognitive skills and earnings and income in adulthood. A malnourished workforce, which is unable to work with full efficiency, will keep India’s productivity low and will severely hurt our long-term economic competitiveness.

Amir Ullah Khan is professor of development economics at the MCRHRDI and Saleema Razvi is a senior research economist at the Copenhagen Consensus Center.

A policy window to set India up for a good economic recovery

A policy window to set India up for a good economic recovery

23 Apr 2020
Manish Sabharwal

https://www.livemint.com/opinion/online-views/a-policy-window-to-set-india-up-for-a-good-economic-recovery-11587655730058.html

(Friends, I’ll discuss how to take notes from this article a bit later.)

India’s formal jobs challenge has been a pre-existing condition since 1947 because of overdue but unavoidable reforms in labour, education, cities, finance, compliance and civil services. But the coronavirus opens what John Kingdon calls a policy window—the convergence of problem streams, reforms, and timing. Our problems are clear: not enough high-productivity enterprises and poorly skilled labour. The economic pain from the lockdown makes what was always important, urgent. Some overdue reforms are in progress, but a treatment 90% complete is still incomplete. Many reforms are structural, and they need time and resources for capacity building, organizational revamps and a reboot of human capital, but some are flick-of-the-pen law changes. Recognizing that the best time to ask intensive-care patients to quit smoking or lose weight is just after they leave the intensive care unit, I make the case for a 90-day monsoon of “flick-of-the-pen” reforms in jobs and education:

A single labour code: India’s capital is handicapped without labour, and labour is handicapped without capital for many reasons. But labour laws fuel our growth’s lower employment elasticity and blunt our ability to attract China factory refugees trying to escape its trade war, high wages and virus handling. Most painfully, our labour laws bully our young because job preservation is not a form of job creation, and bully our most vulnerable by breeding informal employment. The crisis shows that formal employers have higher resilience. We must immediately notify a rationalized, simplified and digitized single labour code.

Social security: India’s wages have three wedges, namely real versus nominal, government versus private, and gross versus net. All three matter, but the easiest to address is the 40%+ salary deduction that low-wage employees suffer. Our mandatory payroll deductions ignore savings rates and breed informality (where “haath waali” salary in hand equals the “chitthi waali” on paper). We must make the employee’s provident fund (PF) contribution voluntary and incentivize formal employment by restarting the Pradhan Mantri Rozgar Protsahan Yojana that successfully subsidized employer PF contributions for new low-wage employees.

Health insurance: India’s new order that makes health insurance mandatory is baffling; isn’t that employee’s state insurance (ESI)? Maybe it recognizes that ESI provides goofy service at a high cost. We must reduce ESI contributions for all employees and employers to ₹1 per month for 2 years. This can be easily funded by the over ₹60,000 in liquid deposits held by the ESI corporation that reflect two decades of its overcharging employers.

Online education: India’s current online university regulations create apartheid by only allowing seven of our 993 universities to launch online courses. During the virus lockdown, overseas universities have signed up over 100,000 students in India for online courses. This exposes the folly and unfairness of the University Grants Commission’s 2018 online regulations. We must immediately allow all accredited universities to launch online courses with full flexibility in design, delivery and assessment. If we don’t act quickly, our online university education will become like Wimbledon (it is played in England, but no Briton wins).

Apprenticeships: These, linked with degrees, are the future of education because of learning-by-doing and learning-while-earning. But India only has 0.01% of our labour force in apprenticeships (Germany has 2.7%) and only 30,000 employers offering such programmes (the UK has 200,000). Our licence raj over apprentices scares employers, bans universities from offering degree-linked apprenticeship programmes, and often tells employers to seek 28 separate state approvals. Tweaks to India’s Apprenticeship Act that grant national approvals and allow universities enrolment freedom would re-imagine Mahatma Gandhi’s 1937 Nai Taleem vision of experiential learning for the 21st century.

Compliance cholesterol reduction: Employers in India must bear with about 57,000 compliances (of which over 10,000 have jail provisions) and 3,100 filings (only 10% of which offer quick digital processing). An ease-of-doing business commission that rationalizes, simplifies, and digitizes all this could improve compliance, reduce corruption, and lower harassment of small businesses in 90 days. It should also pick one of the 25+ numbers issued by various government agencies as an Aadhaar-type universal enterprise number.

Tax refunds: The idea of employers or employees providing the government with working capital is questionable at all times, but is particularly painful when a lockdown forces customers out. Shareholders don’t pay salaries, customers do. And while this solvency crisis arises more from an asymmetric impact on revenues and cost, all liquidity helps. We must release all pending tax refunds up to fiscal 2019-20.

Questions raised about the lockdown’s trade-off between lives and livelihoods have been met with many lectures about economics being a moral science. Maybe it’s time to re-examine this science envy; physics accepts resource constraints, lives with laws, and expects consequences (every action has a reaction). The Indian economy’s virus challenges are amplified because it is inadequately industrialized, formalized, urbanized, financialized and skilled. We must address these issues, but a 90-day monsoon of flick-of-the-pen reforms would recognize that without employers there are no employees.

India’s turning point: An economic agenda to spur growth and jobs – The 2020 McKinsey Report

McKinsey Global Institute

India’s turning point: An economic agenda to spur growth and jobs

August 26, 2020 | Report

(Friends, I’ll discuss how to take notes from this report a bit later.)

https://www.mckinsey.com/featured-insights/india/indias-turning-point-an-economic-agenda-to-spur-growth-and-jobs

A clarion call is sounding for India to put growth on a sustainably faster track and meet the aspirations of its growing workforce.

By Shirish Sankhe, Anu Madgavkar, Gautam Kumra, Jonathan Woetzel, Sven Smit, and Kanmani Chockalingam

India is at a decisive point in its journey toward prosperity. The economic crisis sparked by COVID-19 could spur reforms that return the economy to a high-growth track and create gainful jobs for 90 million workers to 2030; letting go of this opportunity could risk a decade of economic stagnation. A new report from the McKinsey Global Institute identifies a reform agenda that could be implemented in the next 12 to 18 months. It aims to raise productivity and incomes for workers, small and midsize firms, and large businesses, keeping India in the ranks of the world’s outperforming emerging economies.

TABLE OF CONTENTS

India needs rapid GDP growth to create at least 90 million nonfarm jobs by 2030

Three ‘growth boosters’ can spur $2.5 trillion of economic value and 30 percent of nonfarm jobs

To capture frontier opportunities, India needs to triple its number of large firms

Six areas of targeted reform can raise productivity and competitiveness

Financial-sector reforms can help India meet its $2.4 trillion capital requirement

The central government, states, and business sector will need to act together

Section 1

India needs rapid GDP growth to create at least 90 million nonfarm jobs by 2030

A clarion call is sounding for India to put growth on a sustainably faster track and meet the aspirations of its growing workforce. Over the decade to 2030, India needs to create at least 90 million new nonfarm jobs to absorb the 60 million new workers who will enter the workforce based on current demographics, and an additional 30 million workers who could move from farm work to more productive nonfarm sectors. If an additional 55 million women enter the labor force, at least partially correcting historical underrepresentation, India’s job creation imperative would be even greater.

For gainful and productive employment growth of this magnitude , India’s GDP will need to grow by 8.0 to 8.5 percent annually over the next decade, or about double the 4.2 percent rate of growth in fiscal year 2020. Given the uncertainties about economic outcomes during the COVID-19 pandemic, our analysis looks at scenarios beginning in fiscal year 2023, although many of our proposed actions would start well before then, and in fact be implemented in the next 12 to 18 months.

Net employment would need to grow by 1.5 percent per year from 2023 to 2030, similar to the average rate that India achieved from 2000 to 2012, but much higher than the flat net employment experienced from 2013 to 2018. At the same time, India will need to maintain productivity growth at 6.5 to 7.0 percent per year, the same as it achieved from 2013 to 2018. The two objectives are not contradictory; indeed, employment cannot grow sustainably without high productivity growth, and vice versa.

If India fails to introduce measures to address pre-pandemic trends of flat employment and slowing economic growth, and does not manage the shock of the crisis adequately, its economy could expand by just 5.5 to 6.0 percent from 2023 to 2030, with a decadal growth of just 5 percent and absorb only about six million new workers, marking a decade of lost opportunity .

India has a successful track record to draw on: over the past three decades, the country has been one of just 18 outperforming emerging economies to achieve robust and consistent high growth. Pro-growth reforms lifted productivity and helped the country weather shocks and cycles. Real GDP growth has averaged 6.8 percent annually since 1992, and it has been inclusive; economic prosperity has brought significant improvement in living standards. Since 2005, more than 270 million people have escaped extreme poverty.

Yet India’s economy was already showing signs of weakness before the COVID-19 crisis; in the aftermath of the global financial crisis, its main demand engines of domestic private investment and global demand have stalled. Bank credit to industry slowed, and the proportion of nonperforming assets to total assets tripled to more than 9 percent in the period from fiscal year 2012 to 2019. Exports declined as a share of India’s GDP from 25 to 19 percent between 2013 and 2019. Gross domestic savings and household savings slowed, while labor-force participation fell from 58 to 49 percent between 2005 and 2018. Core sectors, including manufacturing and construction, showed signs of stress.

In order to recover to a high-growth path, India’s sectoral mix would need to move toward higher-productivity sectors that also have the potential to create more jobs. And, within individual sectors, a move toward new business models that harness global trends could drive productivity and demand.

We find that the manufacturing and construction sectors could achieve the largest acceleration in sector GDP growth relative to the past. In the coming decade, manufacturing productivity has the potential to rise by about 7.5 percent per year, contributing more than one-fifth of the incremental GDP in our estimates. Construction could add as many as one in four of the incremental gross jobs. In addition, both labor-intensive and knowledge-intensive sectors will have to sustain and improve on their past strong momentum. We estimate that about 30 million farm jobs could move to other sectors by 2030 as part of a high-growth strategy.

Section 2

Three ‘growth boosters’ can spur $2.5 trillion of economic value and 30 percent of nonfarm jobs

India needs to leapfrog ahead to achieve the employment and productivity growth needed. Fortunately, it has many opportunities to do so. Global trends such as digitization and automation, shifting supply chains, urbanization, rising incomes and demographic shifts, and a greater focus on sustainability, health, and safety are accelerating or assuming a new significance in the wake of the pandemic. For India, these trends could manifest as three growth boosters that become the hallmarks of the post-pandemic economy. Within these three growth boosters, we find 43 potential business opportunities that could create about $2.5 trillion of economic value in 2030 and support 112 million jobs, or about 30 percent of the nonfarm workforce in 2030.

This theme offers as much as $1 trillion in economic value. To achieve this, India will need to work now to grasp opportunities presented by forces such as rising wages in other parts of Asia, trade conflicts, and efforts to make supply chains more resilient. Rising flows and volumes of data suggest demand for a range of offshored and nearshored services. Greater affluence and leisure time and a focus on health and safety will also open up opportunities to produce and sell more manufactured goods and services.

India would need to raise its competitiveness in high-potential sectors like electronics and capital goods, chemicals, textiles and apparel, auto and auto components, and pharmaceuticals and medical devices, which contributed to about 56 percent of global trade in 2018. India’s share of exports in these sectors is 1.5 percent of the global total, while its share of imports is 2.3 percent. It could also build on its traditional strength in IT-enabled services to reflect digital and emerging technologies like artificial intelligence (AI) and machine learning–based analytics. The country also has an opportunity to develop high-value agricultural ecosystems, healthcare services for India and the world, and high-value tourism.

Growth booster 2: Efficiency engines for India’s competitiveness

The business models in this grouping can eliminate inefficiency in areas that underpin a competitive economy: power, logistics, financial services, automation, and government services. In each case, opportunities for value-creating market-based models could emerge, generating about $865 billion in economic value by 2030. Examples include next-generation financial services, such as innovation in digital payment offerings, new flow-based lending products, asset resolution and recovery models that could make insolvency processes more streamlined and effective, and a larger range of risk capital investment vehicles such as alternative investment funds. Automation of work and Industry 4.0 could bring greater efficiency; for example, about 60 percent of manufacturing-sector output could leverage predictive maintenance, smart safety management, and product design. These in turn can lift productivity in plants and factories by 7 to 11 percent. Many workers in these roles will require retraining and redeployment, and some may be displaced. Other opportunities exist in efficient mining and mineral sufficiency; high–efficiency power distribution, which could reduce power tariffs to commercial and industrial customers by 20 to 25 percent; and a push to greater e-governance.

Growth booster 3: New ways of living and working

Indian businesses can create economic value of about $635 billion by 2030 if they can tap into the shifting preferences of Indians aspiring to a higher standard of living. Safer, higher-quality urban environments, cleaner air and water, more convenience-based services, and more independent work in the new ideas-based economy are all opportunities to create millions of productive jobs in service sectors. Among other examples, India has the opportunity to introduce a robust planning approach for its top cities, which have low capital investment per capita and are less productive than they should be. In retail, if India could increase the share of e-commerce and modern trade to 20 percent and establish digitally enabled supply chains, this could generate $125 billion in economic value by 2030 and lift the productivity of 5.1 million storekeepers and e-commerce workers. Climate change mitigation and adaptation also are creating opportunities, such as more energy-efficient buildings and factories. India could more than triple its renewable energy capacity, from 87 gigawatts to 375 gigawatts, and increase the share of wind and solar energy in power generation from about 7 percent to best-in-class 30 percent. Finally, digital communication services provide opportunities in universally available, affordable, high-speed internet connectivity and fast-growing digital media and entertainment ecosystems.

Section 3

To capture frontier opportunities, India needs to triple its number of large firms

Large companies with revenues exceeding $500 million have been significant drivers of growth and innovation in India and other outperforming emerging economies. India has about 600 such firms. They are 2.3 times more productive than midsize firms, account for almost 40 percent of total exports, and employ 20 percent of the direct formal workforce.

Compared with corporate peers in some other emerging economies, however, India has fewer large firms relative to GDP. Large Indian firms contributed revenues equivalent to 48 percent of nominal GDP in 2018. That is 1.5 to 1.6 times less than China, Malaysia, and Thailand—and 3.5 times less than South Korea.

India’s large firms have also not achieved their productivity or profitability potential. Overall productivity levels are on average one-tenth to one-quarter those of peers in other “outperformer” economies. And their profitability, measured as return on assets, has declined since 2012, from 1.9 to 1.2 percent. Profits are also concentrated: just 20 of the country’s large firms contribute 80 percent of the total profit.

One factor underlying these trends is that India has a “missing middle” of midsize firms that typically grow into formidable competitors of larger rivals. For example, peer-emerging economies have almost twice as many midsize firms per trillion dollars of GDP.

The upward mobility of small and midsize firms matters because it influences the degree of competitive pressure to which large firms are subjected. The higher such pressure, or contestability, the greater the likelihood that only the most efficient and high-performing firms will survive at the top. In some other emerging economies, it is harder for big firms to stay at the top. In China, for example, 66 percent of companies in the top quintile of firms by economic profit have been replaced over the past two decades. In India, by contrast, only 57 percent of top companies were replaced. In some sectors in India, including automotive and chemicals, the figure is even lower.

In order to achieve higher, system-wide productivity, India would need to raise the level of contestability and enable 1,000 or more midsize and small firms to scale up to large firms, and 10,000 or more small firms to scale up to midsize. That in turn will require capital: we estimate that these firms will need about six times the amount of capital currently used, of which about half needs to be risk capital.

Section 4

Six areas of targeted reform can raise productivity and competitiveness

To seize the frontier business opportunities—and help increase the productivity and competitiveness of India’s firms—we outline reform options on six key themes:

Introduce sector-specific policies to raise productivity in manufacturing, real estate, agriculture and food processing, retail, and healthcare

We estimate these sectors could contribute $6.3 trillion of GDP in 2030, compared to $2.7 trillion in 2020. Of this total, the manufacturing sector has the potential to generate $1.25 trillion of GDP in 2030, more than double the $500 billion it accounted for in 2020. Putting in place a holistic policy framework with three components would be a key step forward. First is a stable and declining tariff regime, with inverted duty structures removed. Second, building well-functioning port-proximate manufacturing clusters, with free-trade warehousing zones, faster approval processes, and more flexible labor laws. Third, providing incentives, which are targeted, time bound, and conditional, and reduce the cost disadvantage India faces in comparison with other outperforming emerging economies.

The construction sector has the potential to more than double its GDP to $550 billion, from $250 billion in 2020. In the real estate sector, homeownership could be encouraged by rationalizing stamp duties and registration fees to reduce costs to buyers, and offering greater tax incentives. Regulatory amendments in tenancy and rent-control policies could bring additional investment into rental stock construction. Large-scale affordable-housing contracts could enable modern construction methods that can increase productivity and reduce costs.

India also has the potential to generate up to $95 billion in high-value agricultural exports, with growth driven predominantly by livestock and fisheries, pulses, spices, fruits and vegetables, horticulture, and dairy, among others. Possible reforms include changing the Agricultural Produce Marketing Committee Act to ensure barrier-free interstate trade and amending the Essential Commodities Act to deregulate the supply and distribution of agricultural commodities. The government announced these reforms as part of its COVID-19 package, but they will require the support of specific policies implemented at the state level.

In retail, if traditional models are to give way to a larger share of e-commerce and modern trade, India will need a level playing field across trade formats, which would imply minimal regulatory intervention and a foreign direct investment policy that is agnostic to business models and products.

In healthcare, India’s potential to increase access to quality healthcare and attract medical tourism will require ramped-up spending and investment from the public sector. India currently spends about 3.5 percent of GDP on healthcare, but we estimate that it could nearly double spending to 6.4 percent of GDP in line with benchmarks. India could also increase healthcare productivity by enabling new business models, including telemedicine.

Unlock land supply to reduce the cost of residential and industrial land use

Buying a home is financially out of reach for many Indians, and the high cost of land is a key reason. For companies, high-cost land puts a brake on expanding productive capacity. We estimate that, by enacting several key reforms, India has the potential to reduce land costs by 20 to 25 percent and increase the supply of land available for construction. Steps toward achieving this could include mapping out 20 to 25 percent of public and state-owned enterprises’ land that is suitable for construction and currently underused, and leasing out portions at affordable prices to private developers.

Create flexible labor markets with stronger social safety nets and more portable benefits

A more vibrant economy will require more flexible labor markets. India continues to place labor restrictions on manufacturing companies, which encourages small firms to remain small. The government could consider reviewing the various laws on the books and examine options to improve labor-market flexibility. Barriers to flexibility could be removed by providing more freedom to manufacturing companies to shape the size, composition, and skills of the workforce, in line with evolving needs.

Reduce commercial and industrial (C&I) power tariffs through new business models in power distribution

Various reform measures could help reduce C&I power tariffs by 20 to 25 percent. These include a shift to franchising models or privatization of power distribution companies in the top 100 cities; the introduction of cost-reflective tariffs for C&I customers and direct-benefit transfers for subsidies; and a focus on smart-meter penetration. While the government announced some of these reforms as part of its COVID-19 package, they may require the support of specific policies implemented at the state level.

Monetize government-owned assets and increase efficiency through privatization of more than 30 state-owned enterprises (SOEs)

Large-scale privatization could more than double productivity and potentially contribute between 0.2 and 0.4 percentage points annually on average to GDP. Privatization would need to be accompanied by an appropriate institutional framework and effective competition. In all, India has about 1,900 state-owned enterprises, of which we estimate about 400 could be privatized. Potential proceeds could be $540 billion between 2020 and 2030 (Exhibit 5). We estimate that just 2 percent of all SOEs could yield as much as 80 percent of all potential proceeds.

Improve the ease and reduce the cost of doing business

India has made significant progress in the World Bank rankings for ease of doing business; the country rose from 130th overall in 2016 to 63rd in 2020. However, Indian companies still face obstacles ranging from delayed payments for public procurement to tedious and slow processes for obtaining permits. Construction permits, for example, take 106 days, almost double the time in peer emerging markets. These and other issues could be resolved if the government adopted global best practices in relevant areas. For example, to simplify and expedite tax payments, a one-stop shop for a range of taxes could be set up. An “e-governance for business” mission at the state-government level could improve the ease of doing business at the local level.

Section 5

Financial-sector reforms can help India meet its $2.4 trillion capital requirement

We estimate the total capital requirement for this reform agenda at about $2.4 trillion in 2030, compared with about $865 billion in fiscal year 2020. Small and midsize companies will need access to more than $800 billion in capital in 2030. India will also need to finance government expenditure, budgeted in the range of 26 to 29 percent of GDP each year. A triple focus will enable investment to return to about 37 percent of GDP, the level India has achieved in high-growth periods in the past, from 33 percent in fiscal year 2020:

Channel more household savings to capital markets

India can meet the bulk of its investment requirement through domestic sources of capital if it succeeds in raising the household savings rate to 19 percent of GDP from the current 17 percent and, within household savings, to raise the flows to financial rather than physical assets to 11 percent of GDP in 2030, from 7 percent in 2018. That amounts to annual average growth of 12 percent in the pool of capital available for financial intermediation (rather than invested in land or gold). Net foreign capital inflows would also need to rise to about 3 percent of GDP from 1.8 percent. Of this, net foreign direct investment would need to increase to $120 billion (1.8 percent of GDP) from about $30 billion (1.1 percent), in line with peers in Asia. Beyond the sums required, India would need to ensure that a higher share of household financial savings flows to productive firms through a deeper capital market. The overall depth of financial markets in India is about 140 percent of GDP versus an average of about 240 percent among peers.

Reduce credit intermediation costs

The average commercial borrower in India has seen continued high real interest rates, which are more than five percentage points higher than in other outperforming emerging economies. India can reduce its cost of financing by taking steps to reduce the cost of credit intermediation in the banking system. Streamlining public finances, as described in the section below, would help end the “crowding out” of funding by government and also allow market-linked interest rates on government small savings schemes. Other measures include setting up a “special assets bank,” backed by private-sector funding, to help tackle resolution of NPAs. Among several international precedents for such action is Sweden’s establishment of a “bad bank” in the early 1990s.

Streamline public finances to allocate capital more efficiently

We estimate that India has the potential to save about 3.6 percent of GDP on an annual basis, on average over fiscal years 2021–30. These savings could come from a range of measures, including more efficient subsidy and social spending; proceeds from privatization of state-owned enterprises; monetizing assets including roads, railways, ports, airports, power infrastructure, and telecom towers; greater tax buoyancy, particularly driven by faster growth; power-sector reforms; and market-linking small-savings rates.

Section 6

The central government, states, and business sector will need to act together

About half of the reforms identified in this report can be enacted through a policy or law. Other reforms will require the government to implement initiatives and projects. While the central government’s pro-growth vision and agenda are essential, state governments have a critical role to play. They will need to implement roughly 60 percent of the reforms. Business leaders also have a major responsibility for realizing the high-growth agenda.

The starting point will be a clear and sharp vision, arrived at by the central government in alignment with the business community. For a reform agenda to endure across multiple years, an institutional body could steward the process under the chairmanship of the prime minister, with the right level of empowerment, including for resource allocation, and technical- and domain-specific expertise.

State governments will need to set their visions and blueprints to address key pro-growth priorities. The choices would vary by state depending on local endowments, such as agricultural resources, educated professionals, and port-proximate land. It would also depend on the distance of the state from the productivity frontier and the urgency of bridging the gap, for example, in areas like power-sector distribution losses, logistics cost, and the quality of urban infrastructure. States could then create powerful demonstration effects by taking a few of these ideas and making them work, at scale, in select areas.

Finally, India’s business leaders would need to raise aspirations and commit to productivity growth through a set of frontier business ideas. Businesses need to develop a long-term value creation mindset coupled with a strong performance-oriented culture; both of these create stakeholder value in the long term. A set of winning capabilities are essential if firms are to emerge as large, high-growth, globally competitive businesses. These include customer-centric innovation that focuses on developing expertise in next-generation ideas and greater localization in India; operational excellence and scalable platforms that can cut unnecessary costs; an embrace of automation and emerging AI technologies; the ability to win in discontinuities, including by disregarding established business practices and models to solve problems, and fostering creativity and nimbleness; using well-executed mergers, acquisitions, and partnerships to help scale up; and the ability to build a strong trust-based brand to attract capital, customers, and employees.

The COVID-19 pandemic is just the latest in a line of events that have focused public attention on how companies behave. Exemplary performance—including through well-executed mergers, acquisitions, and partnerships; clear reporting; strong accountability; transparency; a focus on ethical values; brands built based on trust, and purpose—will become even more important in the decade ahead.

ABOUT THE AUTHOR(S)

Shirish Sankhe is a senior partner in McKinsey’s Mumbai office, where Kanmani Chockalingam is a consultant; Anu Madgavkar is a partner in the McKinsey Global Institute, where Jonathan Woetzel, a senior partner in the Shanghai office, is a director and Sven Smit, a senior partner in the Amsterdam office, is a director and cochair; and Gautam Kumra is a senior partner in the Delhi office and the managing director of McKinsey India.

This report was edited by Peter Gumbel, editorial director of the McKinsey Global Institute.