After Course Corrections, the Journey of Economic Prosperity Continues
Rajabahadur V Arcot on the economic and industrial transformations that are expected to spur the country’s economy further and contribute to accelerating growth.
Rajabahadur V Arcot
Make in India
The World Economic League Table (WELT) 2018, released by the Centre for Economics and Business Research (CEBR), says that India, by 2018, will overtake Britain and France to become 5th largest economy in the world in dollar terms and this will happen despite temporary setbacks due to demonetisation and the introduction of the new Goods & Service Tax (GST). The country’s growth dynamics are bringing about changes in the economic and industrial profiles of the country, which in turn will further enhance India’s development potential; and India is well on its way to make this projection come true. A look at the transformations taking place in the country gives a clear indication that in this journey in pursuit of economic prosperity, manufacturing sector will play a key role.
State initiatives continue to play an important role in India’s development. Some of these initiatives are major course-corrections and hence their near-term impact may be negative. For example, while recent initiatives, such as demonetarisation to free the economy of the influence of unaccounted money through demonetisation of high value currency notes and the introduction of more transparent and efficient GST are long-term positive for the Indian economy, their near-term impacts have been negative and that led to growth slowdown in recent quarters. This has been recognised by many including the World Bank. Its report – Global Economic Prospects – that was released after demonetisation, foresees GDP growth to scale back after initial growth slowdown. On similar lines, World Bank President Jim Yong Kim had said that GST will have a positive impact on the Indian economy.
There are other economic and industrial transformations that are taking place and they are expected to spur the country’s economy further and contribute to accelerating growth and making the growth more holistic and sustainable. Until now, the service and informal sectors and domestic private consumption largely contributed to the country’s economic growth. The manufacturing sector’s contribution was mainly related to meeting the essential needs of a developing country, such as electric power, steel, and cement. While subsequently it began to encompass industries, such as generic pharmaceuticals, petroleum refining, and automotive, the country continues to depend on large-scale imports to meet the ever-expanding needs for consumer durables, electronic goods, defence equipment, and such others. With imports exceeding exports, the country, already, finds it challenging in balancing its trade account and the deficit is unsustainable in the long run. This situation dictates the growth of a manufacturing industry that caters to the needs and wants of developing country and its evolving consumers.
The manufacturing industry presently contributes to only 15 per cent of India’s GDP. Driven by the fact that the growth of the service industry and private consumption beyond a point can be sustained only when they are backed up by the growth of the manufacturing industry that is broad-based to meet the aspirational wants of consumers, India is making efforts to increase the role of manufacturing both for achieving sustainable economic growth and job creation. Serious initiatives are underway, on one hand, to spur the industrial growth rate to exceed the country’s GDP growth rate and, on the other, make the industry adopt smart technologies, such as data analytics, artificial intelligence, robotics, and Internet of Things so that the country becomes ready to reap the benefits of Industry 4.0 era. In order to achieve this objective, recently India has initiated measures to get its industry ready for the new age of manufacturing. Thus it joins other countries that have launched similar efforts, such as the Smart Manufacturing Leadership Coalition of the US, Made in China 2025 initiative by China, Industrial Value Chain Initiative of Japan and Industry 4.0 by Germany.
Yet another feature of the Indian economy is that its growth until now has been domestically funded. With limited access to capital, the country had to prioritise its investment. As a consequence, enough funding was not available for the development of infrastructure, such as the construction of roads, highways, ports, cities and others. Wealth generation that the country has witnessed in the last couple of decades has contributed to increased domestic savings, tax collections, and growth of banking and other financial sectors. This is helping the country to channelise domestic funds for building the country’s infrastructure that include building smart cities, railway networks, highways, waterways, airports, industrial corridors, and such others.
For example, the government has approved plans to develop approximately 84,000 km of roads by 2022, the biggest highway construction plan so far in the country. Other projects that the country has embarked upon are the Smart Cities Mission and Sagarmala. Smart Cities Mission is an urban renewal and retrofitting program by the Government of India with a mission to develop 100 cities and make them citizen-friendly and sustainable with the help of technology. Sagarmala is a series of projects to leverage the country’s coastline and inland waterways to drive industrial development and encompasses modernisation and enhancement of port infrastructure, improve port connectivity, create 14 coastal economic zones, and develop skills of fishermen and other coastal and island communities. India needs over $1.5 trillion in investments in the next 10 years to bridge infrastructure gap, said India’s Finance Minister Arun Jaitley recently.
India, apart from working on these catch-up strategies as a latecomer to industrial development, is also focusing on making the country future-ready. The Digital India program is a flagship program of the State with a vision to transform the country into a digitally empowered society and knowledge economy. The success of this initiative will increase India’s reliance on information technology and this will spur the growth of discrete manufacturing industries, such as semiconductors and electronic systems, smart phones and other communication equipment and gadgets, smart sensors and actuators, and similar others. Perforce, defence is yet another industry which is expected to witness robust growth. Strategic compulsions dictate that India builds a more vibrant domestic information-technology hardware and defence industrial base.
There are clear indications that these hi-tech industries are growing. Apple has announced its plans to make its iPhones in India, one of the fastest growing markets for smart phones. According to available reports, the company is taking the ‘Make in India’ route. According to the Lockheed Martin’s recent news release, the company has signed an agreement with India’s Tata Advanced Systems to produce F-16 fighter jets in India. The news release goes on to say that “this unmatched US-Indian industry partnership directly supports India's initiative to develop private aerospace and defence manufacturing capacity in India.” The company is eyeing orders worth billions of dollars from the Indian Air Force. Few months ago Dassault Aviation laid the foundation stone for the Dassault Reliance Aerospace Limited’s manufacturing facility in India. Dassault Aviation is investing over 100 million euros in this a joint venture project to manufacture aircraft components as part of the ‘offset obligation’ connected to the purchase of 36 Rafale fighter jets from France.
With all these exciting developments taking place in India, the country is on course to remain an engine of economic growth. The journey in pursuit of economic prosperity continues.
Pix1: World Bank President Jim Yong Kim had said that GST will have a positive impact on the Indian economy.
Pix2: India has initiated measures to get its industry ready for the new age of manufacturing. Image credit: Ford Motors India
Pix3: Many global companies are now taking the ‘Make in India’ route.
Rajabahadur V Arcot
Rajabahadur V. Arcot is an Independent Industry Analyst /Columnist and Business Consultant with around 40 years of senior managerial experience. He has held C-level executive positions in leading companies, such as Honeywell, Thermax, Bells Controls an affiliate of Foxboro/Invensys, Electronics Corporation of India Limited and Instrumentation Limited. Until recently, he was responsible for ARC Advisory Group’s business operations in India. He writes industry and technology trend articles, market research reports, case studies, white papers, and automation and manufacturing IT insights. Email: email@example.com