Revitalizing India's Economic Growth
Ajay Shriram (Confederation of Indian Industry) discusses how India’s newly elected government can help revitalize the country’s economy. He argues that the key to boosting India’s economic growth is to implement policies that create more jobs for India’s growing youth population.
On May 16, India announced the results of the world’s largest democratic exercise, with more than 550 million people voting in what was an overwhelming victory for the Bharatiya Janata Party (BJP). The elections have been largely viewed as a mandate on addressing issues such as India’s faltering economy, rising inflation, corruption, and overall policy paralysis at the center. As Prime Minister Narendra Modi takes the helm this week, he faces a multitude of challenges that need to be addressed to revitalize the country’s lagging economic growth, including banking reforms, inadequate infrastructure, and energy constraints.
To better understand the key economic policy questions facing India’s new government, NBR interviewed Ajay Shriram, President of the Confederation of Indian Industry (CII) and Chairman and Senior Managing Director of DCM Shriram Limited. He discusses the country’s economic outlook, industry’s priorities in engaging with the new Modi government, and opportunities to strengthen U.S.-India ties.
India’s GDP growth rate has dropped over the past few years, affecting the country’s ability to generate employment for the over 13 million people entering the workforce every year. What might it take for India’s economy to get back on track?
From an all-time high of 9.6% economic growth in 2006–7, India has slid to 4.5% in 2012–13. Several factors have been responsible for this slide, including the global economic downturn triggered by the 2008 recession, a high current account deficit, high inflation, and structural bottlenecks.
However, the fundamentals of the Indian economy remain as strong as ever. According to a recent World Bank study, India has now displaced Japan as the world’s third-largest economy. Studies also indicate that India will be the world’s largest consumer market by 2030. Savings and investment rates are still over 30% of GDP, and foreign exchange reserves are in good shape.
To get back on track, our reform agenda needs to be reinvigorated, pursued, and followed through on. Through bold leadership, strong policy decisions, and effective implementation, we believe that India can return to its high growth trajectory.
What do you see as the primary challenges and opportunities for the new government in its first 6–12 months that will affect economic growth?
The new Indian government will have to recognize the impatience among today’s youth to achieve a better, brighter future. Our young people are experiencing the fruits of globalization first hand. The fact that India now has 100 million Facebook accounts—more than that in the United States—is symbolic of this deep-seated change where young people are increasingly connected and yearning for good jobs, a decent livelihood, and a prosperous future. Thus, for the new government, creating well-paying jobs for India’s youth will be the number-one priority, which will, in turn, require bold action to initiate, institute, and implement reforms.
At the same time, India’s youth population is also a great source of innovation and dynamism in our economy. The trend towards entrepreneurship is a great example of this movement. Fostering a policy and economic ecosystem conducive to business start-ups could help create thousands of jobs in India. Much-needed education and skill development programs, if implemented well, can be the strongest fuel for India’s economic engine.
What is on industry’s wish list for engagement with the new government?
A strong economic revival package and effective implementation of policies by the new government could help create as many as 150 million jobs in the next ten years. CII’s short term agenda for the new government includes measures such as the following:
- Introduction of a goods and services tax
- Containment of subsidies and fiscal consolidation
- Monetary easing through a reduction in the repo rate by 100 basis points
- Maintenance of a competitive exchange rate
- Fast-tracking stalled projects and increasing public capital investments
- Timely implementation of the Delhi-Mumbai Industrial Corridor and national investment and manufacturing zones
- Establishment of mechanisms to review and monitor projects at the state level
- Formation of an inter-ministerial group to resolve issues in mining and raw material securitization
- Creation of an institutional mechanism to renegotiate the terms of concession in public-private partnership (PPP) contracts to salvage stranded investments
- Expansion of e-governance and technology-based initiatives
- The use of time-bound approvals in cases of delays beyond the prescribed limit
- Restructuring of labor laws to introduce fixed-term employment for short-term assignments
At CII, we believe that industry should take the lead in identifying problems and devising strategies for solutions. While certain policy and regulatory measures need to come from the government, CII has pledged to do its part in jump-starting key sectors of the economy. Some of the priority areas in which we are moving full steam ahead include agriculture, education, manufacturing, services, skill development, higher education, labor laws, and entrepreneurship. Our essential focus is to target avenues where Indian industry’s interventions can support government initiatives and policies.
Washington has recently taken a number of steps that seem to indicate an interest in fostering dialogue with the incoming Indian government. Notably, the U.S. Trade Representative (USTR) announced in its Special 301 Report examining intellectual property (IP) protections that India remains on its priority watch list, rather than being downgraded, and that the USTR will conduct an out-of-cycle review in the fall to assess progress on IP concerns under the new government. What are some of the ways in which the United States might work with the Modi government on these issues? Are there opportunities for Indian stakeholders, particularly industry, to participate in the process?
CII is relieved that despite calls for a downgrade from certain organizations, the USTR did not designate India as a “priority foreign country.” We commend this move as a sign of better understanding between the two countries and have strongly recommended that all outstanding issues, including differences on intellectual property rights (IPR), be resolved through dialogue and engagement. The United States and India must preserve the spirit of the bilateral strategic partnership that has been painstakingly forged over the years by both countries.
India has taken many steps to strengthen its innovation-enabling environment in keeping with its national priorities, including declaring 2010-20 as the “Decade of Innovation.” India’s patent laws are fully compatible with the WTO’s requirements and we maintain that India has merely made use of the flexibilities accorded by the Doha Declaration. We recognize that it is in our interest to have an innovation-enabling environment as Indian industry’s innovation capabilities are also increasing.
CII has for many years made the promotion of IPR a key area of intervention for industry. We believe the only way to sensitize the market is through awareness and capacity-building programs. To support this endeavor, CII has collaborated with the U.S. Patent and Trademark Office and conducted over 40 workshops for industry in India that enable sharing of global best practices. These efforts have focused on IPR protection as well as enforcement. Supporting efforts of the government in promoting a culture of IPR recognition and respect, CII also worked with the Ministry of Micro, Small and Medium Enterprises in a flagship initiative. The initiative established Intellectual Property Facilitation Centers in three cities in India—Indore, Gandhinagar, and Mysore—with the objective of guiding small companies to understand, identify, and manage IPR for competitive advantage. The idea is to boost IPR culture in India through systematic awareness and training. Much more needs to be done to integrate this culture into corporate strategy and operations.
With the new political dispensation, we hope to see stronger collaboration between India and the United States on a range of issues, including on IPR. There is a real window of opportunity for companies on both sides to come together and engage proactively on this issue: a new set of leaders taking center stage, a new sentiment among industry with the stock exchange touching record-breaking highs, new expectations of economic revival and international engagement, a new upcoming reform agenda, and a new budget are only a few of the things to look forward to.
It is thus very opportune that the United States is the partner country for the next edition of the India-U.S. Technology Summit that CII is organizing during November 18–19, 2014, in New Delhi, in collaboration with India’s Department of Science and Technology. The summit will provide an opportunity for collaborative dialogue and concrete engagement between government and industry.
In addition to parliamentary elections, India also recently held elections in a number of key states. How might there be fresh opportunity to engage at the state and local levels to foster economic growth and development?
Today, the real action in India is at the state level. Many Indian states have been growing at a rapid pace, with states like Tamil Nadu, Maharashtra, Madhya Pradesh, and Gujarat leading the way. At the same time, states with low levels of development such as Orissa, Jharkhand, and Bihar have also been registering high levels of growth, which is a heartening development. At the end of the day, sound policies and good governance drive growth.
States that have created a reasonable and predictable business climate are seeing an inflow of investment from both domestic and foreign firms. There is also increasing competition among states for investment, which is another positive development. For instance, progressive states are now hosting their own international investment summits: Kerala held its inaugural summit “Emerging Kerala” in 2012, and Madhya Pradesh organizes a biennial “Global Investors Summit” in Indore. CII partnered with a number of states in northern India that joined hands in promoting the “Invest North” conclave to showcase their advantages and opportunities.
Companies in India recognize these opportunities and have been engaging with state governments on a systematic basis. CII today has 64 offices across India, and we work with the state as well as central governments at every level to promote policies that can enable industry to invest and create jobs. Most states in India already recognize that growth is impossible without the active participation of industry; sustaining this dialogue and engagement is thus very critical for CII.
Do you have anything else to add?
Even while it may seem clichéd, the U.S.-India partnership is indeed a defining, indispensable, and important partnership for the 21st century. We are optimistic about rebuilding the recently strained relationship and refocusing on prospects for future collaboration. Greater engagement in technology, energy, and education holds tremendous promise for business and industry. For instance, technology transfer agreements and coproduction agreements in defense could spell the next frontier of cooperation at the corporate level or in public-private partnerships. With India focused on modernizing its defense infrastructure, this is by no means a small opportunity. In energy, U.S. exports of shale gas could help India fulfill its energy requirements, where energy security and access remain critical issues. Industry involvement in curriculum development and building educational partnerships can be potent in strengthening the global talent pool and bridging the gap between education and employability.
It is also important to note that Indian industry is increasing its investments and creating thousands of jobs in the United States. They are setting up manufacturing facilities in the United States, as Welspun Tubular has done in Little Rock, Arkansas; investing in R&D, as Dr. Reddy’s Laboratories do in Shreveport, Louisiana; and providing IT training programs for veterans and people with disabilities, as Wipro does in Atlanta, Georgia—thereby adding value to the U.S. economy in myriad ways. The economic relationship is thus increasingly becoming a mutually beneficial, two-way street.
Ajay S. Shriram is President of the Confederation of Indian Industry (CII) and Chairman and Senior Managing Director of DCM Shriram Limited.
This interview was conducted by Sonia Luthra, Assistant Director for Outreach at NBR, and Clara Gillispie, Assistant Director of Trade, Economic, and Energy Affairs at NBR.