Road to India@100: Moving towards global leadership

India has been viewed as an exception and a bright spot in this global downturn. The latest projections by the IMF show that India will remain the fastest-growing major economy in 2022 and 2023. I believe India may be able to escape this global economic downturn.

Services and digital growth: India’s growth model can withstand a global downturn, as we are more dependent on domestic consumption. Moreover our economic growth is largely driven by the services sector and services tend to shrink less compared to manufacturing during global economic downturns, although given the export-oriented nature of IT Services, this will face some headwinds. Further, India has already taken a huge digital leap, and it is expanding digital opportunities in education, energy, health, financial services and logistics, which has the potential to deliver economic value greater than $500 billion by 2025 as per a Ficci-McKinsey report. It is unlikely that a global downturn will slow down the pace of the digital leap for India.

Global exports of digitally delivered services have more than tripled during the last two decades, far greater than the trade in goods, and India stands out as a winner. Global trade in services is expected to remain strong in the future, and India will continue to benefit from the explosive growth in this trade, with its share valued at $0.8 trillion to $1.2 trillion.

This digital economy will fuel massive digital consumption. India has over 650 million internet users and the world’s lowest data prices. It is one of the largest and fastest-growing markets for digital consumers and is likely to add over 200 million online shoppers and develop a $5-billion online gaming and entertainment market in the next four to five years. The digital economy will aid in fulfilling local demand more efficiently and enable the multiplier effect of domestic consumption.

Availing the demographic dividend: India has one of the youngest populations in an ageing world. The median age in India is below 30, compared to 40 in China and the US, 45 in Western Europe, and 50 in Japan. Demographics can change the pace and pattern of economic growth. India’s demographic profile is well positioned to withstand adverse macroeconomic shocks, aided by the ability to borrow from residents, and build public-private-partnerships to finance additional spending for physical and human infrastructure.

Ensuring the rise of the middle class: India’s favourable demographic trends have set the stage for a massive expansion of the middle class, leading to a huge domestic market. India is expected to emerge with a middle class that is proportionately as large as that of the US today. Empirical evidence based on India’s household surveys, changing demographics and favourable trends in urbanisation, show that a massive shift towards a middle-class society is already in the making. We must ensure we support the entrepreneurship that comes with this middle class and gain from it being a contributor to savings and human capital.

Climate change: A good indicator of green growth is energy efficiency or electricity consumption per unit of output. India’s energy efficiency has improved in urban areas, and this effect is much stronger during periods of high economic growth. The energy-intensive industries (e.g., iron and steel, fertiliser, petroleum refining, etc.) account for a bulk of the energy consumed. Many factors account for the progress made on green growth, including availability of options, greater competition, rising energy prices, and the promotion of energy efficiency schemes.

A nationally integrated green growth policy—energy subsidy reforms, carbon tax and new technology—has the potential to further improve energy efficiency.

Water is a critical resource and we need to grow per capita water availability from 1,500 cu/m to 1,700 cu/m and treat 90 per cent of wastewater (vs 30 per cent today) to ensure universal access to clean water and re-use of treated water. The Namami Gange Programme is making good headway in these areas.

As agriculture today accounts for 85 per cent of water used in the country we must promote water-efficient agricultural practices and drive the development/adoption of water-efficient methods and micro-irrigation practices and shift acreage towards crops that are more water efficient (e.g., millets).

My work in water and sanitation leads me to believe there is huge business potential, provided we can create regulatory and contractual frameworks to encourage the private sector to enter these spaces. We must encourage innovation in the delivery of public services both in the technology and the services models as we look to deliver clean toilets, water and better hygiene and good health.

Robust financial services: In financial services, we need to double MSME credit penetration to 80 per cent and remove gaps in the cost of commercial borrowing vs global peers. By enabling credit bureaus and banks to leverage both financial and non-financial data we can help tailor products by segment and strengthen underwriting and monitoring.

We need to shape India into the No. 1 destination for global capital. India Inc.’s push to unlock productivity and growth across sectors will create the need and opportunity for more foreign investment. Companies in India depend heavily on bank lending, getting 68 per cent of their money from banks (vs 31 per cent for companies in the US, for example). India needs to become a magnet for global capital with deeper capital markets. Companies could attract international investors with a broader set of products and services, e.g. high-rated ESG securities. Unicorns, start-ups and unlisted companies could better attract foreign currency funds through trading/IPOs with securities listed on the GIFT/IFSC exchange. Industry bodies could accelerate market access for private companies by launching digital platforms such as those that connect companies with institutional and accredited individual investors. Policymakers, meanwhile, could facilitate entry into the Global Bond Index, potentially unlocking FPI inflows of $40 billion.

If we can encourage the above trends, we will have set the stage for our economy to be among the world leaders and for our people to benefit from this progress and growth.

The writer is Chairperson of Rothschild & Co., India, and Chairperson of India Sanitation Coalition