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Kumar
Mangalam Birla
Business Today
15 January 2006
The
National Intelligence Council (NIC), a division
of America's Central Intelligence Agency
(CIA), in its 2005 report entitled Shaping
the Global Future avers that India and
China will be the economic heavyweights
of the 21st century. Barring major upheavals
in these countries, the rise of these new
powers is a virtual certainty, according
to the NIC. This bold and confident prediction
comes in the wake of several other similar
reports that also dwell on the inevitability
of the rise of India and China. The talk
of India attaining or aspiring to be an
economic superpower is, then, certainly
not premature.
One
stark aspect of the global power shift is
the shift of manufacturing, from the West
to Asia, in industry after industry. For
instance, nearly two-thirds of fibre production
comes from Asia today, the same as the share
of North America and Europe in 1980. Reflecting
the shift in production bases, nearly one-fourth
of the world fuel demand now originates
in non-Japan Asia, compared to just one-tenth
in the mid-seventies. To take a more recent
example, China, Thailand and India have
contributed to 35 per cent of the increase
in world vehicle production between 2001
and 2004. China alone now accounts for one-fourth
of the global steel and aluminium demand,
nearly one-third of the coal demand and
40 per cent of cement consumption.
This
Asian destiny is slowly manifesting in terms
of the changing pattern of global GDP. During
the past 30 years, the weight of global GDP
has been progressively shifting away from
North America and Europe towards the ASEAN
region. The share of OECD Europe has declined
by 5 percentage points, while that of the
US and Japan has declined by one percentage
point each. The average GDP growth of China
and Korea over the past 23 years has been
9.5 and 6.7 per cent per annum, respectively.
Judging by India's own fast growth, it is
possible that by the middle of the century,
India's share of global GDP will be same as
its population, making it the world's second
largest economy. This indeed was the case
in early 1800s. Two centuries on, we seem
to be in the process of coming a full circle!
The
journey towards becoming an economic superpower
is actually the outcome of conscious choices
that we have made in the sphere of economic
and social policies, especially during the
past decade. Some of the signposts in
the
journey are quite spectacular. We have become
the world's largest producer and consumer
of a variety of industrial and agricultural
products. Many Indian companies are winning
international recognition for manufacturing
excellence and in information technology,
India has become a brand to reckon with. Most
global corporations have established a presence
in India, either for manufacturing or for
research and development. In the next few
years, I see billions of dollars being committed
to India in the form of foreign investment.
In the short span of seven years, we have
gone from being a state on which sanctions
were imposed — in the wake of our 1998
nuclear tests — to one which has signed
a special nuclear treaty with the United States.
Our continuing progress in nuclear and space
sciences lends further legitimacy to our claim
for membership in the UN Security Council.
The
continuation of our economic journey will
depend on how we utilise all the factors that
are advantageous, and also our political and
national will to pursue economic reforms.
Going forward, we need to answer the following
five questions, as we develop a strategy for
becoming an economic superpower:
| The
continuation of our economic journey
will depend on how we utilise
all the factors that are advantageous,
and also our political and national
will to pursue economic reforms |
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How
will we ensure better livelihoods for the
people of India?
India's demographic dividend is a well-known
fact, wherein the labour force is growing
much more rapidly than the overall population.
But, we need to ensure that this demographic
blessing does not become a curse. This means
that we must ensure that the pace of job creation
or self-employment opportunities must increase
at an exponential pace. The four areas which
can contribute tremendously to job creation
are textiles, agriculture (including agro-processing),
construction and retail. This calls for unshackling
all constraints in these four sectors, as
well as ensuring the flow of large investments
into these sectors. More than half of India's
labour is self-employed, so we also need to
encourage and nurture entrepreneurship. To
create ever higher value adding jobs, we must
chart a path towards becoming one of the few
global manufacturing hubs. The global mega
trend of outsourcing is waiting to be harnessed,
and we must latch on to this tide. We must
be able to widen the field to include engineering,
chemicals, metals and textiles — in addition
to the strides we have made in information
technology and auto ancillaries.
How
do we increase the capabilities of our people?
It is well known that high growth is supported
by high capital stock. But, an increasing
share of that capital stock is in the form
of human capital. In a country like the
US, more than three-fourths of capital stock
is accounted by human capital. This is an
outcome of higher literacy, skills and training.
In India, we are still short of attaining
the targeted level of investment in education
— around 6 per cent of GDP. No child
in India must have to skip school for the
sake of pursuing a livelihood. And no student
ought to be denied an opportunity for higher
education for lack of funds. India is already
a "knowledge economy" brand; yet,
many IT companies are worried about ensuring
adequate supply of trained manpower. Some
companies have integrated backwards and
started technical universities. I believe
we need to facilitate the emergence of private
vocational and technical training institutes
in order to meet the huge demand emerging
for trained manpower. The connection between
human capital and GDP has been validated
by the World Bank, which examined per capita
income data for 121 countries and linked
this with its Knowledge Economy Index.
How
do we ensure provision of adequate level of
public goods?
Our productive prowess and the ability to
serve global markets are increasingly handicapped
by the poor state of infrastructure and public
goods. This includes water, sanitation, electricity,
transportation, law and order and governance.
These
goods cannot be provided by any private entity,
or through a market-based competitive system.
While foreign and domestic private capital
can flow into infrastructure, the actual provision
of the public service is necessarily in the
public domain. Among the many infrastructure
sectors, electricity remains a drag on our
competitiveness. A
detailed survey by the World Bank has found
that manufacturers in India face nearly 17
significant power outages per month, versus
only one per month in Malaysia and four in
China. Nine per cent of the total of output
is lost due to power breakdown, compared to
2.6 per cent in Malaysia and 2 per cent in
China. Outages are so frequent and long, that
not having standby diesel generators is unthinkable
in India. Generators account for 30 per cent
of business power consumption in many cases.
Almost 61 per cent of Indian manufacturing
firms own generator sets; the figure for Malaysia
is 20 per cent, while in China it is 27 per
cent, and in Brazil 17 per cent. Moreover,
India's combined real cost of power is 74
per cent higher than Malaysia's and 39 per
cent higher than China's. Electricity is but
just one example. The inadequacy in infrastructure
is virtually across the board. Here, I must
mention the obvious and startling successes
we have achieved — in telecom, for instance.
The point is we can do it.
How
do we ensure that our global winners retain
competitive advantage?
In countries like Japan and Korea, the government
was an active partner in helping industry
attain global status, in the earlier stages
of their development. Even US foreign and
international trade policies are largely aligned
with the business interests of US corporations.
The short point here is that in the era of
globalisation and international trade competition,
corporations and nation states have to develop
winning partnerships. We are seeing some manifestation
of this in our oil security strategy, wherein
our national oil companies are scouting the
world aggressively for acquisitions. That
is the way to shape our policies, going forward
— so not only do they support economic
reforms and freedoms, but also proactively
facilitate the emergence of global Indian
corporations. The Indian Brand Equity Foundation
(IBEF) points in the same direction.
| Our
productive prowess and the ability
to serve global markets are increasingly
handicapped by the poor state
of infrastructure and public goods
— water, sanitation, etc |
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How
do we protect and nurture the core diversity
of our economy?
India, perhaps, stands unique in the degree
of its diversity. Apart from racial, cultural,
linguistic and social diversities, different
states in India also tread different paths
toward economic progress. Yet, it is the largest
democracy in the world — noisy, chaotic
and slow though it may be at times. But even
under these conditions, market forces have
struck solid roots. Such is the resilience
of market forces, that for more than two decades
they have been driving the economy ever higher,
notwithstanding periodic political and ideological
differences.
Nobel
laureate Amartya Sen has said: "Public
reasoning is essential to democracy. It
is intimately connected with public discussion
and interactive reasoning — traditions
which exist all over the world." Arguing
against the theory that democracy was a
quintessential Western concept he said:
"There are two ways to see democracy
— one, the narrow view that interprets
democracy in terms of voting and majority
rule and the second, broader view, which
sees it in terms of public reasoning. The
argumentative heritage in India is an important
asset, which we will be wise to invoke and
utilise."
China
is already much bigger, and has been quietly
and consistently growing at nine per cent
per annum for almost two decades. But, China
has a very different political system. And
that may be one of the reasons that the
West pays more attention to China. India,
which has recently been growing as fast
as China, and which also has a similar population
size, hardly fills the West with the same
foreboding, because it is a democracy, and,
as we are continually told, democracies
"never go to war with each other".
I
believe the past few years have proved that
the thought of India becoming an economic
superpower is no longer outlandish. We could
argue about the timeframe. But the possibility
is real, almost inevitable. That said, we
cannot afford the luxury of overconfidence
— and the complacency and hubris that
come with it. A lot of groundwork still
has to be done. Exciting as the prospects
are, the road ahead is extremely challenging.
We have to stretch the canvas every way
we can. Our dreams have to be audacious.
Our ambitions have to have that essential
element of the 'killer
instinct'. And — in tune
with the pace with which things move today
—- we have to take a quantum leap in
the speed with which we do things. We certainly
have the luxury of having the essential
endowments and competencies that go into
building a successful, global economic power.
What we don't have is the luxury of too
much time.
(The
author is Chairman of the Aditya Birla Group)
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