What Will It Take To Raise India's Per Capita Income To $250 a month?
(Business Today (India) Via Thomson Dialog NewsEdge)What will the India of 2020 be like? To answer this, we need to look back at the India of 1990 and see the progress we have made in the last 15 years. In 1990, we could not have foreseen the impact of technology, the communications revolution, the rise of the knowledge economy and the growth in consumer demand. When we look ahead at 2020, we should set for ourselves a target keeping in mind the strong foundations that we have established and the likely evolution of global dynamics in the coming years.
India today is exhibiting a sense of self-confidence and optimism that we have not seen before. It is one of the fastest growing economies in the world; and the growth is being sustained and broad-based across a range of sectors. The economic outlook is buoyant and businesses and households are looking forward to the future with optimism and hope. Perhaps for the first time, we are daring to think big and articulate aspirations that we did not consider in the realm of possibility in the past. Thus, a five-fold growth in per capita income over the next decade-and-a-half is indeed something we can realistically aspire to, though it will not be easy and will require the collective effort and commitment of our entire nation to realise this shared vision. We need to look at this in the context of the horizons of growth and the building blocks needed to capitalise on these opportunities.
The highlight of the past decade has been the development of our services sector driving export-led growth by leveraging technology. Rapid advances in technology have led to the dissolution of geographical boundaries and reduced entry barriers for knowledge-based businesses. We have been able to convert this global phenomenon into a growth opportunity by sublimating our knowledge capital into wealth creation. Today, Indian businesses are supporting innovation and operating efficiency in markets across the world. This transformational change over the past decade is only the precursor of further change to come, as technological change accelerates and creates more discontinuity in businesses worldwide. In this challenge lies increasing opportunity for India to build on its foundations.
After a period of restructuring and repositioning, Indian industry has emerged with renewed vigour as a driver of economic growth. Doubts about the ability of the Indian manufacturing sector to survive in an era of global competition have largely been laid to rest, with operational re-engineering and strong focus on quality and efficiency. Today, we are not only competitive in the Indian market, but also in markets across the world. Indian businesses are looking outward and establishing their footprint across the globe. Again, we are at the beginning of the curve; it is only now that Indian businesses are aspiring to global scale. A parallel development is the establishment of production bases in India by major international corporations. A common thread running through these opportunities is the internationalisation of India. The combination of domestic demand and international expansion should put us on a sustained growth trajectory.
The third horizon of growth, which is as yet largely untapped, is the rural economy. Traditionally, we have viewed rural India as a foodgrains producer and evaluated it in terms of agricultural production. The integration of rural India into the economic mainstream with holistic development of the agricultural and non-agricultural rural economy will create a new engine of growth. We must go beyond the current focus on the quantum of output to encompass productivity enhancements, the composition of agricultural production in the context of domestic and international demand, and the creation of balanced and complete storage and processing facilities. Support infrastructure in the form of irrigation projects, rural electrification, and incorporation of recent developments in biotechnology and promotion of crop diversity, along with the creation of proper marketing infrastructure will add to the profitability of the agricultural sector. This will boost rural household incomes and have a multiplier effect on the demand for goods and services across the economy.
The development of physical infrastructure is critical for sustaining economic growth. We need to make large investments in roads, ports, airports, and power generation and distribution to support business activity. Given the quantum of investment required and the associated risks, the development of infrastructure can only be achieved through public-private partnership models that provide risk mitigation for private entrepreneurs and financiers, while levering private sector efficiency and private capital.
The financial sector has played a key role in India's economic success-by financing industrial investment, working with industry to resolve the problems arising out of globalisation and, in recent years, by meeting the demand for retail financial services that have emerged as a driver of growth in themselves. Today, the financial sector is playing a major role in modernisation and growth of the rural economy. However, the penetration of financial services in India-whether it be credit, insurance or asset management-is still low. Our banking system is small in size compared to other economies. Currently, vast numbers of our people do not have access to formal sources of credit or the protection of life or health insurance. They continue to depend on informal sources for their financial needs and their livelihoods are exposed to a range of risks. Financial sector players must rapidly scale up their operations, supported by technology and knowledge capital, and create sustainable propositions for rural India and the low-income segments of the population, energising their latent potential as drivers of growth.
We must also mitigate the risk of external shocks. India currently imports around 70 per cent of its total oil demand, and increasing oil prices coupled with dwindling supplies are likely to impact the increased economic activity. Energy can, in future, become a constraint to growth. Greater self-sufficiency in energy and a holistic energy security policy should be one of our key priorities.
To meet our target per capita income, we need to sustain double-digit GDP growth over the next 15 years. This will require us to focus on all three horizons of growth and all of the enabling measures needed to realise their potential. This is a challenge, but it is achievable. In summary, what we are seeing today is a new era of growth in India. The latent entrepreneurial talent and managerial capabilities of our people have come to the fore and are opening up new vistas of potential for the future. This growth is happening against the backdrop of a vibrant democracy and a robust institutional framework. We must continue to back this up with a supportive policy environment to ensure sustained growth and prosperity.
The author is MD and CEO of ICICI Bank Ltd
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