India Has to Create Big Waves to Succeed

India’s economy has recovered from the sharp slowdown it saw over the previous two to three years, which saw growth decline from c.10% to under 5%, and appears to be back on a 7-8% growth trajectory. The new government, led by Prime Minister Modi, has moved decisively on reforms in a number of key areas including FDI liberalisation, privatisation, improving clearance and approvals processes, labour laws, amongst others . Progress across these key areas combined with announcements of further reforms has created the hope that India can build on this momentum and accelerate further and compensate for declining or stagnant growth in China and other major Economic Blocs such as Europe. From India’s perspective, its economic success will depend not just on the necessary structural and macroeconomic reforms being implemented, but on whether it can create broad-based economic growth and job creation on an unprecedented scale. This requires not just reforms, but the creation of innovative globally-competitive industries across services, manufacturing and agriculture and go well beyond the successful albeit narrow technology focus it has created to date. Doing this simultaneously across agriculture, industry and services requires a comprehensive plan for India to develop the next generation of scaled economic “hubs”.

India’s Bangalore is famous for being India’s version of Silicon Valley and is a source of national pride given the quality of IT talent and the large IT services industry that it has spawned. However, given India’s development challenges, this is nowhere near enough. Most other large countries have matured gradually from agrarian societies to manufacturing and industrial hubs eventually to innovative services and technology driven economies. This allowed these countries to focus their national policy and resources around creating high growth industries. In recent years, many countries, including the US and certain European and Asian countries have focused on developing their countries into technology India’s central challenge is to create all three of Toffler’s waves (see box) of civilizational development – in agriculture, in industry, and in information and innovation, simultaneously. To do this, it will not only need to move forward aggressively on its overall structural and macroeconomic reforms, it will also need a proactive diversified multi-sector strategy to build out a number of sectors in parallel to one another.

India’s Next Phase of Development: Creating Scaled Waves of Agriculture, Industry and Innovation

Given the importance of developing all three “waves” simultaneously, the most obvious question is where to start and which specific industries India should focus on developing. India is a diverse country not just in terms of language and culture, but also economically and demographically. “India’s central challenge is to create all three of Toffler’s waves of civilizational development – in agriculture, in industry, and in information and innovation - simultaneously.” Certain states and regions, particularly in Northern and Central India are significantly poorer than the states in Western and Southern India and are at an altogether different stage of development. Education clusters have emerged throughout the country and are creating new talent pools. These considerations, and others, need to ultimately drive the selection of industries for focus. While the most important consideration must remain on the potential economic impact – in terms of jobs created and output added, India also needs to invest for the long-term in innovation-driven sectors to help fully leverage its talent pool and position itself as a global competitor in the industries which will drive the future. For each of the waves outlined above, we take a closer look at specific industries which India can develop into globally-competitive sectors across all three areas – agriculture, industry and innovation. The list is not exhaustive and there may well be other industries where India can establish global leadership. However, even a focus on just the sectors outlined below would significantly change India’s position in the global economy – and help it achieve its objective of simultaneously launching all three waves of development.

Wave I: Development of Agriculture for India to Become one of the World’s Largest Food Suppliers

India has the world’s second largest stock of fertile arable land (behind the US) and the largest under-exploited land in the world . The first step for India is to rapidly develop it large agricultural sector which accounts for c.US$300 billion of annual output into a sophisticated, value-added food processing industry to improve the lot of subsistence farmers and the c.50% of the labour force which is dependent on agriculture.

Wave II: Development of Modern World Class Industrial Base and Global Leadership in Key Industrial Sectors

The proportion of Indian GDP that comes from industrial production is only 16% and US$293 billion in absolute terms relative to China’s US$4 trillion industrial sector. In addition, as the agricultural sector develops, capital intensity and scale will help to improve yields and additional value will be added from managing the full value chain, the proportion of workers in the sector is likely to reduce with additional capital intensity and scale. Thus, India needs to also focus on the development of manufacturing industries where it can become a globally-competitive hub. Three of the areas India will need to focus on to launch this wave, along with illustrative sectors, are outlined below. Focusing on developing these and other industrial sectors such as chemicals (US$144 billion industry), electrical machinery (US$100 billion industry by 2022) and electronic systems (US$94 billion industry in 2015) will help drive India’s industrialisation and job creation .

Wave III: Developing Information and Innovation Industries

India’s IT industry has played a disproportionate role in its reputation and its contribution to GDP and employment – accounting for 7.5% of GDP, three million direct jobs and nine million indirect jobs. Of course, given the size, diversity and readiness of India for progress, it should not and does not need to wait for agricultural development and industrialisation to happen in order to start focusing on the innovation and information driven industries. It has already proven its global prowess in IT services by establishing Bangalore as a global IT hub with world-leading technology services companies such as TCS and Infosys. With traditional IT and BPO sectors reaching a stage of maturity, their growth will slow and profitability will also decline – and the nexus of growth shifting to emerging technology areas. Below we outline four key areas of the information economy with illustrative sectors where India can leverage its large, educated, English-speaking talent pool to establish globally competitive domestic sectors.