The New Growth Story

 

Since the pandemic showed signs of waning, there have been fresh winds blowing across India. The economic weather report is predicting sunny weather. The last two years have been extremely stressful for the economy. Manufacturing had almost stopped and there was hardly any economic activity worth the name in the country, save for the industry catering to health and essential commodities like food and FMCG.

But in 2021 things have begun to change. Economic activity had got several boosters in the last five years. The government had signaled its seriousness on economic reforms when it introduced the GST bill and the bankruptcy reforms. The law which imposed a retrospective tax on companies was also removed. It helped a lot of companies to turn the corner, prominent among them was Vodafone.

The sale of Air India was another milestone in the disinvestment journey of the Modi Government. Now the message is loud and clear to the world that this government means business.

India’s exports have reached a record level in 2021. They have almost touched $400m. The industry is encouraged by the government policies and is now willing to take more risks and invest in new business or expanding existing ones. The PLI scheme has helped incentivize production by offering compensation or incentives to the companies who meet certain production targets.

The growth story is not restricted to any particular sector either. He encouraging aspect of this growth is that, it is in non-traditional sectors like Specialty chemicals, garments, electronics, machinery, etc. India used to mainly export garments, raw materials and other low value goods.

The states also have chipped in. Land parcels to set up an industry have been made available in record time. Traditionally it used to take months to acquire land and other facilities like electricity and roads. The scenario has changed. States are competing among themselves to attract industry, domestic as well as foreign. One e.g. is that the states are now willing to pick up the tab on worker skilling to as an added attraction for new businesses to set up shop.

This flurry of economic activity and favorable government policies has entailed a flourishing ecosystem which has spawned even more industries. Upstream and downstream industries have mushroomed especially in the last year. The states have incentivized the factors of production of land, labour, capital and as an added incentive the central government’s PLI scheme has spurred the industry to improve production as well.

India has still a long way to go if it wants compete with the likes of China and South Korea. But there are opportunities on the horizon. China’s demographics are going against it. Its population is shrinking as a result of which, labour intensive manufacturing will have to move out of China. This is already happening as Samsung moved its entire cell phone plant to India recently.

One more reason why manufacturing is moving out of China is the policies of the communist government. After Deng Xiaoping opened the economy Chinese companies did business worldwide and became rich. The money also brought them power. They were seen to be breaking the party rules blatantly. The CCP has forbidden companies to make big money under the guise of an equitable distribution of wealth. The much touted ‘Common Prosperity.’ This means many big and growing Chinese companies have seen business growth severely dis-incentivized by the Party. This slowdown stems from the conviction in the top echelons of the CCP that the Party is supreme.   

In the near future, this could be an opportunity for India. But there is competition from countries like Vietnam, Malaysia, Bangladesh, etc.

Overall, however, it looks as if the India growth story may have begun in real earnest at last. For many years economists and commentators have talked of India having ‘missed the bus.’ This time it seems the country has got its act together.