Can Indian industry grow at 15% year-on-year for the next eight years? Can industry, in money terms, leap from Rs8.6 trillion currently to Rs25.6 trillion by 2022. Incredulous? Too ambitious?
But that is what is forecast (see chart) in the CII’s report on “Make in India: Turning Vision into Reality”(see footnote) released this month. And a second look at the numbers shows that the forecast is not as preposterous as some would like to claim.
The infrastructure edge
Do bear in mind that though the CAGR (compounded average growth rate) during the past three years averaged 2.3%, it used to average around 10% during the 2005-2011 period. And this was without any major activity on the infrastructure front, Nor was there any major incremental investment in industry during 2005-2011. This time around, the focus on infrastructure is sharp. Thus, it is possible to better the 10% figure.
Much of India’s GDP growth will, therefore, come from infrastructure and manufacturing. It will also address Modi’s political ‘compulsions’. As argued earlier as well in these columns, the government’s first priority is to create jobs.
Its elected representatives are painfully aware that one of the key factors that helped Modi generate the ‘wave’ in his favour was the sheer numbers of unemployed youth. India needs to create at least 12-15 million jobs each year (assuming a 2% population growth and the inevitable decision taken by some people not to seek employment at all). The previous government did not generate additional jobs in the economy — in some sectors there was a marked decline in jobs — during its second term in office. That means that, in five years, there would have been around 60 million youth seeking jobs desperately. Given that each youth would normally have a family comprising four people, the total number of disaffected people would have been around 240 million people. Modi promised them a future, a hope. Now he needs to create the jobs.
Policymakers know that the shortest way to job creation is infrastructure building. The US discovered this when it decided to crawl out of the economic depression of the 1930s by sanctioning the building of railroads and highways. That is what the Vajpayee government also did (the Golden Quadrilateral) which in turn was partly responsible for the economic boom during the first term of the UPA government. That is why the present government has expedited clearances for all pending infrastructure projects — especially those relating to road building. It also creates demand for infrastructural material — steel, cement etc). Thus reviving economic growth.
Smart cities, smarter ideas
That also explains why the government wants to set up 100 smart cities. A smart city is one where the workplaces and the residences are close to each other. Buildings are constructed both ecologically and compactly (hence highrises) with large open spaces. No house or workplace is more than five minutes’ walk away from the nearest mass transport system. That ensures little dependence on private transport. Social infrastructure — schools, hospitals, water pipelines, excellent drainage systems — are put in place first, then the manufacturing and other employment hubs and then affordable housing.
By doing this, the government achieves several objectives. It creates immediate employment. Then it creates employment hubs, often in partnership with the best global companies. It also provides for affordable housing not far from the place of work. Most importantly, it creates the second rung of long-term sustainable employment by focusing on manufacturing and service hubs being set up in these cities. Expect foreign direct investment (FDI) in defence to play a major role here. Such jobs always require a lead time of 2-5 years. Hence the emphasis on smart cities first. Other jobs kick in later. It also caters to the inevitable urbanisation of the Indian population.
But smart cities cost money. That is why Modi has begun wooing country collaborations. He needs FDI to help him finance his plans. He already has, on paper, Japan’s commitment to help develop 24 smart cities along the Delhi Mumbai Industrial Corridor (DMIC). Six of them are to come up within the next five years (http://www.dnaindia.com/money/report_delhi-mumbai-corridor-will-create-new-best-in-class-cities_1510755-all), Dholera is one of them. Singapore has tied up with Japan to set up another smart city near Chennai over 2,500 acres of land. China has agreed to help build one in Gujarat and possibly even in Maharashtra. More such cities (with FDI) will get announced in the next couple of years.
More is yet to come
Don’t forget the 16 additional ports that the government wants the private sector to set up. Expect many more shore-based projects to get cleared as part of Modi’s plan to promote sea-shore tourism, to improve coastal security, and to create more avenues for economic growth and employment. It will also reduce India’s transportation costs. But more on that some other time.
The introduction of GST (goods & services tax) will help reduce logistics costs by 10-15%. It would also improve transport efficiency, and hence delivery times as state border hold-ups would become less complicated (http://www.dnaindia.com/money/interview-we-will-announce-our-next-stage-business-plans-next-year-anders-grundstromer-2033058).
The focus on making Aadhaar (the identity card linked to bank accounts) could make direct transfer of subsidies (similar to Brazil’s successful conditional cash transfers) a reality and save the government thousands of crores of rupees lost through ‘leakages’.
Then, if the government wants to go more aggressive on using waste to methane across the country, it could reduce India’s oil import bill by almost half, and India’s fertiliser import bill by almost a third. It could also reduce the carbon footprint immensely.
If managed well, the cumulative benefits of these could well exceed the government’s own forecast.
The author is a consulting editor with dna
- *footnote
BCG has clarified that the forecast of a 25% share of manufacturing in India’s GDP by 2022 has been taken from the government’s National Manufacturing Policy (NMP). That is not its own forecast.
BCG believes that the achievable targets are a 10-11% annual growth rate for manufacturing, and not 14.6% as estimated in the NMP (table 3.5 in the BCG report). BCG also believes that a target of a 21.6 - 25% share of manufacturing in India’s GDP is possible by 2030, and not 2022.
BCG had used the chart in its report, and the above report has merely reproduced the chart. The rest of the analysis is that of the columnist, explaining why the NMP targets could not only be met, but even surpassed if certain measures are taken. - author