What is lacking in the RBI deputy governor’s tough stand on India’s future?

We share the belief that becoming the world’s largest economy within a few decades is a major goal. Therefore, we would like to supplement Dr Patra’s prescription on what needs to be done.

They identified four growth drivers: demographics, manufacturing, exports and internationalization. He also listed four major challenges: recovering the pandemic-induced output decline relative to the level of the economy; filling the infrastructure gap; Creating a modern workforce India will need in an emerging knowledge-intensive economy; and to generate climate-friendly energy in sufficient quantities.

The demographic structure will remain in favor of India till the middle of the century. The United Nations has projected India’s median age to be 38 years in 2050, which is 10 years higher than the current average age of 28. But this would still leave most of India’s population in the working age group, making India the largest workforce in the world. Now, the demographic dividend depends on three factors. When the share of dependents (the elderly and the very young) in the population decreases, and the share of workers increases, the output of the economy will increase even without increasing productivity. The smaller part of the population that is to be looked after by the working and earning class would encourage savings, making possible more investment. Women will enter the workforce, greatly expanding the number of workers whose output will increase GDP.

The challenge here is to prepare the older working-age population to participate in a knowledge-intensive economy. Manufacturing today demands a fair amount of training as well as a dollop of capital, which is embodied in the form of productivity-enhancing machinery. The ability of manufacturing to directly absorb large amounts of labor from the primary sector is a past history, which is no longer available to a country like India. Technological advances, such as electric cars, would also render some existing industries redundant: the internal combustion engine automobile is made up of some 2,000 parts, but the electric car, with a motor and four wheels – is why Tesla offers a lifetime warranty. can offer. While a large part of India’s large auto component industry will go extinct with the electrification of transportation, new jobs will emerge in the manufacturing of batteries, the written lines of code that govern the electric car, its charging stations and the overall ecosystem. Additional demand for minerals going to the battery will create new jobs in mining in the Congo and Australia, and in refining minerals in China.

India’s aspirations to become a manufacturing powerhouse require deep backward integration into the machines that manufacture these inputs and into the electronics, robotics and programming that go into their production, assorted components and assembly and sub-assembly. The Fourth Industrial Revolution blurred the earlier distinctions between manufacturing and services. And calls for a workforce that has learned everything they’ve learned throughout their lives while in school. India needs to make a radical change in its education system for this.

Dr. Patra was completely right in emphasizing the role of exports in driving growth. He did not emphasize the role of liberal imports in making local production globally competitive. On this, the current policy regime can be described as child rearing rather than child industry, protection. It needs to move to a lower, leveler level of security for all stages of value addition, and create a great path to that competitive trading regime.

Building infrastructure is less complicated than it sounds. The savings of the world’s aging population are in search of profitable deployment. This can be pulled one by one in the Indian infrastructure, creating sound, detailed projects that can transparently generate good returns; Two, the ability to execute large projects; Three, the global standard financial reporting and; Fourth, credible corporate governance. Certainly a thriving market for corporate credit is a pre-requisite for building large scale infrastructure.

For the rupee to be truly international, it has to be fully convertible into the capital account. Even China, the world’s largest exporter and holder of the largest foreign exchange reserves, has yet to make its currency fully convertible. India can manage the transition better, as it runs a market economy unlike China. Here again, a pre-requisite is a fully functional market for corporate debt, complete with currency, interest and derivatives to hedge against credit risk.

On the energy front, two gaps need to be filled. One is to curb electricity theft and stop giving gifts without meters, without money. The second is moving forward with India’s domestic fast breeder nuclear technology, with thorium being the starting material derived from monazite sands from South India. Reducing the nuclear power program in favor of solar and wind power goes with the Western fashion and undermines the cost-effective energy independence of the clean type.

The ambition to become the world’s largest economy is good, the way to achieve it is visible and we need more debate to work out the details of the journey.

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