What’s missing in RBI Deputy Governor’s solid vision on India’s future

Delivering a speech in Bhubaneswar ahead of the 75th anniversary of independence, RBI Deputy Governor Michael Patra explored the pitfalls and hurdles on India’s path to rise to the status of more largest economy in the world. Fully aware that ambition must be made of quite severe things, Dr. Patra was careful to identify the challenges that must be overcome to achieve this goal.

We share the conviction that becoming the largest economy in the world is an entirely achievable goal within a few decades. Therefore, we would like to complete Dr. Patra’s prescription on what needs to be done.

He identified four drivers of growth: demographics, manufacturing, exports and internationalization. He also listed four major challenges: repairing the pandemic-induced drop in output from the level the economy would have reached; closing the infrastructure gap; build the modern workforce that India would need in the emerging knowledge-intensive economy; and the production of sufficient quantities of climate-friendly energy.

The demographic composition will remain on India’s side until the middle of the century. The United Nations projects that India’s median age will be 38 in 2050, 10 years older than the current median age of 28. But that would still leave most of India’s population in the working age group, making India the largest labor force in the world. However, the demographic dividend depends on three factors. When the share of dependent people (old and very young people) in the population decreases, and the share of working people increases, the output of the economy would increase, even without an increase in productivity. The smaller share of the population that needs to be supported by the active and salaried segment would stimulate savings, allowing for larger investments. Women would enter the labor market, greatly increasing the number of workers, whose output would add to GDP.

The challenge here is to equip the large working-age population to participate in the knowledge-intensive economy. Manufacturing today requires a reasonable degree of training and the accompanying dollops of capital, embodied in machines that drive productivity. The ability of the manufacturing industry to absorb large amounts of labor directly from the primary sector is a thing of the past and no longer available to a country like India. Technological advances, such as electric cars, will also make some existing industries redundant: the automobile with an internal combustion engine is made up of some 2,000 parts, but the electric car, a motor and four wheels, is why Tesla can offer a lifetime warranty. . While much of India’s large automotive components industry would disappear with the electrification of transport, new jobs would emerge in battery manufacturing, writing lines of code that regulate the electric car, its charging stations and the global ecosystem. Increased demand for the minerals that go into the batteries would create new jobs in mining in Congo and Australia, and in mineral refining in China.

India’s aspirations to become a manufacturing power require deep upstream integration, in the components, assemblies and assorted sub-assemblies, in the machines that make these inputs and in the electronics, robotics and programming that will enter into their production. The Fourth Industrial Revolution blurs previous distinctions between manufacturing and services. And calls for a workforce that has learned, in school, to learn throughout its life. India needs to radically overhaul its education system for this purpose.

Dr. Patra is quite right to point out the role of exports in driving growth. What he failed to highlight was the role that liberal imports play in making local production globally competitive. In this respect, the current political regime can be described as infantilizing protection rather than a nascent industry. It needs to move to low and uniform levels of protection for all stages of value addition and chart a path to this competitive trade regime.

Building infrastructure is less complicated than it looks. The savings of the world’s aging population seek profitable deployment. He can be lured into Indian infrastructure by one, crafting solid and detailed projects that can seamlessly yield decent returns; second, the ability to execute large projects; third, financial reporting to global standards and; fourth, credible corporate governance. A thriving corporate debt market is of course a prerequisite for building large-scale infrastructure.

To make the rupee truly international, it must become fully convertible on the capital account. Even China, the world’s largest exporter and holder of the largest currency reserves, has not yet made its currency fully convertible. India can handle the transition better because it runs a market economy, unlike China. Again, a prerequisite is a fully functioning market for corporate debt, with derivatives to hedge against currency, interest and credit risks.

In terms of energy, two gaps need to be filled. One is to stamp out electricity theft and end unmetered and unfunded giveaways. The other continues with fast breeder nuclear technology developed in India, in which thorium derived from the monazite sands of southern India is the starting material. To underfund the nuclear power program in favor of solar and wind power is to follow Western fashion and undermine cost-effective clean-type energy independence.

The ambition to become the biggest economy in the world is solid, the path to get there is visible and we need a deeper debate to define the details of the journey.

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