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India’s BQ: Fixing A Few Critical Issues Will Yield Solutions For Hundreds More

India may have a thousand problems, but it is also the place for a billion solutions.

Men sit at a market in Mughalsarai, Uttar Pradesh, India. (Photographer: Dhiraj Singh/Bloomberg)
Men sit at a market in Mughalsarai, Uttar Pradesh, India. (Photographer: Dhiraj Singh/Bloomberg)

This is a series of articles by leaders on how India can raise its Business Quotient.

To paraphrase Nobel Peace Prize winner Kailash Satyarthi, India may be a land with over a thousand problems, but it is also the place for a billion solutions. What most of us miss in the public discourse on the challenges we face as a nation is that if we address a few – say four or five – critical levers, people, businesses, and companies will find ways of solving the remaining 995.

So, how do we step up some of these levers into high, sustained economic growth? I would focus on leveraging three such advantages - macroeconomic stability, the unique digital banking architecture which India has developed over the past few years, and the demographic dividend which India is likely to reap over next few decades.

Let’s first talk about the hard-earned macroeconomic stability. A prerequisite for sustained economic growth, macroeconomic stability in India (contained inflation, twin deficits, and resilient external sector) has been restored after concerted efforts by policymakers since 2013. Persistent policy efforts towards fiscal consolidation despite a challenging growth environment, creating an enabling environment for attracting foreign direct investment and measures to contain inflation by smoothening off some of the supply challenges in the food space have to be commended. It’s crucial to maintain and further enhance this advantage.

Thus, more measures to keep inflation, especially food inflation, contained are needed.

Recently the government has increased efforts to interlink rivers to reduce dependency on monsoon. In the first phase, amongst other projects, the government plans to interlink the rivers in two of the largest states in the country. A successful execution of such projects (across the country) can contain food inflation by lifting agriculture productivity. Agriculture productivity in some of the states lags behind the national average despite fertile land, as irrigation facilities remain inadequate.

Improved storage facilities and faster ways to transport agriculture produce to markets are equally important. Here the government’s recent success in enacting the National Waterways Bill can go a long way. Several thousand kilometres of navigable inland waterways, provide India with the unique opportunity of improving connectivity to rural areas at cheaper cost (almost half the cost when compared to roads; approximately 20 percent lesser than railways), and in a greener way (can transport four times more relative to roads; approximately 1.25 times more than railways for similar fuel consumption).

Financing such large infrastructure projects is always a challenge, more so when under fiscal constraints. However, experience from around the world also shows that government must lead the way in investing directly in, and catalysing private investment into infrastructure. In other words, create a crowding-in effect.

One option is to leverage the enormous amount of cash that is sitting on the balance sheets of public sector undertakings (PSUs), estimated at Rs 2.5 lakh crore. That amount of cash can raise available capital to Rs. 7.5 lakh crore. That's a significant amount of 'seed capital' for infrastructure. Asset sales by the government can be another innovative source of infrastructure finance. Think of all the land around airports.

The Airports Authority of India owns or holds 50,000 acres of urban land around 125 airports.

Any surplus land parcels can be monetised and the same logic could be used to raise finance from the use of land around our ports too.

The recent rollout of the Goods and Services Tax will widen the tax net over a medium term. Further fiscal stability can be achieved by replicating the success of direct benefit transfer for the disbursal of cooking gas subsidy for more goods and services. Here the digitisation of financial services played a significant role and needs to be tapped further.

India has a unique architecture for digital payments/banking. This framework includes amongst other things eKYC (electronic know your customer), Aadhaar authentication and a system for swift payment across banks. This advantage – which is not available to China or the United States – can expand economic opportunities, as bank accounts seeded with Aadhar can make payments quicker and seamless amongst more than a billion people. It can improve access to bank credit as credit history for employment intensive sectors like micro, small, and medium enterprises is created. It’s likely to reduce the role of corruption in the economy which otherwise can weigh down on investments. More measures are required to improve digital literacy, expand digital infrastructure and address issues in data safety. However, as India has already embarked on this journey, leveraging this advantage to raise the business quotient seems inevitable.

Focussing on our demographic advantage, we need to put young people to work by creating enough jobs. The government is committed to adding 100 million jobs by 2022. Skilling of the labour force, moving 50 percent of the population from agriculture jobs to non-agriculture and raising the female labour force participation are challenges which we will have to overcome to reap the dividend.

To address issues related to basic literacy and numeracy – less than 25 percent of children in class five can read simple English sentences and do division – a few states like Gujarat now provide continued school recognition by giving higher weight to students’ performance (outcome-based) over inputs like school buildings, pupil-teacher ratio etc. More states need to be incentivised to do the same.

We should leverage the comfort of young students with the new digital world to bridge the digital knowledge gap amongst the population.

Partnering with the private sector, especially the corporate sector, can help to develop skills and jobs for the interim period and the phase when India achieves a higher degree of automation. McKinsey estimates that India is likely to take more than two decades before automation reaches 50 percent of all of today’s work activities. Thus, while skilling the future generation, focus on creating jobs in the information technology sector (like electronics, telecom, and IT/ITeS sector) as well on sectors which are likely to see high demand, like health workers, teachers, nursing, tourism, food processing and e-commerce etc should remain.

To sum up, India’s tremendous potential is a universally accepted fact. What we all need to work on – as government, business, industry, and individuals – is to enable a million marginal revolutions to realise these infinite opportunities.

Zarin Daruwala is CEO at Standard Chartered Bank India.

The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.