Invest in production for export ambition

This next quarter-century can be India’s if industry, economic policy, and politics make it so.

The reforms of 1991 to 1993 led to a substantial inflection in growth. Scrapping industrial licensing meant the government stopped trying to play in deciding which sectors or industry should or should not invest in.

Opening the economy to imports with lower tariffs meant Indian farms had to compete with the best. Independent institutions were allowed to function and set the rules under which we all operated. A reduction in corporate and personal income taxes, between 1991 and 2018, enabled the legal accumulation of wealth by entrepreneurs.

The goods and services tax (GST) reform of 2017 greatly facilitated the free movement of goods around the country. In area after area related to industry, the government stepped back, allowing industry, to step forward with an investment boom.       

Consistent and long-run growth in productivity needs the structural change that makes the economy more and more productive. A major source of long-run productivity growth is putting more people to work, and shifting them to higher-productivity occupations. Driving a shift in employment from agriculture to industry and modern services is the kind of structural change we need. But industry and services need to invest much more to attract the hundreds of millions who must shift out of agriculture.

For Indian industry to lead, we have to be much more serious about innovation. Indian industry invests 0.3 per cent of gross domestic product (GDP) in in-house research and development (R&D), compared to a world average of 1.5 per cent. We are the world’s fifth-largest economy and manufacturer, but rank 21st in industrial R&D.

Together with R&D, we need to invest in world scale manufacturing and international sales. India needed to shift its focus from import substitution to export ambition. Indian industry must see the world as our market, investing in capacity and developing markets in the world.