Can India capitalise on its economic transformation?
Good things take time as the saying goes. ‘Achay Din’ or ‘Good days’ was the tag line for Indian Prime Minister Narendra Modi’s campaign nearly 22 months ago.
However, the process of economic reform development has taken 25 years for future growth prospects to make the Indian economy more competitive and resilient.
Sectors such as infrastructure, public-private partnerships, tourism, education and health are the critical areas for future growth and competitiveness.
The future success of the competitiveness of initiatives from Mr Modi’s government such as ‘Make in India,’ ‘Digital India’ and ‘Start up India’ is dependent on how well his government engages businesspeople in solving the challenges facing the country.
The platform was laid when policy actions on the reform process were initiated before 1991, at which point the government started to liberalise India’s economy on an unprecedented scale.
The telecom and IT sectors were already changing before 1991 in ways that would transform India in the decades to come. There were key changes under the Rajiv Gandhi government and Sam Pitroda, his adviser on public information infrastructure and innovations. He was instrumental in sowing the seeds for India's future telecom revolution.
These and several other international events during the late 1980s and early 1990s (the collapse of the Soviet Union, and the 1991 balance of payments crisis in India) paved the way for other reform process in 1991.
In the process, the automobile industry, financial and infrastructure sectors and others experienced institutional reforms. Over the next five to 10 years, the economy was transformed from mixed and socialist to a dynamic semi-open economy hoping to surge ahead.
After this process, the Atal Behari Vajpayee government laid the foundation for future growth by continuing with reform by focusing on roads and infrastructure. Following the Vajyapee years, the significant achievements of the Manmohan Singh period included the signing of a nuclear deal with the US under UPA-1 and enhancing growth rates in the economy.
During UPA-2 in the early 2010s, corruption charges and high commodity prices instigated a weakening of the Indian economy. Despite global economic conditions bearing on its growth rate, the Indian economy remained quite resilient although weakened compared with the past successes outlined above.
New government enters
When the Narendra Modi government entered power in May 2014, there was increased hope among both investors and common citizens for better growth prospects. But sluggish prospects globally, in addition to a poor rural demand because of deficient monsoons, has reintroduced concerns about India’s economic future.
The government has already done well to increase the growth rate to more than 7% and avert a crisis and in the 2016 budget allocating requisite resources for a revival of domestic demand. It is trying to remove key laws that have dampened growth in the past.
From 1991 till 2016, the Indian economy grew at a phenomenal rate – second only to China among the major economies – to reach a GDP of more than $2 trillion. This has encouraged a growing middle class and provided more access to goods and services, initially thought inconceivable for a large number of people.
New Zealand companies are knocking on the door for Indian consumers. The Indian consumer market is evolving daily in the high socio-economic bracket. Not only are consumption patterns changing but so too are the broader macro-economic factors of relative wealth and urbanisation. This segment is educated, status driven and eager to get value for money – successful selling isn’t always easy.
Making a commitment to invest in the Indian market three years ago is starting to pay off for Quality New Zealand Ltd. It determined having an in-market presence would allow the company to provide a more cost-effective business model, and enabling it to leverage some of their shareholders, including Sir Richard Hadlee, Stephen Fleming, Daniel Vettori and Brendon McCullum.
Working together with The Alliance Group co-operative has enabled the Quality NZ to offer some of the best lamb in the world to premium hotel chains in India, a coup for the New Zealand sheep meat industry (exporting beef into India is strictly prohibited).
The chief executive of the company’s India-based operation, Geoff Thin, explains.
“India isn’t for the fainthearted. You need patience, a robust business model and products that satisfy a growing niche market which appreciates the world’s finest quality products. You also need to de-risk your business model, yet still bring a belief and focus that your efforts enable earning the long-term rewards that this exciting market offers.
“One thing to be clear about: There is no such thing as short-term gains in India. So, if you’re not prepared to commit, then it’s not for you!” Mr Thin says.
Challenges still ahead
The Indian economy experienced structural transformation as the services sector excelled while the industrial sector and agricultural sectors performed better than ever, yet are still sub-par considering their potential.
New Zealand companies have also benefited from India’s services sectors, with leading Indian companies such as Infosys, Tech Mahindra and Toonz expanding into the market in recent years.
Despite the progress achieved by the present and previous governments, key challenges persist. These pertain to the overall economic development, which has led to economic gains. There are also concerns over environmental degradation, tourism development, income inequality, rapid urbanisation, access to education and healthcare. All pose unique challenges.
These can probably be overcome with more reforms and by enabling youth to help solve society's problems. Speaking at the recent "Advancing Asia" summit, IMF chief Christine Lagarde lauded the Indian government's initiatives and hoped the promise of more reforms would ensure that “India's star shines brightly.”
It will be interesting to see how India copes and transforms its unique challenges into opportunities in the years to come.
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