Your main hypothesis is that India is at a turning point despite whatever is happening in the environment. There is hope which lies ahead?
Yes, we really think that India is a decadal turning point and how the next decade unfolds is really up to us and therefore we took almost a year to write this particular report. Even before Covid uncertainties, Indian economy was slowing down, the GDP had slowed down to 4.2%, NPAs have gone from 3% to 9%, exports dropped from 25% to 19%. So there were dark clouds on the horizon even before Covid and the pandemic added more uncertainties to this.
Can India really get on a high growth path because India needs to add around 90 million non-farm jobs in the next decade and if you say that the Covis impact could be there up to 2023, then in seven years around 90 million jobs or around 12 million jobs would be created in a year. Compared to that, there was only around 4-million job creation in the last six years before Covid. So it has to triple the jobs and that means around 8 to 8.5% GDP growth rate.
So creation of 90 million jobs and 8 to 8.5% GDP growth rate is the imperative for the Indian economy. Of course with Covid, it seems uncertain but we think that this is perhaps the time to embark on a set of measures and reforms that can take us to that type of growth rate 2023 onwards. That was the reason for this report and by the way, between 2000 and 2010, India did grow at 7-7.25% and employment growth was 1.3%. India has done it before and we think that if we take a set of steps India can do it again.
It is also important to take stock of where things are right now. We are clearly limping back from the throes of the worst pandemic the world has ever seen. How are you observing the shape of the recovery which is taking place?
It has a lot of uncertainties around it. I do not have a perfect crystal ball to say what type of recovery but we have a few points here. In the report we have said that even this year, the Indian economy could contract somewhere between minus 3 and minus 9%. It will be probably closer to the minus 9% and that is something not much can be done about.
Our sense is that recovery will start and sometime during the next financial year perhaps Q2 of next financial year is when we will start coming back to normal that means we will start having the same type of GDP and GDP growth rate as we had pre-Covid but different sectors will go through different types of recoveries all the way to the bottom. Perhaps recreation, airlines, hotels and so on which we call almost a L-shaped recovery which will be slow, muted and all the way to the top between sectors like essential consumer goods and agriculture which have not actually got affected too much and recover much faster. So different sectors of the economy will recover differently but it will take the middle of next financial year to come back to some type of normality.
Which sectors do you think are looking promising right now? Which are the ones which will actually see tailwinds because of the Covid and which will languish for some time?That is a very good question. We actually debated, discussed and analysed this a lot and I will tell you some of the things that came out of our analysis. We tried to decide whether we can depend just on services. Many people say that India should go directly from agriculture to services. So we looked at that and the conclusion that we reached was that while services are very important, they have to grow at 9% to 10% but it is not enough.
The sectors that really need to amplify the most are construction and manufacturing. Construction when we projected up to 2030 was supposed to create almost 24 million new non-farm jobs from the 90 million non-farm jobs that I spoke about. So one in four jobs have to come from construction and construction includes both real estate as well as infrastructure.
The second sector which we debated and discussed a lot was manufacturing. This decade is perhaps the last decade when we can get our manufacturing act together. Manufacturing not only will add 11 million non-farm jobs but one in five, $750 billion of additional GDP could come from manufacturing. So both manufacturing and construction job wise were quite important and because of the general state of economy and depending on what stage we are at, agriculture will shed around 30 million jobs. Therefore, manufacturing and construction need to amplify the most in this part and in this decade.
Let us look at agriculture a little more closely as a contributor in your view. Agri Bill has started a debate. Prime Minister Modi just a while back was talking about the benefits it will accrue as far as the farming community is concerned. How are you analysing how things are progressing on the agri side?
I would specifically speak on agriculture but in the report we have come up with 43 frontier business opportunities and agriculture is probably one of the top six there. What we looked at is really agriculture. It is not just farming but it is the agro processing part. India has the potential to go to almost $100 billion of agricultural exports. Today it is around $30 billion. So it is 3X and this is in areas like fruits, vegetables, aquaculture, livestock and so on. So agricultural export opportunities are enormous. It is one of our major frontier business opportunities. As we look at the required reforms, the good news is that some of the reforms that we had mentioned in the report, the government has already announced including the APMC Act relaxation, the Essential Commodities Act relaxation, ability of the farmers to directly go to end consumers is very important.
On top of that, a substantial infrastructure investment is needed and a lot of that can be done by the private sector -- whether it is cold chain and so on. That can perhaps be catalysed and precision agriculture as well. That really increases the yields per hectare. That is the second need of the day. Overall, agriculture will have an important role to play, especially agro processing in exports as well as domestic consumption and some of the reforms that the government have announced are a step in the right direction.
How are you analysing the role of various kinds of companies in your report? While small ones are badly hit, large ones are chugging along. Also, what kind of help is required for SMEs?
I completely agree that this has been a particularly difficult time for small and medium size companies and from that perspective, any policy response especially towards credit guarantees and so on have to be done. In our report we looked at slightly longer term horizon and we also compared the Indian corporate overall landscape to many other peer economies as we said and we were surprised to find out that the number of large and medium size companies that the Indian economy requires are simply not there.
Just to give an example, on the large companies side, in most of our peer economies, 70% of the GDP comes from revenues of large companies. In our case, it is only 48%. At this scale of the economy, India should have almost 1,800 large companies and the reason for large companies is not just because large companies have to be there but it is because 40% of our exports come from large companies. They are 11 times more productive than the economy as a whole so they give the boost that is required. Ttherefore, we need three times the number of large companies.
But when we started looking at why this is so, the answer that came out is the lack of companies of medium and small size. India has what we call the missing middle. India needs another 1,000 midsize companies to become large and 10,000 small companies to become midsize and that ladder has to be climbed.
When we started looking deeper into what is stopping them, it is really lack of access to capital and substantial difficulty in doing business which is a lack of ease of doing business. It is important for India to climb the ladder of scale for small and medium size companies so that we can be the job creators and the productivity enhancers that India sorely needs.
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90 million non-farm jobs and 8.5% growth rate needed. Can India do it? - Economic Times
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