industrial revolution: Decoding growth engines for 2047: Does India need another industrial revolution?

What is India’s uniqueness? Korea is known for its cars, Germany for its engineering prowess, and Taiwan for its chips. What will India’s rise to economic glory be known for?
Gurcharan Das: Let us begin the story when we got our economic independence, which was in 1991. From 1991 till now, we have grown at almost 6% a year and this is a remarkable achievement for a democracy to average over 30 odd years, this growth rate. We have lifted 450 million people out of poverty. The middle class has grown from 10% to 30% and another 20% more aspirers to that. So, it is a good story and today, we are the fastest-growing economy in the world. But if we want to achieve that objective that you just laid out of 100 years, 2047, I think we have to still create an industrial revolution. In other words, manufacturing still has failed us. It is less than 15% of GDP and manufactured exports are less than 2% of global exports.

So, the issue is that unless we create an industrial revolution, we will not create the kind of jobs that people want. Our unemployment numbers do not reflect the reality that people do not want to be pakora walas, people do not want to be landless labour on the land or work on the family land. They want proper jobs. So, to get proper jobs is what I want to talk to you about.

: I just want to ask the importance of the manufacturing story perhaps being amiss as far as Mr Das is pointing out. In your opinion, when you compare it to China’s manufacturing prowess, Mr Sanyal, we look at the kind of growth drivers that India could perhaps piggyback on. There is rapid digitalisation. Could that be a disruptor you think? If you combine new manufacturing methods with new supply routes, do you see India rising faster in the changing global economy? Is that going to be a route that India needs to look into more deeply?
Siddhartha Sanyal: I think this is a great point. But I put it like this, that various economies will have very different growth models. In the case of China, during their very high growth days, we have seen their growth model was or their growth engine, major growth engines used to be high investments often driven by the public sector, then joined by the public sector as well as very high exports. So, they were blessed with a situation of very high external sector, positive balance surplus as well as surplus on the fiscal side. We did not have that.

But having said that, we had something which is a very strong base of a very large population, which had been providing a very strong base for a very stable and yet rapidly growing consumption base, I think that gave India a lot of stability and solidity in its growth performance as Mr Das very rightly pointed out, that in the last 35 odd years, we have grown at a rate on average 6%, 6% plus, I think that is a remarkable achievement.

Now, we have come to a stage where we have put a pretty strong platform to take it forward. And we are seeing a lot of renewed vigour and investment in the next drive of infrastructure, etc. Also, possibly very important to invest even heavily in human infrastructure or the soft infrastructure part. I think how well we do that over the next 5-10 years will possibly have a huge implication.Mr Das, while we are talking about investments, the government has led spends that fire up our capex, why do you think private capex has not been rising enough? Will it take strong consumption, like Mr Sanyal is saying, that kind of spending to raise private sector confidence? Why has that not happened? It has a multiplier effect and creates jobs as well.
Gurcharan Das: Correct. Now, first of all, let me say that you posed the question in the beginning, well, can we do it through the digital revolution? Mr Sanyal added that each country has to do it its way. It is not a question of either or. We have to do both. We have a large population and a very large, 45% of our population is in agriculture, that is double what is needed there and we are not going to take that half a population that is languishing in agriculture into the digital revolution overnight.But do not you think it is important to push up our agricultural output and because that has been the growth driver for our economy?
Gurcharan Das: Yes, I mean that too. Yes, listen, agriculture also, we have got to do those reforms that we need to do in agriculture. I am not saying it is either or question. We have to do all three services, manufacturing, and agriculture. But my point is that no country has been able to skip the manufacturing revolution in history and India is not an exception to world history. The last, what I am trying to say is that even all Asians and the latest China, did it this way. The west did it this way. But we are not going to be the first pioneers to forget about it.

All I am trying to say to you is that if you want to provide those people with jobs and I want to give you the answer of how we can do it. If you give me the time because that also answers the question that if you get… Why don’t we have consumption? Why don’t we have private investment? And the reason we do not have consumption, enough consumption, is because we do not have enough jobs. And if we do not have enough consumption, we will not have enough private investment. It is a cycle. And so it is a chicken and egg situation. And all I am trying to say is that we have not fired on the manufacturing cylinder and you cannot do without it. And also those who think that we have missed the bus are wrong. The reality is that the global exports of manufactured goods is 27 trillion dollars and even if our market share went up from 2% to 3%, we would solve the job problem.

So, we are not pushing enough to create that much more need or demand for Indian goods in the global market. Mr Sanyal, tell us about this disparity that exists because we keep talking about India’s consumption story for which our demand needs to be strong for a large amount of time. If we are to be an economy that is driven up by domestic demand, then the question is, is our growing middle class getting a capacity to spend both for discretionary and non-discretionary expenses? And if they are not, then why not?
Siddhartha Sanyal: I will possibly first touch upon one particular point which Mr Das very rightly pointed out, how India has moved in terms of manufacturing exports and exports in general. I think one particular thing and it is possibly not adequately discussed is the way India has moved up in the export value chain. Maybe 20, 30, 40 years back we were a country that used to export a lot of agro products, a lot of primary products.

But the evolution that India has seen in terms of its export basket mix, I think that is a very interesting point here. Today, a lot of our exports are reasonably high-end in the sense that we have moved a lot in the export value chain. We are exporting a lot of petrochemical goods. We are exporting a lot of engineering goods, automobiles, etc. Apart from some of the old strengths of gems and jewelry, etc. But when we are doing that, while manufacturing, I completely agree, there is a lot of room to catch up on that and create a lot of jobs. But some of these aspects remain a very strong ray of hope and we need to reinvent ourselves in terms of how we can take it forward further.

It is possibly still very optimistic to think about facing China head-on right away and I do not want to think that that is a growth model ideal for us for various structural issues in the economy, but there are quite a few pockets where India is doing phenomenally well, improved quite a lot over the last 20-30 years. We must try to encash a lot more on that, which will possibly create a lot of momentum in the export value chain, as well as create a lot of pretty high-quality jobs.

But for that, global demand needs to be strong and it needs to be consistently at that level for the period that we are looking at and right now there is a lot of uncertainty on global demand. Mr Das for that I was suggesting, our domestic demand needs to be the growth driver and how is that going to be? How do you consider our taxation system is helping our GDP projections? Many say that corporate tax needs to rise much higher than where it is and the tax net needs to be spread out much wider. What do you think?
Gurcharan Das: So, let me give you the answer. There is a ray of hope. And why? And Mr Sanyal and you will both appreciate where I am coming from. I am not saying it is either or. We have to continue that trajectory in the digital space. We have to continue exporting agricultural goods. But what I am saying is that the story I am going to tell you, which gives me hope, is the recent story of how Apple has made India a manufacturing base for iPhones. I mean, this is the China plus one strategy.

But ultimately, the story is that within a few years by exporting only 14% of the global production of Apple, we have been able to achieve $10 billion in exports of iPhones plus employ 150,000 direct labour. Of which 70% are women and the factory that is producing, it is one of three factories, one of the three factories that is producing it is employing 42,000 people and has become the largest factory in India.

What I am saying is that we have to break some myths. One of the myths is that we are a large domestic market and we can do it on our own. No. We are a small market. We have a large number of people. We have a big population, but we are a relatively poor population. The GDP per capita is still very modest. And so it is a small market.

While we are talking about job creation, we are also saying that entrepreneurship-led growth could be a driver as well.
Gurcharan Das: Yes, I am not saying that. Sure, entrepreneurs create great jobs. Digital revolution will create great jobs, but not enough. If you see the numbers we need to employ and the aspirers of those jobs. People will say, oh, but we do not have the skills. No, that is putting the cart before the horse. In the Apple case, those women who were employed had only one month’s training at Apple and that was all. And so, in labour-intensive sectors, including electronics, you do not need great skilling missions, etc. What you need is to create demand. Demand meaning demand for labour and so, the Apple story shows that we can go and target the biggest brands in the world, target the biggest brand in the world, and offer to do exactly what Apple did, create a manufacturing base. In other words, labour-intensive sectors, attack those, garments, shoes.

But is not Make in India, the push for Make in India exactly that Mr Das?
Gurcharan Das: …electronics, food processing can be great….

But is not Make in India exactly that thought process. How much further is that going to propel us to grow, to become a manufacturing hub in the world?
Gurcharan Das: You will be shocked my friend. You will be shocked. Because one Apple, as one of these, has sent a lesson to the world. When Vietnam heard that the prime minister of Vietnam flew to Cupertino to say, okay, you have given India the cell phones manufacture, could you give us the tablet? And that is how countries, and if you go to these top manufacturing, the scope is so large for jobs and we think there are SMEs to create jobs. Of course they do. Now, if Apple’s component manufacturers come, which is the next move, then you create even more jobs and have a transfer of technology to Indian companies. But my point is that Apple has sent such a strong signal that India is not a hostile place to do business in.

That perception change is an important piece Mr Sanyal, do weigh in on this, because as far as the ease of doing business is concerned, for being a manufacturing hub in the world, India can tom-tom that and draw in that much more investment. Where do you think things stand? How easy a place is India to do business in, in your understanding?
Siddhartha Sanyal: I think it has improved quite a lot, but we are far from a situation where we can be happy. I think there is a lot of improvement that is still possible. And again, completely agree with one particular point that we had just been discussing, that it is not only one particular segment, one particular area that we need to address, because a very big issue today, not only in the case of India but also globally, that not only to have the benefit of growth but how exactly, how well you distribute it.

Earlier there was a thought process that, okay, you first have growth and then you think about how growth will be trickling down. But possibly now it is time for India also to think that if we just keep on waiting for a trickle-down to happen at some point of time, it might be quite a bit of a difficult situation for a lot of us. Rather than that, the model can move from various directions at the same time.

For example, I will just highlight one or two points. For example, some of the low ticket, low investment, but high yielding benefits are, one classic example in my view, is investing a little more in rural infrastructure, such as agro storage or rural storage. Now, in the last 10-15 years, India has done phenomenally well in terms of rural electrification. A very natural corollary is to take it forward in terms of setting up better facilities in terms of rural storage or agro storage. The amount of food grains and some of the more perishable items that we lose every year because of shortage of good quality storage is still phenomenal, that has an impact on GDP, national income, per capita income, as well as inflation.

So, if we sort that particular piece, I think that is a great development. If we link it forward with food processing kind of industry that not only generates income but takes care of a large number of people, including women. So a lot of boxes get ticked with a relatively small quantum of expenditure.

This kind of infrastructure building is an important piece and it has a large role to play in nation-building, there is no doubt about it. It has a multiply effect on the economy. It boosts GDP by Rs 2.5-3.5 for every rupee spent according to reports. We have seen infrastructure growth. Look at how the US used the Great Depression to build the biggest highways that catapulted growth for them. But how are we faring on that count? Where are we lagging when it comes to how our infrastructure growth is developing?
Gurcharan Das: I think that is a happy story, actually. The reality is that one of the best things of the last four-five budgets has been that attention to infrastructure and capital spending. And today, the road mileage has doubled from 2011 to 2024. The port handling capacity has quadrupled in the same period. And in terms of overall, logistics-wise, we are in a far better position to create that industrial revolution I am talking about. And, the point that Mr Sanyal was making about food storage, well, precisely, we should target the labour-intensive sectors in manufacturing. The high end will take care of itself.

But if we target the big brands in the labour-intensive area, like food processing, like shoes, like garments, toys, and electronics, electronics I think we are on…

A good and robust credit system is needed within the economy. Are you happy with that Mr Das? Do you think we are growing in that direction and that private capex will pick up where opportunities exist, like in our rural economy?
Gurcharan Das: Yes, and in fact, one of the good things the government has announced in this budget are ways for the MSME sector to get access to credit. I think that is a happy story because what you need, they need, the MSMEs will become suppliers to the medium-sized industry and the medium-sized suppliers to the big industry. And so, I think if they have access to credit, it will take away some of the pain and there are disadvantages that we have as a country.

But there are stories like that of Maruti in the automobile industry. Maruti created a story and brought an ecosystem. Now, if the ecosystem comes naturally as ancillaries come, whether they are Indian or foreigners, we should not worry. As long as they create jobs.

Are we looking beyond the Tatas, when we are talking about entire stories that are made in India, getting exported to the world? How much have we grown on that count Mr Sanyal and how much of a push does that need when we are talking about global demand and India servicing that kind of demand?
Siddhartha Sanyal: We have moved rapidly on the manufacturing export value chain. I think there are a few areas, export not necessarily mean you will get to see a physical chunk of items move across the sea or move across some other means to an offshore place.

For example, in the case of India, another fantastic example can be tourism and various kinds of tourism. It can be nature-related tourism, it can be heritage-related tourism, it can be religious tourism, it can be medical tourism, it can be education tourism, so many various shapes of tourism provide huge opportunities for India. And at the same time, it is great to see that we have expanded our road network so well. We have expanded our airport network so well. We have expanded our communication network so well.

These are critical ingredients or building blocks for such tourism. It involves a lot of people, not only high-end hoteliers. It involves people in restaurants, in small auto rickshaws and everyone. I think it is important to keep picking or focusing more on these areas where more and more people will be involved.

We are home to the world’s biggest unicorns. We have so many UNESCO World Heritage sites. We have yoga. We have our films. Mr Das, how is India expanding its soft power and the importance of doing so?
Gurcharan Das: Well, we are very proud of this sort of the startups that we are seeing, the unicorns that we are seeing and India’s image also, which was a spiritual country and all that is now a broader image of a country that can make an economic success of its people. And we have to thank the IT software, etc, people who have created that wonderful story. And so, the need now is still to broaden that story. Yes, tourism is a wonderful creator of jobs….

Yes, you did mention the importance of these stories and we are generating them. Now you are saying the pace of developing these stories needs to quicken and we need to kind of cut to the chase and we need to broaden our understanding of what the world requires and provide it to the world as well like our exports. Is not that right Mr Das?
Gurcharan Das: Yes and can I just quickly add one thing? We are in the age of startups in India and there was one research done by an MIT professor in the 1980s. He looked at America over 25 years and he said that 80% of the jobs that were created in America were created by startups. In other words, they were not created by giants like Exxon, IBM, etc. They were not created by the mom and pop stores, the kiranawalas, etc. They were created by companies that started small and became big. Like FedEx, DHL at that time.