Destination... $20 trillion economy

Team Inclusion

Prime Minister Narendra Modi has called for making India a $20 trillion economy. The current size of the Indian economy is around $2 trillion. Taking it to $20 trillion looks a daunting task.

Experts call for adopting sector specific and region specific targets to accelerate growth. For example, a target should be set on what kind of banking system is required if India becomes a $20 trillion economy. The function of the banking system in the $20 trillion economy would be radically different from what it is in the $2 trillion economy. Similarly, what kind of insurance, payments and other financial system would be required? There needs to be specific targets for other services as also for manufacturing, agriculture and other sectors of the economy.

States would play a crucial role in achieving this ambitious target. The role of the states like Madhya Pradesh, Gujarat and Maharashtra would be the key. A healthy competition among the states would help boost growth and investments.

What makes states competitive? These are—presence of good physical infrastructure like road, electricity supply etc.; openness of states to private participation; extent to which a state is willing to use Information Technology; availability of land; labour relations; and, commitment of the government to good governance.

Anthony De Sa, Chief Secretary, Madhya Pradesh said, competitiveness of the states is extremely important as the Indian economy is largely driven by the domestic consumption and investments.

Chief Secretary of Maharashtra Swadheen Kshatriya added saying, although some states, like Maharashtra and Gujarat, have inherent advantage for business and industries due to geographical location and availability of physical infrastructure, others are pulling up their socks to woo investments.

Effective and credible institutions and a transparent ecosystem, especially in the areas of public procurement, infrastructure and services are essential to ensure long-term sustainable growth. Ashok Chawla, Chairman, Competition Commission of India, said a timeframe of say 15 years should be set to make India a $20 trillion economy from the current around $2 trillion. According to him, public procurement, infrastructure and services, are key areas where competition can play a catalytic role in unlocking growth potential for the whole economy.

Concrete steps to improve the perception of the country on ‘ease-of-doing-business’ on this count would be a pre-requisite for taking the economy to the $20 trillion threshold.

Ari Sarker, Division President – South Asia, MasterCard Worldwide, highlighted that the economy needs to grow 10 times to reach the $20 trillion mark and it would require capacity building in every sector. “A radical change is required in the payments system. All stakeholders need to work together to make India a cashless society. India currently spends Rs 4,500 crore in printing currency. The cost of cash is 0.5 to 1.5 per cent of GDP,” said Sarker adding, moving to the electronic system would help boost the overall economic growth. Group Country Manager for India and South Asia at Visa, T R Ramachandran also expressed similar view and said entry of new players and healthy competition would drive the growth of payments sector in the country.

Managing Director and CEO of National Payments Corporation of India (NPCI) A P Hota said the economy couldn’t grow 10 times if dependence on cash continued. Typically in a $1 trillion economy, the payments worth around $10 trillion take place. If the Indian economy becomes worth $20 trillion, payments volume would be to the tune of $200 trillion per day. This kind of payments volume cannot be handled through cash and therefore a coordinated effort should be made to make India a cashless economy.

But, why despite being global leader in IT services India remains predominantly a cash-driven economy? Only 5 per cent of the country’s personal consumption expenditure is done electronically. According to Deepak B Phatak, Professor, IIT-Bombay and Director, SKOCH Development Foundation, coordinated effort is lacking and despite presence of several players electronic payments system still remains out of the reach of the masses. He said masses would move to electronic payments only if it is made as simple as cash transaction. Not only cash-less, the need is to do away with even card transaction and develop a “cash-less, card-less” system of payments.

If the economy has to grow 10 times, the need is to think even bigger. “It requires radical thinking,” said Karan Bajwa, Managing Director, Microsoft Corporation (India). In order to make the economy 10 times bigger the need, according to Bajwa, is to think and plan for 20 times. He suggested that India should leverage global innovations, as there was no point in reinventing the wheels. For this, the need is to create a level-playing field. “Digital is the way. Technology has to be at the centre of everything we do,” said Pramod Saxena, Founder Director, Oxigen Services (India).

Business leaders call for predictability and stability in regulations. According to Anuj Agarwal, MD & CEO of Bajaj Allianz Life Insurance, there have been too many changes in regulations that stifle growth. He said the companies make their business strategies as per the existing regulation. A frequent change in regulation impact business negatively. “There have been too many changes…by the time the company gets ready for new regulation, the regulations get changed again,” he said.

What India needs is a stable regulatory environment, particularly in insurance sector, so that insurance penetration in India, which is among the lowest in the world, could grow rapidly.

Farm sector growth in India has been far below the potential, said H R Dave, Deputy Managing Director, NABARD, highlighting the need for more private investments in the sector. Generally targets for agriculture sector is 4-5 per cent. Some states like Madhya Pradesh have proved that agriculture sector can grow at 20 per cent consistently with proper thrust to the sector. He said agriculture credit is a big issue. As per the latest NSSO survey report, more than half the farmers have no debt. Even those who have debt, only around 60 per cent have access to formal banking system.

According to S S Bhat, CGM – Financial Inclusion, Canara Bank, in farm sector the focus should be on investment credits. Incentives are given for short-term loans. There is interest subvention scheme of the central government. Then there are subsidies from the states. In some states the effective interest rate on short-term farm loan is zero per cent. However, no such incentive is available for long-term investment in agriculture sector. There should be special focus for investment credit in agriculture sector, Bhat said.

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