Beyond Morgan Stanley: Stiff Challenges Await

I got an opportunity many years ago to travel on a busy highway between Rajkot and Ahmedabad soon after it was constructed. Though in a rush to reach Ahmedabad to catch a flight back to Delhi, I noticed innumerable dhabas and restaurants with garish, shimmering lights, dotting both sides of the road. I realised then, as I had earlier many times in the past, that a new inter-city highway or railway is much more than just a means of faster travel. It opens up innumerable entrepreneurial opportunities. Petrol bunks, dhabas, restaurants, puncture repair outfits and small kirana shops spring up from nowhere and grow into small clusters of enthusiastic economic activity. Likewise, the railway station becomes a similar hub- messy to look at, but vibrant. As new property develops, it provides new business to brokers and middlemen and customs to many auto drivers and small taxi wallahs.

The country currently has 1, 44,634 kilometres of national highways.   When I Iearnt that the length had doubled since 2011    I could visualize the impact this must have had on livelihoods. But this is not the country’s only achievement since 2014. This decade has been transformational for India in many respects, according to   Morgan Stanley’s latest report.  

 Sample a few of the impressive array of achievements: India’s GDP, currently at about $3.75 trillion, is the 5th highest in the world, and the country is now the world’s fastest-growing large economy.  Its 4.5% inflation rate, on the other hand, is the lowest amongst the world’s major economies.  India’s retail markets, currently valued at the moment at $781 billion dollars, are by 2032 expected to grow to $1834 billion.   The country attracted about $ 84 billion as foreign direct investment in FY 22- again reportedly the highest in the world. During FYs 15 and 23, railway tracks modernized increased sevenfold from 4100 kilometres to 28800 kilometres, the broadband subscriber base went up from 58.9 million to 771.3 million and renewable energy added increased from 25.7 million to 75.7 million gigawatts. Post demonetization, and not necessarily as a consequence of it, digital transactions shot up from 8% to 76% of GDP during FYs 17 and 23. Each of these statistics is not just an abstract figure; it reflects how lives have changed for the better.

To be sure, there have been some failures too- for example, with better preparation, GST could have been rolled out seamlessly.

On the whole, however, the country is well poised to conquer new heights, and face some pretty stiff challenges that lie ahead.

 Serious headwinds lie ahead

At 7.7%, unemployment is unacceptably high. Truth be told, as companies begin to rely on AI, robotics and machine learning, they find out that they need fewer employees. Covid only intensified this tendency. To cut costs, companies resorted to retrenchments; made their employees work from home; and began running businesses through teleconferencing, e-mails and WhatsApp. Consequently, bottom lines improved, but we are left with an aggravated unemployment problem. 

Currently, 44%, 25% and 31% of the workforce in the agriculture, industrial and services sectors of the economy account for 20%, 26% and 54% of GDP. Clearly, population has to be moved from the relatively low value-adding agricultural sector to the more productive industrial and services sectors. This will happen only if the economy grows at least at 8% per annum as a result of higher FDI and domestic investment. Even then there may be a mismatch as most of the jobs that result may be mostly for knowledge and skilled workers.

This problem exists today as well and is a direct result of the neglect of soft infrastructure-primary health, education and skills development. The annual expenditure on public health and education at 1.3%   and 2% of GDP is woefully short of needs and must be raised.

In life, as in economics, it takes all the running you can do to keep in the same place. If you want to get somewhere, you may have to run twice as fast, the Red Queen advises Alice in Lewis Carroll’s Through the Looking Glass.

The time to think about these problems is now.

(The writer was Chief Commissioner of Income-tax and is the author of the Moral Compass- Finding Balance and Purpose in an Imperfect World, Harper Collins India, 2022)