“Tough times never last, only tough people and tough institutions do”, India’s Reserve Bank governor Shaktikanta Das said last month. This phrase could also be expanded to include tough countries too. India is certainly one such tough, survivalist country, and we will surely beat back this pandemic. We have many difficult challenges to overcome in the next few weeks and months. Nonetheless, we are well-poised to take advantage of the post-corona world in the next few years.
This is undoubtedly the right time to accelerate our efforts to build “New India”. Of course, we have to control and treat Covid-19 patients successfully. Our lock-down strategies have to be carefully planned. We must to provide food and income support to vulnerable populations. MSMEs and large enterprises require massive financial help. Our financial system has to have sufficient capital to finance growth going forward. These are all tough challenges, for sure. Still, hopefully in a few months we might have drugs that will effectively treat the disease. And, in a year or two, we will have vaccines that may end the pandemic. We must, therefore start to examine those game-changing ideas that will enable us to cash in on our natural advantages in the post-corona world.
NO NEED TO FEAR THE FISCAL (DEFICIT)
We must be Keynesians now. The coronavirus pandemic requires abandoning fiscal rectitude, since we are facing a sharp drop in the aggregate demand. Across the world, countries have thrown away the fiscal rulebook and are spending huge sums of money to prevent their economies from falling, or even stalling. Fiscal deficits across the world are rising rapidly as governments fire the “big bazooka” of unlimited state support. While the US, UK, Germany have already unveiled grants and loans amounting to 10-20% of their respective GDPs; countries like France, Spain, and Japan are promising grants and loan support between 10-15% of their GDPs. Under these circumstances, India’s difficult debt dynamics should not stop it from taking “the much-needed risk”.
WE CAN AND HENCE, SHOULD SPEND MORE
The cost of capital is also going down rapidly, enabling us to borrow and invest at very cheap rates. The US 30 Year Treasury rate is at historic lows of around 1.27 per cent, half of what it was just a year ago. With the world’s global benchmark rate so low, India can now source money through long-term loans to build its infrastructure and factories very cheaply.
Even as we contemplate how best to spend these additional fiscal resources, we are likely to benefit from an oil price decline. Oil prices have declined in the past few weeks from $50-60 per barrel to about $25-30 per barrel. India’s oil import bill was close to $112 billion in FY19, so it is very much likely that we could easily save around $50 billion on oil import bill this year, if, fortunately the current rates continue for another year. This is well over Rs 3.5 lakh crore.
We are also witnessing a 20-30% price reduction in commodities like iron ore, natural gas, coal, among many others. These massive price declines are likely to persist for at least 1-2 years till the global economy is completely up and running again. So, if we can lock in long-term supply arrangements now, we will be able to save a lot on these basic, yet crucial building blocks.
INDIA’S DEMOGRAPHIC ADVANTAGE
India is one of the youngest countries in the world. Its young and healthy population is eager to get back to work. Young people with stronger immune systems are much better at handling the Corona virus. Older populations sicken much more, require more hospitalization to fight this respiratory disease, and sadly suffer higher mortality rates. Therefore, the disease burden for our younger population is far lower. In addition, while the science is still somewhat unsettled, it appears that both our hot climate as well as our immunity levels might enable us to fight back the virus better than more temperate countries. Our young workforce, if it practices appropriate social-distancing, will thus enable India to get back to work much faster than other countries.
INDIA IS THE WORLD’S OPTION
India’s global credibility is getting higher. Our pre-emptive and courageous national lockdown has successfully suppressed the pandemic to a large extent, and the world acknowledges PM Modi’s inspirational leadership. India is therefore becoming the natural destination for global corporations that are looking to build more resilient supply chains and diversify away from being too China-centric. Many global players – in industries ranging from pharma to auto parts to apparel – are now actively searching for locations in India. From the US alone, there are reports of over 200 firms looking to move manufacturing operations from China to India. The post-corona world will require global companies to be able to swiftly source vital inputs from around the world. India is thus ideally suited to become a global manufacturing and services hub.
MAKING INDIA EVEN ATTRACTIVE
Many companies that are willing diversify their supply chains are currently finding India not as attractive as some other countries, like Vietnam. Poor infrastructure, not-very-skilled labor, time-inefficient judiciary are some of the drawbacks that India needs to overcome.
Even as India’s rank in “the ease of doing business” almost halved in the last 6 years, there are however, a lot of on-ground problems like land acquisition, bribery, senseless colonial-era laws that are yet to be addressed with focus. Also fast-tracking the flagship infrastructure projects like the ‘Dedicated freight corridor’, Bharatmala and Sagarmala will help India in attracting a number of manufacturing giants.
MSMEs & STARTUPS
A sharper focus on large-scale import substitution will help add millions of jobs in the MSME sector. This will require significant reforms and policy interventions for ensuring timely access to credit, improving ease of doing business and introducing modern technologies. The expansion of local manufacturing scale should not just aim at catering to the domestic market. Companies must to be able to tap global markets, for which India needs a strong policy that provides incentives for exports.
To position ourselves among the world’s scientific elite, we must, first and foremost, encourage the scientific community to create and market their intellectual property. Entrepreneurial scientists are crucial components in the march towards scientific superiority, as is evident from the success of countries like the US and Israel.
Look at how Indian entrepreneurs are harnessing innovation to respond to the COVID-19 Pandemic. A small molecular diagnostics company based out of Pune, Mylab Discovery, was able to develop a relatively cheaper and more efficient test for the novel coronavirus indigenously in a record six weeks. Similarly, Mysuru-based Skanray Technologies has drawn up plans to locally assemble ~100,000 ventilators with support from BEL and Mahindra & Mahindra to meet the expected spike in demand. Syngene, the research services subsidiary of Biocon, is working to develop serological antibody detection tests as well as vaccines against COVID-19.
India has a large number of start-ups that are thinking creatively and using cutting-edge technology to develop world class products. Yet, many of them are stuck at the stage of taking ‘ideas’ to ‘proof of concept’. Most fail to scale up operations and achieve commercial success because investors are not ready to take the risk of backing them. Even after managing to raise capital and deliver their product, many innovative start-ups struggle to find early adopters in their home country.
India will enter the post-corona world with massive advantages. Suddenly, it will OK to drive up the fiscal deficit and spend money, a lot of it. Our fiscal constraints will not be binding. In addition, interest rates, oil prices, and commodity (such as coal and iron ore) prices will be at historic lows. Our young population will likely not be sickened as much as the older populations in high-income countries. We have a strong, stable government with the most popular leader in the world. All countries are looking to diversify their supply chains away from China. In sum, it’s a golden opportunity to build “New India”.
If India is to address this opportunity, it will have to act expeditiously and the Indian government will have to play an enabling role by creating a suitable physical, financial and legislative infrastructure. In addition, the government needs to provide good infrastructure to support the growing needs. Other such incentives that are quintessential to put India at the forefront of the global manufacturing sector should also be provided.
Institutions must be encouraged to coordinate with industry to share resources and skills, which will eventually facilitate better and relevant research. A collective effort by public institutions and private enterprise to cooperate towards advancing scientific research will be the ideal catalyst for India’s emergence as a science and technology leader, which will add weight to India as a true “Global Player”.