Boom or Bust: What the tea leaves say about India’s economic transformation

The COVID-19 crisis has caused a fundamental shift in the economic outlook of the country. Once coasting along nicely at 8.17%, GDP growth is expected to nosedive to just over 1% in FY 2020-21. Domestic demand and exports have both slowed down considerably. The new normal will take some getting used to, with Indian industry bracing for supply chain disruptions and Foreign Institutional Investor (FII) outflows. But there is a measure of optimism as India’s potential to be a manufacturing hub for MNCs is likely to be accentuated by China’s falling out with the U.S. None of the Southeast Asian markets can match India’s ability to generate quality at scale.

The time for indigenization is now

The move to indigenization is in consonance with the avowed goal of boosting the share of manufacturing to 25% of the country’s GDP by 2022. And as important as Make in India initiative is, the focus should be on progressive localization and developing core Intellectual Property, rather than mere assembly. Voltas MD and CEO, Pradeep Bakshi sees indigenization as a vital plank for reviving economic growth in the post-COVID scenario. “We, at Voltas, are fully geared for made in India products to be developed completely in India. This will be supported by our in-house R&D initiatives which will be consumer-centric and will be based on consumer behaviour insights from the new era,” he said.

Digital integration is the way forward

Stretched supply chains will have to be reconfigured through large scale digitalization to make them more agile and resilient. For example, process automation can not only lower operating costs for logistics and transportation businesses in the post-COVID world but also help them expand market share. “All our solutions are fuelled by digital elements to ensure their long-term viability. Let me share an interesting example. We recently partnered with one of our clients to build COVID-19-impacted route maps across Indian states and districts. This unique mapping capability helps them track if their drivers have traveled to red, orange, and green zones so they can take preventive actions, as a responsible organization,” explains Jagmeet Singh, CEO, Axestrack.

Pharma Pivot: generic to home-grown

India’s strengths in the pharma, IT, and engineering domains combined with its large, educated workforce make it an ideal candidate to be the next manufacturing hub. However, the government must be willing to underwrite R&D costs to enable Indian companies to become globally competitive. Indian industry has shown a remarkable ability to adapt existing assembly lines such as to manufacture life-saving Personal Protective Equipment (PPE) and ventilators.

When asked whether the pandemic will lead Indian pharma companies to go beyond generic drug manufacturing, Vidhan Ashok, MD, Talent India Pharmaceuticals felt that expertise is required to go beyond generics. “Will the crisis accelerate the standard drug development process? No. There are protocols put in place to safeguard the quality of any drug. Lives depend on it. In scenarios such as this, when time is of (the) essence, calculated risks may be taken by carrying out 2- 3 development procedures in parallel to fast-track the drug development, provided regulatory clearances are granted” he said.

With very high risks and low probability of success, such feats may be difficult to pull off for many Indian players. “Only if one has great confidence in a potential proof of concept can one pursue provided, they have the wherewithal to support it,” he opined.

For Indian companies to evolve into globally recognized drug manufacturers, the first step is synthesizing their own Active Pharmaceutical Ingredients. This means greater investments in R&D despite the possibility of zero returns in the short to medium term. And this is where government funding can help Indian drug manufacturers compete with international heavyweights.

The virtual talent pool awaits

Digital interactions will become a part of the new normal, post-COVID. For example, remote Quality Assurance (QA) testing platforms are emerging as a viable alternative for Indian IT companies squeezed by the lockdown. Mayank Mittal, CEO of Bengaluru-based testing automation provider Qualitrix, said the company’s next-generation QA collaboration platform, oprimes, provides a cost and efficiency advantage. “It is a testing-as-a-service solution that works on the principles of crowdsourcing. Our clients are now engaging professional testers through the platform that hosts our employees, contractors and freelancers, across diverse QA skill sets and allows them scalability on a need basis,” said Mittal. oprimes is supporting many start-ups and large enterprises in switching to a completely output-based commercial model with zero capital expenditure. It also provides an open QA lab, allowing access to different device models, configurations, and ready-made test automation solutions.

Digitised payments

The liquidity problems faced by commercial and retail lenders are likely to ease once the stimulus package kicks in. However, they will need to leverage digital loan origination and servicing to provide faster credit to customers. Buoyed by the digital payment revolution, many fintech companies are rightly turning their attention to the country’s large unbanked population.

Mandar Agashe, the founder of Sarvatra Technologies, a cloud payment solutions provider, views the financial inclusion of the poor as a social obligation. “In terms of cash withdrawals, our Aadhaar-enabled Payment System transactions have grown by more than 350% since the lockdown. They are replacing ATM transactions in semi-urban and rural India,” said Agashe. Moreover, Sarvatra’s wide range of offerings has also enabled other financial institutions such as Business Correspondents to successfully extend money transfer and cash disbursal services.

The final piece of the puzzle is the labour reforms that successive governments have shied away from, leading to missed opportunities to attract investment in the past. Such reforms will enable the public-private partnership required to lift the country out of the crisis it currently faces.

Final Words

Can India benefit from COVID-19? The short answer is yes, provided both the government and industry are on the same page regarding sunk costs, an enabler of innovation and growth. Perhaps it’s time we look to Japan’s Keiretsu or South Korea’s Chaebol systems and adopt processes that transformed their respective economies in due course and brought prosperity to their citizens. India has the building blocks, but do we have the will? Therein lies the trillion-dollar question.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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