A new economic agenda that accelerates sustainable economic growth, creating new jobs at scale is what Indian economy needs to surge ahead, suggests a new Mc Kinsey and Company report.
In the aftermath of Covid-19, India has arrived at a turning point that can place it on a meteoric growth trajectory, provided it takes the rights steps. The disruptions caused by the pandemic presents the perfect opportunity to usher reforms and policies to restore the economy. Failing to act now can stagnate the economy for this decade with dire consequences.
In this new report, McKinsey Global Institute presents a reform agenda, which if implemented in the coming 12 – 18 months, could increase productivity, raise incomes for employees, MSMEs and large firms, while making India one of the top-performing emerging economies of the world.
Faster and sustained GDP growth
Based on the present demographic, India will need to absorb 60 million new workers and 30 million workers moving from the farm sector by 2030. To create 90 million fresh nonfarm jobs, India’s GDP would need to grow by 8 – 8.5% annually till 2030; that is double its 2020 figure of 4.2%.
India’s employment would need to grow by 1.5% annually, from 2023; while maintaining productivity growth between 6.5 – 7% per year. Considering India’s past track records, these numbers not outlandish and very much achievable. Manufacturing and construction are deemed as the two sectors that can contribute substantially to meet the projected targets.
Three focus areas to boost growth
India needs to grab opportunities presented by emerging global trends like automation and digitization, urbanization and increased focus on health and sustainability. Following 3 growth boosters could create $2.5 trillion of economic value in 2030 and account for 30% of nonfarm jobs.
- India needs to capture high-potential sectors like capital goods, textiles, chemical, apparel, auto and auto parts, medical devices and pharmaceuticals by increasing its competitiveness in the global hubs. Strengthening IT enabled services like AI and AR and developing healthcare services, superior agricultural ecosystems and high-value tourism can also act as a great boost.
- Eliminating inefficiencies in logistics, power, financial services, government services and automation in business groupings by upgrading to Industry 4.0 and using renewable energy could generate almost $865 billion in economic value.
- Businesses need to capitalize the shifting preferences of Indians aspiring to better standards of living. Introducing a robust planning approach to make cities more productive, increasing the share of e-commerce in retail, increasing production of renewable energy, and expanding digital communication services could add about $635 billion of economic value.
Increase India’s large firm count
600 of India’s large firms contributed revenues equivalent to 48% of India’s GDP in 2018. Relative to GDP, India has lesser large firms in comparison to Thailand, Malaysia and China. To reach higher productivity covering all sectors, India needs to enable 1000 or more mid-size firms to scale up to large firms and over 10,000 small firms to scale up to mid-size.
Targeted reforms to raise productivity
Focused reform policies are needed in several areas. Sector specific policies are needed in real estate, manufacturing, agriculture, food processing, healthcare and retail to increase productivity. Unlocking of land supply is needed to lower the cost of industrial and residential land use. More flexible labor markets with stronger social safety and reduction in commercial and industrial power tariffs are required. And improvement in ease of doing business while lowering costs is also needed.
To enhance the number of business firms that forms the basis of economic growth, increasing productivity and generation of jobs, India needs to raise additional capital of about $2.4 trillion. Strong reforms in financial sector is required meeting this substantial need. Finally, strong collaboration between central and state governments, and the business sector is must. All these three parties need to work together with a central strategy and 100% commitment to make India’s dream of achieving economic dominance come true.
To read the McKinsey report click here