Feature Article INDIA: The Rise of a New Economic Superpower 3
The Centre for Social and Economic Progress (CSEP) is a public policy think tank that conducts research on issues facing India and the world. CSEP Associate Fellow Riya Sinha talks about India’s connectivity with neighboring countries, liberalization of the economy, and strategies to attract foreign direct investment.
Associate Fellow, the Centre for Social and Economic Progress
Riya Sinha
The image of India’s economy from overseas used to be ICT offshore and call centers. What are its major industries today and the prospects for future growth?
It has been a service-oriented economy dominated by the IT sector and BPO (business process outsourcing) to a point where India was known as the back office of the world. It was realized about a decade ago that while services constituted about 57 percent of the economy, they contributed about 28 percent to employment.
Therefore, the government realized a need to strengthen manufacturing, and introduced schemes including ‘Make in India,’ with an emphasis on skill development. Another initiative is ‘Atmanirbhar Bharat Abhiyaan,’ which translates to ‘Self-reliant India.’
Manufacturing in India has traditionally not been strong, but certain sectors have developed in recent years, including iron and steel, pharmaceuticals, and textiles.
Could you delve into India’s economic liberalization and the impact that is having?
It’s a process that started in the 1990s, when due to the balance of payments crisis, the government decided it had to end the monopolies of many public sector enterprises in manufacturing sectors.
Recent schemes like ‘Make in India’ have identified 25 sectors, including automobiles, aviation, space, biotechnology, ports and shipping, and roads and highways. It’s a very comprehensive list of sectors where India seeks foreign investment. Thirty years ago, or even 20 years ago, this was unimaginable.
Then there are supporting schemes such as ‘Skill India,’ which is focused on youth, and ‘Digital India,’ that focuses on improving the public digital and financial infrastructure.
In terms of India’s domestic market and supply chain, what areas do you see as most promising for foreign investment in India in the future?
Infrastructure development is one of the focus areas, as well as developing different industrial corridors and end-to-end supply chains. The government is very welcoming towards inviting best practices from partner countries.
India is of great interest to Japanese SMEs (small and medium-sized enterprises), what would you say to those thinking about investing in India?
India has been making procedural and regulatory improvements to attract investments in the country. A recent development is the National Single Window System (NSWS) platform, through which licenses and clearances that used to take six to eight months can now be done in 30 days or less. That is a significant development when it comes to welcoming SMEs to India.
What are some of the biggest countries in terms of FDI (foreign direct investment)?
Japan is one of the biggest investors in India in terms of the diversity of sectors. In geopolitical terms, Japan is seen as a trusted partner of India so all the more welcome when it comes to investment. We’re also negotiating a Free Trade Agreement (FTA) with Europe and engaged in talks about increasing FDI.
What could India do to make itself even more attractive to FDI?
India was seen as a reluctant partner for a very long time and for justifiable reasons. But things have changed in the last ten years. India has a goal to become a USD 5 trillion economy by 2025, and it realizes that it cannot become that size of an economy by itself, it needs external investment.
The number of overseas visits and delegations by the prime minister and the commerce minister is at its highest level in 30 years, an indication that India is now open to bilateral FTAs and economic partnerships. It did opt out of the Regional Comprehensive Economic Partnership (RCEP) but it is focusing on bilateral FTAs. Ten years ago, FTA was not a word you would utter in the corridors of the Ministry of Commerce and Industry.
What do you see as the future prospects for Japan-India economic relations?
There are opportunities in states across the country. Efforts towards increasing investments in different areas have made the life of businesses which want to invest in India much easier.
Japan is a regional player in South Asia. Apart from India, it also has a presence in Bangladesh and is in a good position to help develop a regional connectivity plan. Trade with Bangladesh has been growing along with infrastructure linking the two countries in recent years.
At one point, it used to take only one day for goods to move from India to Singapore, but up to five days to Bangladesh, which is next door. Defense manufacturing is another area I see potential for collaboration, especially in unmanned aerial vehicles and robotics, where Japan has expertise.
There is also scope for investments in skill development and capacity building. This is already happening through the Japan-India Institute for Manufacturing, but I think more could be done, particularly through leveraging India’s youthful demographics and Japan’s strengths.
