Triple Boosters for the 5T Economy

10 Jan

Reviving the economy, the five trillion moonshot, and the state of the slowdown, are all exercising the best of minds across economics and business. We have mulched though the need for structural changes, through systemic effects, and through the nudges required to wake sluggish demand. Suggestions are pouring in from experts, and all of these need money, and more. Given the crunch, it is not going to be easy even for experts to agree on which of the suggested options deserve highest priority.

Indeed, this is the question for now – what are the key criteria for budget interventions. For example, are we looking for rapid impact, or a strong sustainable engine of growth, or both? Given the state of the economy, this may need to step away from tradition, and focus on the now and the obvious. The budget itself has always been a time when economic theory, and policy meet business pragmatism. This year, the economy need to be guided by three very basic, but key principles – Value Chain, Discovery, and Multipliers.

India’s major boost up the value chain was thanks to the IT boom of the late 90s, where our production moved up from the traditional handicrafts, gems and jewellery, two car models, and few behemoths, to a vibrant service economy. Even then, the IT boom was at the lower rungs of the value chain, Indian techies often being called code coolies. Our production, across sectors, remained fairly basic, with the aggregate value add (read GDP) rising more due to volumes, and not so much due to a rise in value. India’s large market delivered a consumption boom after liberalisation, so there was little urgency to move up the value chain. If machines were produced here, it did not have to be the Benz, if phones it was not the Apple. High value added services and products were tiny niches, intended for the export market, and rarely led growth.

Moving national income upwards now is not just an exercise in reviving consumption, which is essential, but also, critically, working to earn higher value add from every next transaction. Moving up the value chain is critical to the high ambition of the five trillion economy. This moving up the value chain is not just about the GDP now, but is also instilling a sense of genuine national pride in higher order earned achievements. Identifying markets of sustained value at higher price points, and credibly delivering to that level of expectations is now an imperative for India.

The ambition may be daunting in the light of everyday reality that we face in the markets – and this is true for both labour and product markets. Despite a surfeit of youth of employable age, many of them degree holders, including engineering, employers are united in stating that they cannot find employable youth. Skills programs have tried their hardest, and continue to do so, but the mismatch between supply and demand remain. The start up system tries to find arbitrage and other solutions to these, but is way away from scale impact yet. The tightening of the economy sees the same discovery problem across sectors, with inventories being reined in, product ranges minimised. This is a classical Discovery problem, when the markets are unable to function efficiently to enable the right kind of match – they are neither headed towards being perfect, nor complete. A consumer will likely be able to find a previously popular, or mediocre product, but not the perfect fit. Anaemic supply chains stunt innovation and limit new pathways for growth. Deals need to find their markets, and working capital needs to be put to work much harder – and for this, deals need smarter discovery pathways.

Investors are wary – whether new or old, for ventures or projects, private or government. They are essential to kickstarting the next growth cycle now – and to them goes the third principle – Multiplier. Financial investors have used this term before, as have monetarists. We need to extend this term across sectors, and add it as a criteria to investments. Does this investment create a multiplier effect on growth? Does this investment spur more investment, to create further value? In seeking positive externalities from our investments, we need to be focused on specific multipliers of new jobs, local economies and new businesses fostered. Till investors are limited, investments need to be tasked with doing more for the economy – they need to be a force multiplier for growth beyond their own projects.

India’s growth stimulus packages must be able to provide a pincer push, working on both volume and value, working on both mass and niche discovery, and working on both internal and multiplier gains. It is now upto the experts to design supportive schemes that enable these double, nay, triple boosters.

(Meeta Sengupta is a speaker, strategic advisor volunteers on boards. She writes across education, skills, economics and business and is @meetasengupta on twitter)

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