Last year, the coronavirus pandemic and shutdown measures to contain it plunged the Indian economy into a recession for the first time in nearly a quarter of a century. Based on the OECD’s Economic Outlook 2021, the Indian economy contracted by 7.7% in 2020 as domestic consumption declined. Despite the downturn last year, the OECD has projected India’s economy to expand by 9.9% and become the fastest-growing G20 economy in 2021. Although the OECD’s projections provided a positive outlook for the Indian economy, the second wave and new virus variants have now posed a new risk to growth. For India to achieve its growth potential, the government will need to implement an effective vaccination rollout and promote a more resilient, inclusive and sustainable economy. According to McKinsey Global Institute’s latest report, India’s economy has reached a “decisive point”, which requires decisive reforms over the next 12 to 18 months to create jobs for millions of workers between now and 2030.
In the report’s findings, India’s manufacturing and construction sectors could amplify growth the most, potentially adding 9.6% and 8.5% in annual GDP growth and creating 11 million and 24 million jobs, respectively, from 2023 to 2030. However, for India to rebound from Covid-19, The Economist has highlighted that broad investment must also recover and reforms to improve the banking sector’s financial health must be implemented to see stronger growth and ease concerns of a possible solvency crisis amongst state-run banks. Alongside, and more broadly, as India’s economy has gradually been shifting away from agriculture and towards services, manufacturing, and industries, the government will need to support workers’ transitions out of agriculture – which still employs a large segment of the working population in rural regions. As part of their recent budget, India has included programmes to revive the economy, but with renewed uncertainty and key reforms still needing implementation across various sectors, leading experts are pointing out that measures that regenerate investment, integrate cleantech solutions into the economy and upskill the workforce will help drive India’s recovery and long-term sustainable growth.
Regenerate investment in key sectors and support business growth
Before the pandemic, figures from the OECD and World Bank had shown that India’s gross fixed capital formation (investment) rate had declined from 36% in 2007 to 27% in 2019. The vulnerability of India’s financial sector coupled with weak export performance and delays in privately funded projects caused investment to stall in the decade leading up to Covid-19. Amidst the ongoing disruption to the Indian economy, these challenges have been magnified and have further dented consumption, investment and exports.
To address these challenges and attract investments in India, Sanjana Kadyan, Deputy Director (Ministry of Finance) at the Government of India, said that “before the pandemic, India had taken a string of measures to boost investment that included the introduction of the GST, the Insolvency and Bankruptcy Code, banking sector reforms and Make in India programme.” In the past year, Kadyan added that “the government has raised FDI limits across key sectors, launched the Production-Linked Incentive (PLI) Scheme and expanded the National Infrastructure Pipeline (NIP) project to attract investment in India.” Through a gamut of macro-level reforms aimed at addressing these challenges in the economy, Kadyan mentioned that these initiatives should “support investment to pick up and crucially help support the economic recovery.”
Aside from measures to revive investment, India also needs to improve its business climate and credit growth across various sectors. A recent McKinsey report noted that despite India’s gradual improvement in the World Bank’s ease of doing business ranking, large and small companies still face obstacles, such as the slow processes to obtain construction permits or the time-consuming compliance stipulations for tax payments that hinder their effectiveness and productivity. Moreover, as part of the measures to strengthen resiliency in the banking sector, the Reserve Bank of India (RBI) has put in place stress tests that could lead financial institutions to be more risk-averse in managing their operations.
Kadyan noted that an important measure taken to improve business sentiment, which is critical in enhancing India’s attractiveness to global manufacturers and businesses, has been “digitising land records under Digital India Land Records Modernisation Programme and conducting surveys of villages as part of the recently launched SWAMITVA scheme to bring greater transparency and credibility into evaluating property and land as a financial asset.” Alongside land reforms, Kadyan highlighted that labour reforms have also been implemented to improve the business ecosystem by introducing “Industrial Relations, Social security, and Occupational Safety, Health and Working Conditions Codes to harmonise and consolidate pre-existing laws.” As for improving credit growth, Kadyan said that “various measures, such as the Emergency Credit Line Guarantee Scheme (ECLGS) for the MSMEs, have started to show early revival in credit growth for medium-sized industries since November 2020 and that conventional and unconventional liquidity infusion measures taken by the RBI are facilitating overall credit growth in the Indian economy.”
Improve GHG reporting to accelerate the integration of cleantech into the economy
Before the pandemic, the World Economic Forum reported the critical role India’s private sector played in spurring growth and development since the liberalisation of the national economy in 1991. From improving livelihoods through employment opportunities to fostering entrepreneurship and innovation, the private sector at large has helped strengthen India’s competitiveness and position it among the world’s fastest-growing economies. As India looks ahead to recovery and growth from the Covid-19 downturn, the private sector is expected to be a key economic driver. Given the challenges of climate change, the private sector will need to incorporate more social and sustainable business practices to drive India’s transition towards a low-carbon economy. According to Miniya Chatterji, Founder and CEO of Sustain Labs Paris, for the private sector to take meaningful action on climate change, “the government needs to put in place mechanisms that require businesses and industries to report their GHG emissions including Scope 3 emissions openly and transparently.” By implementing these measures, along with a standardised methodology on GHG reporting, Chatterji said, “India’s private sector would be able to leverage their GHG data at the company and supply chain level to make informed decisions on emission reduction and better position themselves among consumers, regulators and impact investors.”
In India, where a vibrant cleantech startup ecosystem is starting to take shape, Chatterji added that “a transparent and open GHG reporting system would also benefit Indian cleantech to gather insights into the challenges faced in the economy in order to develop better products and solutions for businesses and industries.” From which, Chatterji noted that “existing barriers to adopting cleantech can be overcome, and allow the private sector to partner with cleantech startups to not only reduce their emissions but also procure new, innovative and cost-effective products to boost their competitiveness.” In recent years, to incorporate the risks associated with climate change and allocate resources to invest in low-carbon solutions, several leading Indian private sector companies have started adopting internal carbon pricing (ICP) schemes. In Chatterji’s opinion, the “ICP scheme has been a positive step in acknowledging the need to address sustainability and reduce emissions.” She highlighted that to facilitate cleantech startups integrate into the industry and leverage the knowledge, capital and expertise from large companies, “the ICP funds could be used to develop scale-up programmes, which focus on accelerating the development of low-carbon technologies and deploying them to reduce carbon emissions within the organisation.”
Provide skills training to bridge the gender divide and drive inclusive growth
According to the World Bank, India’s economy grew at an annual average of 6.5% between 2000 and 2018. However, despite the strong growth, India’s female labour force participation rate gradually decreased from 36% in 2000 to 22.4% by 2018, placing India among the bottom ten countries in the world in terms of women’s workforce participation. Added to this, a recent report by Mckinsey mentioned that while women in India only made up approximately 20% of the workforce before COVID-19, their share of job losses resulting from the industry mix alone is estimated to account for 23% of overall job losses. As India looks to regenerate growth from the Covid-19 pandemic, Nalini Gulati, Country Economist at the International Growth Centre, said in an interview that “India needs to address the particular challenges faced by women during these difficult times to drive forward an inclusive recovery and achieve India’s growth potential by bridging the gender divide in the coming years.”
Traditionally, the agriculture sector has been a significant source of employment for women in India. But the sector’s contribution to India’s GDP has been gradually declining, with manufacturing and construction now expected to contribute more towards the national growth. Alongside the sectoral changes, the emergence of technology-enabled gig work platforms is projected to create up to 90 million jobs and contribute 1.25% towards India’s GDP in the long run. To incorporate these economic and technological changes, Gulati said that “India will need to develop upskilling programmes that allow individuals to take up new roles and adapt to the changing labour market.” Besides skills training, Gulati noted that labour reforms to strengthen social protection for the country’s large informal workforce – including the expanding cadre of gig workers – would be a welcome move as this could create more jobs for women that are flexible and enable them to balance their domestic responsibilities and work commitments.
Alongside, a recent report from Bain & Company highlighted that 150–170 million new jobs could be created across critical sectors such as agriculture, manufacturing and retail from having more women to take up entrepreneurial careers from now until 2030. While the economic opportunity is enormous, there are several challenges and various social constraints, which have held women back from taking up entrepreneurial careers. To address these barriers and capitalising upon these opportunities, Gulati noted that “targeted measures in the form of financing, mentoring, peer-to-peer learning opportunities via networks, market linkages, and digital skills training would be needed to enable women entrepreneurs to startup and scale their businesses.”