Written by:- Amitabh Kant, CEO, NITI Aayog
Syllabus Connect :- General Studies -Paper II (Indian Economy and issues relating to planning, mobilization, of resources, growth,
development and employment)
Mains Connect:-
- Discuss the sunrise sectors of Indian economy in a post pandemic world.
The COVID-19 pandemic has been extensively disruptive in terms of economic activity and loss of human lives across the globe. At the same time, this crisis has presented us with unique opportunities that can be leveraged to build back differently and innovatively. India’s urban population will double in the next decade.
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More than half a billion people will live, work and travel in Indian cities. This rapid growth will pose several social, economic and environmental challenges. India must take the lead to build new industries that will accelerate growth and create jobs. This transformation is feasible when we advance technology, foster innovation and become champions in emerging areas of global growth. Japan, South Korea, Taiwan and in recent times China focused on sunrise sectors, unleashed a wave of reforms and embraced innovation to grow on sustained basis for long time periods. In India, the key to a disruptive transformation lies in five sunrise areas of growth.
Firstly, the future lies in mobility that will be shared, connected and electric. Mobility is causing the biggest disruption of today. USA already has over 900 cars per 1000 persons while Europe has over 800. In contrast, India has only around 20 cars per thousand people. This presents a unique opportunity–our low share of vehicles per capita can be turned into a huge advantage by switching to an affordable, accessible and clean mobility ecosystem.
The average price of a lithium battery that was over US $1000 in 2010 has fallen to a mere US $137 per kilowatt-hour and will come down to less than $100 in next three years. Such steeply falling lithium-ion battery pack prices have made high-mileage electric service vehicles cost competitive. To support the EV segment, the government has already brought about numerous interventions, including a lower GST structure, tax deduction on interest for loans, and has supported procurement through the FAME II scheme. Two wheelers constitute over 70% of India’s total vehicle population. In the 2W and 3W EV ecosystem, India has a massive opportunity to become the lowest cost global manufacturer of electric two wheelers and three wheelers.
For long distance transportation, we need to focus on Green Hydrogen, which is increasingly being viewed as the next-generation energy carrier. New age technologies such as polymer membrane based electrolysers and advanced fuel cells such as solid-oxide fuel cells are pushing the envelope of the hydrogen economy. India has achieved immense success in enhancing contribution from renewable energy and reducing the solar prices to as low as Rs 1.99/kWh ($2.7 cents). With these prices green power to produce green hydrogen is the future.
Secondly, we must focus on Advance Cell Chemistries. A recent study by NITI Aayog and Rocky Mountain Institute concluded that India’s market for EV batteries alone could be as much as $300 billion till 2030. With innovations in solid-state batteries reaching commercial promise, new age Lithium solid state batteries are challenging the hegemony of traditional liquid electrolyte based batteries. The government has provided a boost to the segment by announcing support through the production linked incentive scheme. There are disruptions which look beyond lithium such as sodium-ion, silicon based and zinc based batteries. India should take the lead in supporting the manufacturing and scale up of these new age chemistries which will advance battery storage.
The third area for rapid transformation is Artificial Intelligence (AI). Today, eight out of the top ten companies are tech and digital companies and the fastest growing jobs globally are those of artificial intelligence specialists and data scientists. An Accenture report “Rewire for Growth” forecasts that AI has the potential to boost India’s annual growth by 1.3 percent points by 2035. This amounts to an addition of $957 billion or 15 percent of gross GVA by 2035.
India provides the size, scale and diversity of data that can fuel current generation AI algorithms using deep learning. Due to its mobile first usage, India has a unique digital footprint with one of the lowest data costs in the world and over 650 million internet users, one being added every 3 seconds.
We now need to move from being data rich to data intelligent by making available clean, structured and annotated data and work with the best AI researchers to find solutions to tuberculosis, cancer and enhanced agricultural productivity. An AI enabling policy environment supplemented by young, data hungry entrepreneurs and product managers is crucial to evolve as a global technology leader. We need to reorient our academic institutions into centers of excellence producing world class talent for data science, UI/UX design and AI scientists.
The fourth key area of transformation is the 5th generation mobile network technology which will radically transform the world of communication, mobile technologies and flow of data. 5G will make a paradigm shift, moving beyond the traditional cellular ecosystem to interconnect people, control devices and objects, and machines and ensure faster and better communications.
It is going to be a backbone for Industrial Revolution 4.0, AI, Blockchain and all the emerging technologies. India was substantially late in exploring 2G, 3G and 4G technologies. 5G will bring new capabilities that will create opportunities for people, businesses and society – the user experienced data rate will see a 10X jump, the spectrum efficiency will be 3X higher, the latency in milliseconds 10 times better and will connect 10 lakh devices for Km2 as compared to a mere 1 lakh in 4G.
It will drive internet of things technology carrying huge amounts of data and enable a smarter and a more connected world. If big data is the new oil in the digital era, then 5G is the set of pipes that will deliver it. Due to massive density across devices and connectivity across sectors, security will be a major concern. License conditions for 5G in India should therefore ensure that Indian companies get access to background IPR from global players on FRANDS terms. It is imperative that we create our own end-to-end 5G ecosystem so that we can address our critical security concerns.
The fifth key area is Genomics. Genomics aims to understand the structure of the genome including the mapping genes and sequencing the DNA. Recent findings in our genomic history and the sharply declining costs of genetic testing and analysis can transform the way public health is delivered in India. We need to set in motion a virtuous cycle of private investment in genetic testing, analysis counseling and therapy.
Last year, the government launched the IndiGen project, under which the full genomes of over 1,000 individuals are sequenced, and the data handed over to the individuals on a smart card. A national genomics platform is necessary to zero in on the major risk factors that individuals face. This can sharply help reduce the incidence of many diseases. The more genomes there are on the platform, the more useful it will be for finding solutions to diseases.
India has already unleashed bold and transformational reforms which will bolster our efforts in becoming a global champion and the manufacturing hub of the world. The production linked incentive schemes, reforms in labour laws, GST, corporate tax rationalization and an overall ease in doing business will give a fillip to India’s growth. India must seize the opportunity in sunrise areas of growth – this would require size, scale, speed of action and a focus on technological disruption. India’s ability to lead and globally drive these sunrise sectors of growth holds the key to our sustained growth, advancement and job creation.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.
Globally, around 80% of wastewater flows back into the ecosystem without being treated or reused, according to the United Nations.
This can pose a significant environmental and health threat.
In the absence of cost-effective, sustainable, disruptive water management solutions, about 70% of sewage is discharged untreated into India’s water bodies.
A staggering 21% of diseases are caused by contaminated water in India, according to the World Bank, and one in five children die before their fifth birthday because of poor sanitation and hygiene conditions, according to Startup India.
As we confront these public health challenges emerging out of environmental concerns, expanding the scope of public health/environmental engineering science becomes pivotal.
For India to achieve its sustainable development goals of clean water and sanitation and to address the growing demands for water consumption and preservation of both surface water bodies and groundwater resources, it is essential to find and implement innovative ways of treating wastewater.
It is in this context why the specialised cadre of public health engineers, also known as sanitation engineers or environmental engineers, is best suited to provide the growing urban and rural water supply and to manage solid waste and wastewater.
Traditionally, engineering and public health have been understood as different fields.
Currently in India, civil engineering incorporates a course or two on environmental engineering for students to learn about wastewater management as a part of their pre-service and in-service training.
Most often, civil engineers do not have adequate skills to address public health problems. And public health professionals do not have adequate engineering skills.
India aims to supply 55 litres of water per person per day by 2024 under its Jal Jeevan Mission to install functional household tap connections.
The goal of reaching every rural household with functional tap water can be achieved in a sustainable and resilient manner only if the cadre of public health engineers is expanded and strengthened.
In India, public health engineering is executed by the Public Works Department or by health officials.
This differs from international trends. To manage a wastewater treatment plant in Europe, for example, a candidate must specialise in wastewater engineering.
Furthermore, public health engineering should be developed as an interdisciplinary field. Engineers can significantly contribute to public health in defining what is possible, identifying limitations, and shaping workable solutions with a problem-solving approach.
Similarly, public health professionals can contribute to engineering through well-researched understanding of health issues, measured risks and how course correction can be initiated.
Once both meet, a public health engineer can identify a health risk, work on developing concrete solutions such as new health and safety practices or specialised equipment, in order to correct the safety concern..
There is no doubt that the majority of diseases are water-related, transmitted through consumption of contaminated water, vectors breeding in stagnated water, or lack of adequate quantity of good quality water for proper personal hygiene.
Diseases cannot be contained unless we provide good quality and adequate quantity of water. Most of the world’s diseases can be prevented by considering this.
Training our young minds towards creating sustainable water management systems would be the first step.
Currently, institutions like the Indian Institute of Technology, Madras (IIT-M) are considering initiating public health engineering as a separate discipline.
To leverage this opportunity even further, India needs to scale up in the same direction.
Consider this hypothetical situation: Rajalakshmi, from a remote Karnataka village spots a business opportunity.
She knows that flowers, discarded in the thousands by temples can be handcrafted into incense sticks.
She wants to find a market for the product and hopefully, employ some people to help her. Soon enough though, she discovers that starting a business is a herculean task for a person like her.
There is a laborious process of rules and regulations to go through, bribes to pay on the way and no actual means to transport her product to its market.
After making her first batch of agarbathis and taking it to Bengaluru by bus, she decides the venture is not easy and gives up.
On the flipside of this is a young entrepreneur in Bengaluru. Let’s call him Deepak. He wants to start an internet-based business selling sustainably made agarbathis.
He has no trouble getting investors and to mobilise supply chains. His paperwork is over in a matter of days and his business is set up quickly and ready to grow.
Never mind that the business is built on aggregation of small sellers who will not see half the profit .
Is this scenario really all that hypothetical or emblematic of how we think about entrepreneurship in India?
Between our national obsession with unicorns on one side and glorifying the person running a pakora stall for survival as an example of viable entrepreneurship on the other, is the middle ground in entrepreneurship—a space that should have seen millions of thriving small and medium businesses, but remains so sparsely occupied that you could almost miss it.
If we are to achieve meaningful economic growth in our country, we need to incorporate, in our national conversation on entrepreneurship, ways of addressing the missing middle.
Spread out across India’s small towns and cities, this is a class of entrepreneurs that have been hit by a triple wave over the last five years, buffeted first by the inadvertent fallout of demonetization, being unprepared for GST, and then by the endless pain of the covid-19 pandemic.
As we finally appear to be reaching some level of normality, now is the opportune time to identify the kind of industries that make up this layer, the opportunities they should be afforded, and the best ways to scale up their functioning in the shortest time frame.
But, why pay so much attention to these industries when we should be celebrating, as we do, our booming startup space?
It is indeed true that India has the third largest number of unicorns in the world now, adding 42 in 2021 alone. Braving all the disruptions of the pandemic, it was a year in which Indian startups raised $24.1 billion in equity investments, according to a NASSCOM-Zinnov report last year.
However, this is a story of lopsided growth.
The cities of Bengaluru, Delhi/NCR, and Mumbai together claim three-fourths of these startup deals while emerging hubs like Ahmedabad, Coimbatore, and Jaipur account for the rest.
This leap in the startup space has created 6.6 lakh direct jobs and a few million indirect jobs. Is that good enough for a country that sends 12 million fresh graduates to its workforce every year?
It doesn’t even make a dent on arguably our biggest unemployment in recent history—in April 2020 when the country shutdown to battle covid-19.
Technology-intensive start-ups are constrained in their ability to create jobs—and hybrid work models and artificial intelligence (AI) have further accelerated unemployment.
What we need to focus on, therefore, is the labour-intensive micro, small and medium enterprise (MSME). Here, we begin to get to a definitional notion of what we called the mundane middle and the problems it currently faces.
India has an estimated 63 million enterprises. But, out of 100 companies, 95 are micro enterprises—employing less than five people, four are small to medium and barely one is large.
The questions to ask are: why are Indian MSMEs failing to grow from micro to small and medium and then be spurred on to make the leap into large companies?
At the Global Alliance for Mass Entrepreneurship (GAME), we have advocated for a National Mission for Mass Entrepreneurship, the need for which is more pronounced now than ever before.
Whenever India has worked to achieve a significant economic milestone in a limited span of time, it has worked best in mission mode. Think of the Green Revolution or Operation Flood.
From across various states, there are enough examples of approaches that work to catalyse mass entrepreneurship.
The introduction of entrepreneurship mindset curriculum (EMC) in schools through alliance mode of working by a number of agencies has shown significant improvement in academic and life outcomes.
Through creative teaching methods, students are encouraged to inculcate 21st century skills like creativity, problem solving, critical thinking and leadership which are not only foundational for entrepreneurship but essential to thrive in our complex world.
Udhyam Learning Foundation has been involved with the Government of Delhi since 2018 to help young people across over 1,000 schools to develop an entrepreneurial mindset.
One pilot programme introduced the concept of ‘seed money’ and saw 41 students turn their ideas into profit-making ventures. Other programmes teach qualities like grit and resourcefulness.
If you think these are isolated examples, consider some larger data trends.
The Observer Research Foundation and The World Economic Forum released the Young India and Work: A Survey of Youth Aspirations in 2018.
When asked which type of work arrangement they prefer, 49% of the youth surveyed said they prefer a job in the public sector.
However, 38% selected self-employment as an entrepreneur as their ideal type of job. The spirit of entrepreneurship is latent and waiting to be unleashed.
The same can be said for building networks of successful women entrepreneurs—so crucial when the participation of women in the Indian economy has declined to an abysmal 20%.
The majority of India’s 63 million firms are informal —fewer than 20% are registered for GST.
Research shows that companies that start out as formal enterprises become two-three times more productive than a similar informal business.
So why do firms prefer to be informal? In most cases, it’s because of the sheer cost and difficulty of complying with the different regulations.
We have academia and non-profits working as ecosystem enablers providing insights and evidence-based models for growth. We have large private corporations and philanthropic and funding agencies ready to invest.
It should be in the scope of a National Mass Entrepreneurship Mission to bring all of them together to work in mission mode so that the gap between thought leadership and action can finally be bridged.