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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Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.