Incredible India, From 2010 to 2020: The Vision of a Welfare State

Prologue


As India bids good bye to the first decade of the twenty first century it does so with a new confidence and commitment, looking forward to an even more eventful second decade. During the decade that went by Indian software engineers helped the world handle the Y2K bug seamlessly and smoothly, India surprised the world by becoming a space power on its own, Indian corporations acquired some of the most expensive global marquees, from steel to automobiles, and India as a country caught the fancy of global investors as the emerging economic powerhouse. For those whose lives are intimately woven with India, however, only a few small steps have been taken, and giant strides remain to be taken.

There are several potholes in India’s journey towards sustainable progress. Individual prosperity needs to be channeled for public good. Economic growth needs to be combined with social equity. Urban might need to be balanced with rural delight. Industrial development needs to be powered by innovative spark. India’s global dominance in pharmaceuticals needs to be reflected in healthcare for all in the country. Universal education needs to be sharpened with leading edge competencies. Public services have to be truly utilitarian fulfilling the needs of the teeming millions. Corporations need to hold economic wealth as trustees for the society. The list of the heights yet to be conquered in India’s quest for progress is endless.

It is easy to be despondent that the images of Incredible India are as yet not so credible. India has, however, demonstrated in patches that it can be world class when it plans with diligence and executes with commitment. India has the world’s largest number of US FDA approved pharmaceutical plants. With the largest count of drug master files and abbreviated new drug applications, India has become global generic pharmaceuticals powerhouse. India has become the home to the world’s cheapest 4-seater small car that was indigenously designed and manufactured. Indian information technology firms have continued to dominate the global software industry. The question, however, remains as to why progress in India has to be so tardy and patchy.

Mahatma Gandhi, the Father of the Nation envisaged that India would be a country where the downtrodden would be genuinely cared for. Successive governments since the independence have sought to alleviate poverty by focusing on economic growth, building dams and establishing industries. As a result, India achieved a measure of self-reliance although introverted socialistic dogmas substantially sub-optimized growth. Having achieved a notable level of industrialization the time has now come to shape India as a truly Welfare State. This article advocates a bold paradigm that targets social security, connectivity, energy assurance and innovative agro-industrial development as a strategy to build India into an ideal Welfare State.

Billion homes

Security of shelter, food, education and healthcare are the four pillars of social infrastructure, on which a true welfare state can emerge. Several of India’s problems, both from civility and sanitation purposes, can be traced to widespread homelessness across the country, which is an occurrence without any urban-rural divide. The Governments, Central and State, must target building of a billion homes by 2020 to be able to provide the security of shelter to the billion population which could increase by around 25% by 2020. While a proportion of the billion homes, say around 20%, could be left to a totally private initiative to meet the needs of the middle and upper income groups, around 50% could be in a mix of public-private partnership to build affordable, homes on ‘pay to own’ concept while another 30% would need to be entirely in public ownership to meet the needs of the downtrodden who cannot pay to own any home. The public participation could be in terms of the land that the governments would lease or transfer to the home building corporations and eventually to the owners.

A massive home construction initiative such as the ‘billion homes’ program would not only protect the massive population from the ravages of nature but also provide an influential pan-Indian trigger for employment generation. In a creative manner, the homeless and the jobless themselves can be involved in the construction activity providing them with a steady income even as they participate in the building of their homes with passion and commitment. The entire industrial sector, from cement and steel to design and construction majors would benefit enormously from this initiative, given the widespread upstream and downstream linkages of such residential construction activity. In fact, the ‘billion homes’ initiative would need to be conceptualized in terms of several thousands of environmentally harmonious townships all across India, in and around the established urban and rural habitats, with requisite rail and road connectivity.

Food security

India being a largely agrarian nation, setbacks to food production due to monsoon failures and floods on one hand and lack of incomes to secure daily food on the other hand are the two major handicaps of the economy. Certain State Governments have attempted to mitigate the adverse impact by cheap rice schemes, supported by public distribution system. Leakages in the public distribution system as well as inadequate quantities and quality of supplies to the system, together with the accompanied budgetary subsidy impact have curtailed the positive impact of these measures.

The answer to the financial constraint lies probably in taxing those segments of the food processing industry that cater to affluent sections (eg., fast foods, functional foods, aerated drinks, spirits and beverages) and recycle the money to beef up the public food procurement and distribution systems. Expansion of the subsidized rice or wheat scheme and supplementation with another essential nutrient such as lentil or egg would need to be taken up as a national food security program with adequate budgetary provision.

Universal education

Universal education needs to be a fundamental right as well as a basic obligation for the entire population. Eradication of child labor, with the provision of durable shelter and food security, should hopefully curb the practice of keeping poor children occupied in hard labor denying them the vital time for, and access to, education. Significant increases in the availability and quality of public school system, covering nursery, primary, secondary and vocational schools are urgently called for to support the objective of universal education.

Non-governmental organizations (NGOs) and socially responsible organizations can support this initiative through supply of qualified and committed teachers, which alone can enhance the real utility of the schooling system. Apart from budgetary support, encouraging private or public sector corporations to adopt and fund public schools for better quality of education as part of their corporate social responsibility also would go a long way in supporting universal education. Simultaneously, all higher education institutions should be mandated to reserve at least ten percent of their intake for economically handicapped but meritorious students. Food security offers direct benefit for education. The mid-day meal scheme pioneered by the Government of  Tamil Nadu for school going children, for example, led to a sharp increase in enrolment in schools. Reinforcement of such programs with more hygienic and nutritious food can help the objective of universal education even more significantly.

Healthcare for all

Reference has been made in one of the author’s earliest posts to a pioneering initiative undertaken by the Government of Andhra Pradesh to provide access to healthcare to the needy. The program called ‘Arogya Sri’ provides free treatment to the needy not only in government hospitals but also in corporate hospitals. This coupled with an emergency ambulance service which covers the nook and corner of the State has had a positive impact on the health security of the general population. Though initially it was feared that such schemes would impose an unmanageable subsidy element it has been established that the State’s financial system, though by no means healthy, has adequate resilience to absorb the impact of this noble endeavor.

The Western model of health insurance which is based on ‘pay and benefit as per affordability’ is not appropriate for the large number of ‘low income’ and ‘no income’ group of population in India. Direct intervention by the governments, NGOs and private sector in terms of providing quality hospital facilities and nursing services is a more relevant model for India. Given the fact that the direct healthcare system can be managed if the subsidy element is absorbed by a wider range of public-private partnerships, it is appropriate to extend the ‘Arogya Sri’ scheme nationally across all the states with relevant reinforcement.

Multi-modal connectivity

An efficient multi-modal transportation infrastructure comprising rail, road, air and waterways is a vital superstructure which can nurture a welfare state with productive work-life balance. These four transportation sectors are completely national and intrinsically geographic in any country. Absence of capital goods, consumer goods or food products can be made up through imports or barter mechanisms. Transportation infrastructure, however, has to be developed only within a country. India needs to take great strides for upgrading its transportation structure. While transportation systems call for massive outlays, various advanced nations would be willing to support futuristic transportation systems as evidenced by the India-Japan cooperation on industrial freight corridors that has been recently cemented. A multi-modal transport plan needs to be firmed up and global collaboration arrangements established on an urgent basis by the Indian Government.

Introduction of high speed bullet trains connecting all the State capitals would be a fundamental pre-requisite for enhancing the efficiency and productivity in the Indian transportation system. An entirely new rail network needs to be built across the length and breadth of the country to support the introduction of the bullet trains. Similarly, governments have to move away from archaic concepts of flyovers and take up construction of elevated highways for providing total solutions to intra-city transportation. The golden quadrilateral highways program needs to be expanded into a golden multi-lateral highways program connecting all Tier 1 and Tier 2 cities. The need for modern air transport may be less obvious as it is seen to cater to higher income segments, with an adverse impact on overall fuel consumption. However, air transport has also demonstrated how it can dramatically alter the mobility equation of a country, both in respect of personal and cargo movement. Waterways, in contrast, have been largely ignored in the country despite their being an environmentally clean and fuel-efficient option. Cleaning up of inland waterways and development of new coastal shipping pathways will be helpful to introduce an additional element of productivity in the overall transport system.

POGA for energy assurance

If the wheels of society, industry and economy are to move uninterrupted, and with increasing speed, to fulfill higher economic aspirations, the engines of the growth have to be adequately powered. Power, Oil, Gas and Alternative energy (POGA) sectors are the four vital sectors that require major attention to ensure energy security for a nation that is hungry for growth. Fortunately, unlike other infrastructural sectors, most advanced nations are equally interested in achieving energy security and are willing to provide their technologies and resources to exploit and commercialize sources of energy in countries such as India. India also must treat energy security as a global business that needs to be secured through access to, and control of, energy sources across the globe. Indian Government would need to draw up a strategic global energy plan that meets India’s long term energy requirements.

Over the last few years, despite liberalization the POGA sectors have not received the sustained policy thrust that these complex sectors deserve. Polices for super-mega power projects as well micro-mino power projects need to be put in place along with policies for efficient energy distribution and viable energy pricing. Oil and Gas sectors need to be strengthened by providing the ability for state run ONGC and GAIL corporations to aggressively explore and exploit global energy sources. Integration by oil refining companies into energy exploitation and generation on the models of western oil companies will also need to be considered. Importantly, new corporations have to be established to invent and / or assimilate technologies for exploitation of alternative energy sources such as solar, wind, thermal and bio-energy modes. Grants and subsidies as well as long term tax breaks for private and public sector corporations operating in the alternative energy field also need to be considered. The POGA sector, in terms of generation, distribution and usage of energy will play a critical role in reducing the carbon footprint of the country.

Digital workshop for the world

Over the last few years, the global view that India would only be the world’s back office while China would ideally be the world’s workshop has been changing in India’s favor. Global companies have started to recognize that India could be a high quality-low cost manufacturing base for several consumer and industrial products. India has certainly made such a mark in automobile and component sector and is, in fact, ahead of China in these domains. However, in respect of electronics-driven product categories, India lags behind China in a significant manner.

Digitalization and electronics have been the core of most new product development. Multinational corporations who possess such technologies are unwilling to establish such development and manufacturing bases in India unless majority or total ownership of such enterprises is assured in their hands. India’s restrictive policies on joint ventures and foreign investments in high technology areas and the propensity of Indian partners to hold on the majority voting rights and / or management control have limited the flow of foreign investments and induction of advanced technologies into the electronics sector in the country. Taking a cue from China, Indian industry and government would need to create helpful conditions for overseas corporations developing India as their preferred manufacturing destination, even for the most advanced electronics goods.

‘Re-farming’ the nation


While reforms has been the most popular buzzword of the Indian economy for the last two decades (1990-2009), the new decade of 2010-2019 requires a new buzzword that strengthens India’s agrarian roots to provide total food sufficiency and even achieve exportable surplus to meet the needs of the less privileged nations. This requires construction of new dams, inter-connection of rivers, desert and dry farming technologies and massive afforestation to counter the dwindling green belt in the country. Even as the economy and industry would directly benefit from economic reforms, the economy, industry and the society as the whole would benefit from a massive drive to ‘re-farm’ the nation.

‘Re-farming’ of the nation requires a cultural shift away from endless and chaotic urbanization to a more modern and balanced rural thrust which preserves the natural fundamentals of a rural economy while integrating the amenities of an urban economy. Several other initiatives discussed earlier such as social security, infrastructure stability, energy assurance and transport connectivity would go a long way in reversing the flow of men and materials from rural to urban economies. It is not uncommon to witness in Japan, environmentally clean factories situated in close vicinity of lush farm fields signifying a harmonious blend of the agrarian and industrial sectors. There is no reason why industrial development in India should be at the cost of agricultural development. Rather than convert huge tracts of land expansively into sparsely used industrial or service zones, ways and means must be found to promote co-existence of agricultural, industrial and service economies.

Reaching global scale

A few industrial houses as well as a few first generation enterprises have understood and executed with perspicacity plans to achieve global scale and scope. Global scale with comprehensive scope enables companies access the best technologies, resources and customer bases, internationally. That said, a vast majority of industrial and business enterprises which have potential to reach global scale are content to remain fragmented and sub-optimal in scale for fear of loss of identity. The typically Indian emotional bonds of growing and staying together have inhibited companies from seeking synergies from mergers and acquisitions, nationally or internationally.

A new mindset that subordinates professional aspirations to corporate potentialities and derives individual prosperity from national wealth could lead to a sea change in the traditionally ambivalent approach of the Indian businessmen towards individual business identity versus global business standing. Banking industry, automobile industry, pharmaceutical industry, software industry and FMCG industry are some of the industrial sectors which would benefit from selective India-centric or cross-border amalgamations based on product and market complementarily as well as synergy of capabilities. Industry associations as well as individual corporate honchos and entrepreneurs are well-placed to initiate this process. The Central Government, by setting up a ministry similar to Japan’s famous Ministry of International Trade and Industry (MITI), now Ministry of Economy, Trade and Industry (METI) can help such orderly industrial progression with strategic oversight and guidance (and not necessarily, control!).

Innovating a generic mindset

India had centuries ago, through its brilliant scholars, made phenomenal discoveries and contributions in the fields of astrology, astronomy, healthcare, architecture, civil engineering, administration and financial management. Over the last few centuries, however, India has become a follower rather than a leader in several domains, being content with replicating products, duplicating technologies and recycling business models, either from the West or the East. In doing so, however, India did find a new niche in reverse engineering, technological adaptation, follow-on product development, generic manufacture and cost-competitive global integration. In order to become a leading and vibrant nation, India, however needs to combine its acknowledged “generic follower” skills with innovative pioneer capabilities.

Any generic-follower model has inherent limitations of operating in the tail end of a product life cycle where the price-cost equations leave uncomfortably thin profit margins. Time and again, even in an industry such as the software industry where Indian talent is globally recognized, break-through product concepts continue to emanate from the West. Industrial sectors which have high intellectual potential in terms of the human resource base should make specific and sustained efforts to incubate new products by investing in special development laboratories. Several of the sectors listed earlier as well as additional ones including automobile, pharmaceutical, information technology, watch, gems and jewels, food processing, automotive components, and design, development and engineering services, have the potential to add a significant innovation edge to their broader generic portfolio and emerge as unassailable global players of multiple facets.

Epilogue: Incredible India, from 2010 to 2020

The journey from 2010 to 2020 can be exciting and fascinating for India if the vision, strategies and execution are aligned to build a truly Welfare State with robust social and industrial infrastructure and high productivity. With the vision and strategy outlined in this article, India can be a self-assured nation where complete social security is ensured through universal housing, food, education and healthcare; an upwardly mobile nation in which multi-modal transportation enhances connectivity; a powerful nation which has the energy sufficiency to turn wheels of progress faster: an advanced nation which houses a futuristic digital workshop for the world, a bountiful nation which ‘re-farms’ itself industrially and a creative nation which adds an innovative edge to all the generic competitiveness that it possesses. This ambitious blue print does require massive financing. As with micro-enterprise formation, a worthy and genuine concept, even at a daunting national scale as outlined herein, will not be found wanting for national and international funding support. The India Welfare Plan, 2010-2020 outlined in this article has the potential to transform India into a truly global power bringing cheer and pride to all the Indians as never before.

Goodbye 2009, and Welcome 2010!

Posted by Dr CB Rao on December 29, 2009

Priming the Indian Economy:Suggestions for Dr Manmohan Singh Government

Undoubtedly, India has managed its economy well amidst the global gloom and turbulence, relative to several advanced and emerging countries. Nevertheless, given our growth aspirations, the lower GDP growth rate (even if it went beyond the muted expectations) and the reduced level of investor confidence need to be addressed quickly by the new administration. In particular, the sharp decline in growth rates of the manufacturing and construction sectors is a cause for worry due to the likely cascading effect.


The positive vote received by the Congress Party and the UPA Government led by Dr Manmohan Singh reflects the desire of the people of India to build on the robust management of the economy for higher growth. Given that the previous Government desisted from unveiling a major economic stimulus plan possibly due to impending elections, and given also the unfinished economic reforms agenda there is a great potential for the new government to trigger major positive changes in the economy. This note summarizes the elements of a grand stimulus plan to take the economy to a double digit growth track.


Transportation Infrastructure


There can be no two views that the infrastructure in India is woefully inadequate, in terms of spread, scale, scope and efficiency. There is an urgent need for massive building of rail stations, bus stations, airports, sea ports, roads and bridges and waterways across the nation, spanning urban and rural areas.


India also lags the emerging economies such as China in terms of fast and economic transportation. Huge and productive investments need to be made in bullet trains, elevated rails, public transport buses and freight trains to ensure high productivity in transportation of men and materials in the country.


Together, the fixed infrastructure and mobility infrastructure should be the core of the economic stimulus package for the new Government. These investments will have positive cascading and multiplier effects across all industrial sectors and create millions of jobs, quite apart from enhancing productivity of life, and driving down the transaction costs.


Energy Infrastructure


Energy security is one of the critical needs of the economy. Energy shortages frequently cripple industrial and social activities in the country. The economic stimulus package will not be effective without a major thrust on energy. Building of new oil and gas rigs, greater exploitation of on-site and off-site energy sources, acquisition of overseas energy sources, building of nationwide oil and gas pipelines should merit urgent attention. These again will have significant cascading impact in terms of power and energy equipment manufacturing sector and construction sector. Within the energy sector, setting up of a whole new infrastructure for nuclear energy should form a discrete strategy. A mix of all sources of energy; conventional and non-conventional covering hydel, wind, solar, thermal and nuclear energy options need to be vigorously pursued.


Sunrise Infrastructure


Distinct from the core infrastructure is the sunrise infrastructure, which would be the Green Technologies. Alternative sources of energy, clean vehicles, green buildings, energy-efficient equipment are capable of priming a totally new wave of research and manufacture. They will help in the creation of a new genre of industries which will minimize energy consumption and enhance harmony with environment, while at the same time creating jobs from the most advanced research layers to the most needed basic foundations.


Positive Globalization


Globalization has come to stay; yet it is under threat due to a rising wave of protectionism in advanced countries. Positive globalization has three parts; (i) the globalization of value chain with a fair share for emerging markets based on factor competencies (not merely labor cost advantage), (ii) harmonization and opening up of all markets (in terms of customer access and transparent regulatory systems) and (iii) continuous churn of new technologies in the developed markets (leveraging the fundamental university competencies and funding strengths). The way China and Japan have collaborated in such globalization is an instructive model for other combinations of advanced and emerging markets.


India must participate in positive globalization by developing products for a wide spectrum of needs. Even as one generation of products is extensively globalized across the world, a new generation of products must take root. In such a model, products get developed in line with multiple market needs and purchasing power slabs, allowing whichever country is the inventive country to hold technological leadership in the new generation of products. India, of course, must play for inventive niche areas quite apart from becoming the manufacturing hub for the world.


University and Laboratory Innovation


In spite of all the failures that have come the way of advanced countries, these universities still remain the bedrock of science, technology and management, with the potential to trigger new waves of innovation and creativity. India has indeed a long, long way to go before university-led innovation becomes a national comparative advantage as in the US or Japan. It is necessary for the new government to step up investments in universities in frontier fields such as nanotechnology, stem cells, recycling, solar energy, biofuels, energy-efficient equipment and so on.


As in the case of National Institutes of Health in the US, it would be appropriate to set up new national institutes not only for health sciences but also for each of such sectors, if needed in 50:50 public-private partnerships.


Main Street and Dalal Street


One of the most profound observations made by President Obama in US is that there cannot be a thriving Wall Street without a thriving Main Street. It is indeed a universal truth for the modern times. The Main Street itself rests on a trio of education, industry and social services. Markets for products and services have to continually expand based on innovative and cost competitive products and services so that corporates can maximize wealth generation and the Dalal Street can then take a share of the wealth.


The core of the strategy should therefore be in terms of enhancing industrial and business competitiveness. All tools, from more efficient design to value engineering, from manufacturing productivity to supply chain efficiency and from information technology to artificial intelligence would need to be deployed to commercialize constantly new waves of products and services. Tax breaks for genuinely innovative R&D and manufacturing productivity, whether politically correct or not, appear to be economically justified.


Simultaneously, the Main Street corporates have to be released from the tyranny of Dalal Street (whether it is of quarterly guidance, analyst calls or rating scrutiny) as much as subject to competition from more competitive global companies. In the absence of such of thin and balanced approach, CEOs and CFOs would only be emphasizing the short run revenue and profit maximization to the detriment of long term innovation and strategic strengths of corporates. SEBI and the Ministry of Corporate Affairs must examine alternative reporting systems which focus on long term sustainability of businesses and corporates.




Affordable Healthcare


Healthcare continues to be a major concern in India. Cheap generic drugs provided some relief until recently due to India following a different patent regime. With harmonization of product patent regime that advantage has disappeared. The Indian society which is in any case faced with inadequate hospital infrastructure is now faced with high cost of medical treatment, whether domiciliary or hospital-based.


In this background, the unique “Arogya Sri” policy of the Government of Andhra Pradesh has served to revolutionalize healthcare for the masses in the state. This coupled with the state-wide emergency 108 service, has brought healthcare closer to the masses in Andhra Pradesh. Much more can be done in this area under such a progressive strategy, with public-private participation. The Arogya Sri concept needs to be reinforced and expanded on a national-wide basis by the new regime.


Simultaneously pharmaceutical firms need to be enabled to generate profits that can help them discover new drugs and manufacture high quality products. Pharmaceutical, medical and clinical research should be provided with liberal grants and tax breaks.


Tax and pricing breaks for industrial research


It is important that innovation in industrial research is continuously encouraged. It is disconcerting to see in this context that Indian firms have been unable to build critical mass of research. India is perhaps ranking lower both in technology innovation as well as technology imports (and absorption). These short-sighted approaches are clearly meant to manage the short run profit pressures. The new government should positively consider tax breaks for firms which invest in new product developments; each additional product domain entitling the company for a higher weighted average reduction of R&D investments.



Summary


A multi-pronged strategy of boosting investments in infrastructure, education and research, healthcare and positive globalization will constitute a grand economic stimulus which India needs to become an economic power-house in the years

Posted by Dr CB Rao on May 31, 2009