Indian economy: ‘Its future is bright’, says RBI Governor in CII Conference

Particularly for Indian citizens who are accustomed to hearing sad news or depressing articles from foreign writers, the present governor of RBI gave a heart-warming speech indicating the right direction for the Indian economy. Myself being a born optimist with decades of living in India is very happy to cover his speech with my observations to set the tone right for any investor in India’s future.

RBI web contains his speech:

https://www.rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=1098

(He gave his speech on July 27, 2020 – Addressed to CII National Council, Mumbai)

Claiming dynamic shift underway, the RBI governor really set the tone on the right direction.

Let us analyze his speech.

Mentioning the arrival of COVID-19 and its pernicious influence like when it would flatten or how it would affect our economy, he advised us to face it head-on and take necessary precautions laid down by doctors and other regulatory authorities. He clearly explained his approach has the potential to repair, rebuild, and to renew our tryst with developmental aspirations. He continued that these dynamic shifts had been taking place incipiently for some time. He stressed that in order to recognize and evaluate these shifts for their potential in shaping our future, one needed to step back a bit and take a more medium-term perspective.

In his address, as a preamble, he elaborated five such major dynamic shifts, such as

• fortunes shifting in favor of the farm sector;
• changing energy mix in favor of renewables;
• leveraging information and communication technology (ICT), and start-ups to power growth;
• shifts in supply/value chains, both domestic and global; and
• infrastructure as the force multiplier of growth.

Our discussions would continue with his elaborations of the ideas in clearer ways.

Fortunes shifting in favor of the farm sector

Obviously, the exact reproduction of the statistics quoted by him is a revelation and enlightening to our ears and minds. Let it be reproduced but in a simple way.

“Indian agriculture has witnessed a distinct transformation.

• The total production of food grains reached a record of 296 million tons in 2019-20, registering an annual average growth of 3.6 percent over the last decade.
• Total horticulture production also reached an all-time high of 320 million tons, growing at an annual average rate of 4.4 percent over the last 10 years.
• India is now one of the leading producers of milk, cereals, pulses, vegetables, fruits, cotton, sugarcane, fish, poultry, and livestock in the world. Buffer stocks in cereals currently stand at 91.6 million tons or 2.2 times the buffer norm.
• These achievements represent, in my view, the most vivid silver lining in the current environment.”

Let me give my observations on these achievements.

Not many of you, as young as you are, could not have heard or witnessed the begging we did with the U.S.A., for import of wheat popularly known as PL 480 since we did not produce enough food grains to meet our needs. Sadly, soaked in socialism and with firm faith in Russian ways of economy, we did not invest in modern methods of agriculture in the 1960s and failed to innovate, experiment, or increase our agriculture products multifold to meet the ever-increasing population.

The humiliating experience with our virtual begging for food grains opened our eyes and agriculture revolution started with the help of Norman Borlaug, the most outstanding American agricultural scientist with the ready solution of new seeds, techniques and willing to spend time with our agriculturists to educate them of the necessity to innovate and flourish. Agricultural revolution as the popular notation in India made us today the above-mentioned achievements.

But as aptly explained by the governor, we did not manage the after-effects of overflowing production of agricultural goods. Turning the favorable terms of trade in agriculture, partially due to the increasing minimum support prices, immediately following steps would be needed to manage the surplus produce in agriculture which had not made agriculturists prosperous to sustain uncertain future.

He stressed the following developments to improve the surplus management of agriculture produce. The successful agricultural producers in the world have started using global value chains to effectively increase productivity.

I may input the question “What else could be done to work in this direction?” to elongate the arguments of the distinguished speaker.

He narrated the following to lead us out of the present situation.

“First, the amendment of the Essential Commodities Act (ECA) is expected to encourage private investment in supply chain infrastructure, including warehouses, cold storages, and marketplaces.

Second, the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020 is aimed at facilitating barrier-free trade in agriculture produce.

Third, the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020 will empower farmers to engage with processors, aggregators, wholesalers, large retailers, and exporters in an effective and transparent manner.”

Explanation

After producing the excess food grains, currently, the agriculturist is at the mercy of the government to sell at fixed prices or in some cases get the produce destroyed due to poor upkeep of the food grains or in some other cases to sell much below the government set prices due to interference of middlemen.

If unlike in olden days, if the agriculturists get involved with global value chains in agriculture by becoming the owners of companies as explained in details above, instead of counting on weather god, they may face the future with capital generated at the time of excess produce. The three points narrated above clearly lead the way to prosperity. Some states like Tamil Nadu, Maharashtra, or U.P. have started work to implement the above revolutionary measures.

 Changing Pattern of Energy Production in favor of Renewables

I have written another article on renewable energy in India in taxguru.in which amply clears the enormous growth made by our nation in renewable energy and its prospects. However, a small brief will be touched here from the speech in this regard.

In the view of the governor, the following growth in renewable energy is another invigorating moment.

• “India’s progress in addressing the demand-supply imbalance in electricity has been remarkable. It has now become a power surplus country, exporting electricity to neighboring countries. While the demand for electricity grew at an average rate of 3.9 percent in India during 2015-16 to 2019-20, supply grew at an average rate of 4.5 percent and installed capacity increased at an average rate of 6.7 percent during the same period.”
• In his view, renewable energy in overall installed capacity had doubled to 23.4% at the end of March 2020, from 11.8% at the end of March 2015. (A mind-boggling achievement)
• As much as 66.6 percent of the addition to total installed capacity during the last five years had been in the form of renewable energy, which contributed 33.6 percent of the incremental generation of electricity.
• About 90 per cent of this jump stemmed from solar and wind energy. This spectacular progress had set the stage for India targeting to scale up the share of renewable energy in total electricity generation to 40 percent by 2030. The shift to greener energy would reduce the coal import bill, create employment opportunities, ensure the sustained inflow of new investments, and promote ecologically sustainable growth.

My observation

Recent auctioning of renewable energy for next 25 years combined with thermal power by the Indian government is considered as the most innovative way of thinking and increasing competition in this renewable energy like solar or wind energy has made 85% availability of power throughout the year out of which renewable power would constitute 4 hours every day. I have actually given the details of an actual bid given by the Government of India in my article on renewable energy. You can read it to appreciate the actual position in renewable energy production.

His concluding observations on energy consumption and the results of renewable energy production really gladden our hearts accustomed to power cuts, an abrupt increase in power price, and falling health of DISCOMs.

“Going forward, this landmark progress could result in a significant overhaul of the power sector, encompassing deregulation, decentralization and efficient price discovery. Policy interventions in the form of renewable purchase obligations (RPO) for DISCOMs, accelerated depreciation benefits and fiscal incentives such as viability gap funding and interest rate subvention will have to go through a rethink/need review. Reforming retail distribution of electricity while reducing commercial, technical and transmission losses remains a key challenge.” With the privatization of distribution of power in Delhi, siphoning of power by unauthorized persons, illegal drawing of power by residents, and unreliability of available power has just vanished.

DISCOM reforms need quicker fastening and political support for their growth and survival.

 Leveraging Information and Communication Technology (ICT) and Start-ups to Power Growth

In another article of mine on Global value chains, based on the World Bank report for 2020, India’s contribution to meeting the needs of soft power on a global level with the cheapest price but with the most advanced technology has been repeatedly emphasized.

What was the reaction of RBI governor on the humongous contribution of Indian youth in its service to the world in soft power?

He mentioned as under:

“Information and communication technology (ICT) has been an engine of India’s economic progress for more than two decades now. Last year, the ICT industry accounted for about 8 percent of the country’s GDP and was the largest private-sector job creator across both urban and rural areas.

In 2019-20, software exports at US$ 93 billion contributed 44 percent of India’s total services exports and financed 51 percent of India’s merchandise trade deficit during the last five years.

IT has revolutionized work processes across sectors and has generated productivity gains all around. The ICT revolution has placed India on the global map as a competent, reliable, and low-cost supplier of knowledge-based solutions. Indian IT firms are now at the forefront of developing applications using artificial intelligence (AI), machine learning (ML), robotics, and blockchain technology.”

I am proud to note that India’s position as an innovation hub of 24 startups with attaining unicorn status (the US $ 1 Billion valuations) has catapulted its position to the third rank among all competing nations.

An achievement of monumental proportions. Yes, the feeling that India population with its youngest composition has reached world level excellence is an unbiased opinion – purely by its achievements among world’s startups.

This news may propel the states to provide the best infrastructure for these startups to reach the number 1 position.

Shifts in Supply Value Chains – Domestic and Global

Having written enormously on SVCs, I would like to quote only one sentence from the speech of the RBI governor just to energize our efforts.

“World Bank’s (2020) research findings suggest that one percent increase in GVC participation can boost per capita income levels of a country by more than one percent. India’s GVC integration, as measured by the GVC participation index, has been low (34.0 percent, as a ratio of total gross exports) relative to the ASEAN countries (45.9 percent as a ratio to total gross exports). This needs to change.”

India is aware of the sudden outburst of industrial shift from China to other places at the earliest opportunity with the least available time to provide the best services to the replacing units. No one can deny that many of these giants which omitted India from their trajectory have realized now the stable growth, democracy, a rule to law procedures of India as motivating factors for considering its offer as industrial base of stability with adequate support of the government which has shown consistent reliable performance.

It is time without attributing any excuses, we grab the moving industries from China, provide them the required comforts and strengthen our position among manufacturing nations which alone would provide our teeming youth with the required jobs, adequate salary and challenging role in the future world.

Infrastructure as Force Multiplier for Growth

Strangulation was used about our infrastructure projects which languished at the tables of our bureaucrats who were afraid to act or politicians many of whom found involved in all types of scams. This was the position before 6 years. Let me know the current state of affairs from our RBI governor.

• “Road construction, the primary mode of transportation in India, has increased from 17 kms per day in 2015-16 to close to about 29 kms per day in the last two years.
• India is the third-largest domestic market for civil aviation in the world with 142 airports. On airport connectivity, India ranked 4th among 141 countries in the Global Competitiveness Report, 2019 of the World Economic Forum.
• In telecommunication, the overall teledensity (number of telephone connections per 100 persons) in India at end of February 2020 was 87.7 percent. The growth of internet and broadband penetration in India has increased at a rapid pace.
• Total broadband connections rose almost ten times – from 610 lakh in 2014 to 6811 lakhs in February 2020 – enabling large expansion in internet traffic.
• India is now the global leader in monthly data consumption, with average consumption per subscriber per month increasing 168 times from 62 MB in 2014 to 10.4 GB at end-2019. The cost of data has also declined to one of the lowest globally, enabling affordable internet access for millions of citizens.
• The shipping industry is the backbone for external merchandise trade as around 95 percent of trading volume is transported through ships by sea routes. The average turnaround time of ships in Indian ports – which is an indicator of the efficiency of ports – improved from 102.0 hours in 2012-13 to 59.5 hours in 2018-19.”
• According to estimates of NITI Aayog, the country would need around the US $4.5 trillion for investment in infrastructure by 2030. We can’t argue with RBI governor when he emphasized the setting up of the National Investment and Infrastructure Fund (NIIF) in 2015 as a major strategic policy response in this direction.
• He asserted that promotion of the corporate bond market, securitization to enhance market-based solutions to the problem of stressed assets, and appropriate pricing and collection of user charges should continue to receive priority in policy attention.

Conclusion

With the analysis of the vast data provided by RBI Governor in his eloquent speech on 27^th July 2020 to the Confederation of Indian Industries and conclusions arrived at about the illuminating future of our nation in its economic growth, I request you to perform the best with all types of impediments to be encountered on the way. Intentional and extensive coverage of Vietnam and Bangladesh with their sterling performances with Global Supply Chains is intended to motivate us to excel or perish.

Let us produce the best environment for giant industries to come to India and prosper.

I have tried to quote the correct economic figures to strengthen my arguments which are totally my personal views. Neither Taxguru.in nor RBI is responsible for my views. I am totally responsible for my article. Anyone can easily refer to the RBI web and verify the facts before initiating any action.