A vibrant debate is currently underway in India, and indeed across several emerging markets, about the pace of recovery from COVID-19, the extent of any permanent damage, and the nature of the policy response. But soon a more important debate will be upon us.
What will drive growth in the post-COVID era?
With public sectors confronting a mountain of debt, the fiscal will need to be reined in post-COVID across several emerging markets. Further, COVID is only likely to accentuate the prevailing export pessimism, as global potential growth is damaged and protectionist instincts are stoked.
In India’s case, what will it take to lift potential growth back to 7 per cent?
“To say more reforms are required is tautological. Instead, the choice and sequencing of reforms will depend critically on the growth philosophy India embraces,” writes Sajjid Z Chinoy, chief India economist at J.P. Morgan.
He refers to Arvind Panagariya’s book India Unlimited: Reclaiming the Lost Glory (hereafter Reclaiming), to state: “It’s tempting to believe India’s size provides fertile ground for import substitution. But we’ve seen that movie before and know how it ends. Of the many contributions, the book makes, perhaps the most significant is to underscore the necessity of export-led growth to India’s prospects. Indeed, no emerging market has been able to sustain 7-8 per cent growth for any length of time without relying on the Siamese twins of exports and investment”.
To bolster this case, Reclaiming clinically dismantles the underpinnings of export pessimism: Growing global protectionism and automation. 📣 Express Explained is now on Telegram
Global merchandise exports stood at almost $18 trillion in 2017 (more than six times India’s GDP) with India commanding an export share of just 1.7 per cent (versus China’s 12.8 per cent). Therefore, even if the global market shrinks to $15 trillion — an unlikely prospect — India could double its exports by raising its global market share to just 4 per cent. The opportunity is huge.
What about the challenge from automation?
For many labour-intensive tasks, automation is still infeasible. Adidas, for example, produces only 1 million of its 360 million pairs of shoes in automated factories.
“Reclaiming makes the often-forgotten case that the opportunity for labour-intensive manufacturing has not passed us by. In fact, the timing couldn’t be more fortuitous,” he states.
Chinese real wages are rising, the workforce is shrinking and the embattled relationship with the US appears more structural than cyclical.
“This is India’s moment to integrate into the Asian supply chain by attracting multinational companies seeking a China hedge in the region,” states Chinoy.x
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