The World economic order is shifting gradually towards the Asian economies — China and India. As the epicenter of economic activity shifts from the West to the East, there is a renewed focus on how the slowdown in the Chinese economy and subsequent devaluation of the yuan is sending the global stock markets including that of India into panic mode. The dollar, too, had its impact and the Indian stock markets shed 1,600 points or 6 per cent in one day in line with other markets as dollar strengthened against all emerging market currencies. As far as India is concerned, it is the brightest spot in Asia with an expected growth rate of 8-9 per cent in the long-term thereby becoming a natural partner for both the major powers.
If we look into the diplomatic and strategic ties of India, the Indo-US relationship is slated to strengthen, perhaps leading to a trilateral relationship of Indo-US-China to bring in more sustainable world order. India exported $45.2 billion in goods and $19.0 billion in services to the US during 2014. Strategy and policy alignments can double the trade surplus that India currently enjoys with the US on the back of continued IT services and pharmaceutical exports, thus countering the $48.47 billion trade deficit that India runs up against China.
Apart from trade, the bond with America tightens as Prime Minister Narendra Modi focuses on evolving India as a global innovation driven economy with the slogan ‘Start up India, Stand up India’. As India becomes the fourth country — after Russia, Great Britain and China — with which the US has a hotline, it is expected that the leaders can discuss and solve problems around visa policies, non-tariff barriers and joint counter-terrorism strategies. Even as the PM’s New York visit is aimed at strengthening diplomatic ties and also position India as an attractive investment destination, the interaction planned in the West Coast and Silicon Valley is fully aimed at bonding with the IT diaspora for substantial investments back home.
The International Monetary Fund predicts that developed economies will clock a growth rate of 2.4 per cent in 2016 and the emerging markets will show a growth of 4.7 per cent during the same period, it will take the global average at 3.8 per cent. To keep the global growth sustainable and steady, it is imperative that the economies complement each other. In order to uphold the growth trajectory, western economies need inputs in terms of knowledge workers and skilled professionals. India is set to have a distinct comparative factor advantage over the next 20-30 years with its demography concentrated in the working age. If India can align the legal and regulatory structure with its dream of ‘Make in India’ and becoming the ‘human resource capital of the world’, then the PM’s promise to implement ‘Ease of Doing Business’ on mission mode will be accomplished. Though a number of strategic initiatives of India are yet to shape up, a strategic Indo-US relationship will surely help India to catapult to the top as a start-up nation.
As he targets investments from the US, Silicon Valley emerges as a natural choice, not only because IT professionals of Indian origin are there, but also because the modern app-based start-ups that are leading the current entrepreneurial surge has its roots in the Valley. India should prepare the ground to create a research-oriented start-up ecosystem, akin to Silicon Valley, in the country around Mumbai/ MMR which could shape up our competitiveness in the global markets. India should not look at just the domestic market, but look to cater services even to developed countries that will face skilled workforce shortage by 2020. A study by Boston Consulting Group — ‘India’s New Opportunity- 2020’ — estimates a net workforce shortfall of up to 39 million by 2020 in developed economies.
The study estimates that 80-85 per cent of this workforce demand will be met by remote assistance and the rest by physical customer servicing. The contribution of remote services alone is calculated at $133-315 billion of additional revenue flowing into the country and the addition of up to 24 million jobs (direct and indirect) by 2020. Further, importing customers into India (medical tourism, educational services, leisure tourism) could add up to $50 billion in revenue and create about 48 million jobs (direct and indirect) in the same time period.
India needs to prepare to cater to the demand and aim to be a part of the global supply chain ecosystem through customer credibility. As PM Modi points out, there cannot be ‘tax terrorism’ in India. The offerings of this country and capacity of its people needs to be understood by the client nations. The government has given impetus to set up infra, skilled labour, service providers and sound policy to attract investors and customers alike. The US intervention in terms of investment, support for a seat in the United Nations Security Council and resolving IPR issues will only see India emerge as a more confident and attractive economy.
The writer is Founder, Managing Director and CEO of Yes Bank