From the mouth of the India based multinational conglomerate

Kumar Mangalam Birla

(The Author is chairman of Aditya Vikram Birla Group)

India's economic vision and forceful assertion are critical after US downgrade leading to global stock market crash

An unmistakable phenomenon of our times has been the sharp accentuation of uncertainty about the future course of the global economy. The events of the past two weeks say it all - the impasse of the US Congress on debt reduction, the consequent downgrading of the US by S&P, a global stock market crash, a 15% collapse in oil prices and sharp rise in gold prices

Clearly, such pronounced volatility is highly disruptive, both for the global economy and for business.
This is a schizophrenic economic world. The developed economies are mired in high unemployment, slow growth and high fiscal deficits. Asia and other emerging economies are experiencing high growth and a relatively better fiscal situation. While one part of the world is trying to induce growth with loose money, another part is fighting inflation with tight money

Capital moves quickly and effortlessly. But labour is much less mobile: some countries face a shortage of labour, elsewhere there is a surplus. Short term capital flows are exacerbating volatility, triggering capital controls.

Exchange rates are becoming a weapon of choice, leading to "currency wars". China, for instance, has benefited greatly from an undervalued Yuan.

Today's colonists chase natural resources. China is the most conspicuous example of a country that is deploying its foreign exchange reserves to secure oil and mineral resources and geopolitical clout.

The most troubling and visible component of inflation is food prices. Dwindling farming populations, drought in many countries and growing populations have led to record food grain prices, aided by commodity price speculation.

Over the next three to five years, we will have to reckon with sub-par growth in most developed economies. Currency and commodity and oil price fluctuations will become more pronounced. The dollar will cede some ground to Yuan and euro.

Nuclear power will wind down, natural gas and coal become prominent. China's growth will remain impressive, but well below the 10+% pace. Given its natural resource base and the sheer lag at present, the region likely to surprise is Africa.

Perhaps the enthusiasm for freer trade will diminish considerably. The broad direction of global policy will be to address the disruptions of extreme and unfettered free markets, particularly in finance.

India is pushing far, far below its potential. This is the time, and the moment for the nation's economic batteries to be re-energised and rejuvenated. First, we must boost creativity, agility, quick responses and a lot of experimentation. New ideas often need to be implemented quickly, even if on a pilot scale. We also need policy facilitation to increase domestic investments.

We need renewed focus on the basics of domestic development: drinking water, health care, sanitation, transportation, urban infrastructure and education. Meeting the gap in these sectors alone can keep India's economy in high gear for at least two decades.

Agriculture's share of GDP is less than 15%, but almost half of our population depends on it for their livelihood. We need urgent reform in agriculture 

We must go on an overdrive to develop India as a global manufacturing hub. We are world leaders in sectors like two-wheelers, small cars, generic drugs, laminated tubes or diamond polishing. We have many Deming award winners and achieved the lowest cost production in a variety of products and materials. And yet, manufacturing makes up merely 15% of GDP. It needs to be raised to at least 25%. To reap our demographic advantage, a strong manufacturing base is critical.

On a war footing, we need to address the issues related to energy and raw material security. That means speeding up domestic exploration and acquiring energy and raw material assets overseas

Finally, India needs to do much more to pull its weight globally. If India subscribes to free trade - as it should - it must, from its position of strength, question the visa restrictions on Indian software companies. If the world subscribes to free trade, India must come down forcefully on the pork-barrel subsidy systems prevalent in the developed economies. If food inflation is a burning global issue, India must point out that it is partly because of the structure of tariffs, subsidies and quotas put in place by the developed countries. India can forcefully put the free trade mantra back on the table of those who have long been extolling the virtues of free markets.

India's forceful assertion becomes even more critical in a world where many problems - pollution, environment, migration, for instance - are global. 

In sum, I want to say that India launched its last big reforms drive in 1991. That single push worked magnificently. It's time to hit the accelerator again, with double the vigour.

Credit : ET