Engine Driver

Engine Driver


Thought for the day on Vikram Samvat 2066? The key to improving India’s security perception and the trimurti of its politics/economics/diplomacy is wrapped up in its treatment of the domestic market.

This is the engine of India’s growth. If the domestic market is accelerated due to robust Government policy, the knock-on effect on all our other concerns would be substantial.

It is the domestic market that makes India important to the world. Because, rather uniquely, India’s domestic growth path can be largely self-driven. It rides, from education, health and agriculture, to manufacturing industry and services, on the demand generation of our billion plus population.

India also has a wealth of indigenous raw materials, including a great deal of the world’s Thorium, that can, given a dedicated burst of further R&D, substitute for scarce Uranium in our nuclear reactors.

We don’t, alas, have 70% of the petro-carbons we need. But we do have self-sufficiency and periodic surpluses in food, and sufficient arable land mass/river/monsoon water to do very well. Given, that is, some better management by way of irrigation/dams and recharge/reforestation, to get us out of the clutches of perpetual drought/flood.

Ironically, we did not choose to be an overwhelmingly domestic-led economy. But years of Nehruvian non-alignment followed by a nationalistic self-reliance under Mrs. Indira Gandhi resulted in what we have become. But, by the same token, we did not plan on becoming the most prominent exporter of software, or the global hub for the manufacture of small cars and automotive components either!

Both consequences resulted from our multi-pronged approach to policy making in combination with shifts in global forces beyond our control. This has put us in a happy place where we need not sacrifice our exports to the domestic market.

India accounts for a negligible proportion of world trade and there is much room to grow. But here too, improving our domestic capabilities can only upgrade our exports, which account for 12% of GDP now. This might also make them less price sensitive and vulnerable to a strengthening currency. But more significantly, when the rupee strengthens, it benefits our substantial import bill.

If we concentrate on developing our domestic market which accounts for over 80% of the economy, we could trigger huge strategic gains. New facilities sprouting where none exist today will meet massive pent up demand. And improved roads, ports, airports, power generation/distribution, oil & gas exploration/development/ refining/distribution; scientific agriculture plus a slew of food processing industries; enhancement of military and nuclear oriented manufacturing capacity etc. will multiply our options manifold.

We would, by doing this aggressively, not only boost GDP with the investment involved, but ensure access, availability, ease, and the removal of bottlenecks that presently bedevil our competitiveness and rate of progress.

Twenty years like this will transform the India proposition, as it has done for China.

We will have the sophisticated but saturated economies of the West, as also the resource rich economies elsewhere, all making a beeline for India. It may well make the difference between survival and extinction for many among them.

Consider that China rescued the iconic Humvee from extinction. Harley Davidson is looking to prospective India sales and low import duties, to pull itself out of the doldrums. In the past, we saved Bofors and Westland helicopters and Jaguar aircraft in their home countries. And at present, we are doing it for Land Rover and Jaguar cars too. Our upcoming Defence purchases are expected to be among the largest global opportunities in this sphere.

Our domestic demand scenario is already good. But the clincher is perhaps the unique Indian blend of management expertise and careful husbandry of resources demonstrated by Laxmi Mittal after taking over one ailing steel mill after another around the globe.

We also have inexpensive labour and the impressive ability to each buy a little to yet make up a humongous total. This is a formula for viability in present times, when much of the West has lost its ability to be thrifty. Besides, we are, even now, the second fastest growing economy in the world.

It is no coincidence that $ 13 billion has come in via FII this year completely wiping out the amount pulled out during the downturn of 2008. FDI too is pouring in at unprecedented levels once again. But this FDI can be enhanced by multiples of the $ 90 billion that has come in between 2000 and now, if the Government were to lift restrictions and bans in many sectors.

It is also true that much of Indian business is not in the public domain. Besides, listed companies, some 7000 in number, of which only about 1000 are actively traded, are often closely held by their promoters, with very little tradeable stock.

This needs to change with more listings from the private sector and venture capital/private equity universe, via IPOs. The huge value locked up in the better performing and near monopolistic PSUs could also substantially enlarge and deepen our stock markets. The Government administered pension funds invest very little, even of the 15% of their corpus they have now been permitted to place in the bourses.

Leading investment player Rakesh Jhunjhunwala, reacting to the present dominance of FII money in the bourses, repeatedly makes the point that the amount of domestic money waiting to be invested is such as to render the FII component insignificant.

Statistically, this is true enough, with just 6% of the savings making its way to the stock market in both equity and debt segments. It is also true, that like China, India has a gross domestic savings rate in excess of 30%.

But Indians are not great fans of financial instruments. They prefer Gold, Silver, Diamonds and Real Estate. This is no bad thing in itself, and can all be leveraged for part of their value if made easier and publicised properly.

Besides, Real Estate development benefits the national growth story quite substantially. This was borne out over the last two years when new construction ground to a near halt, hurting a slew of industries and services from cement and steel to sanitaryware .

As in Real Estate so in the Real Economy, money moves. Boosting the engine drivers with policy and funds may be the best thing we could do for ourselves in Vikram Samvat 2066.

(1,051 words)

17th October 2009
Diwali & start of Vikram Samvat 2066
Gautam Mukherjee


Published as Op-Ed Page Leader in The Pioneer on October 20, 2009 as "Go for domestic market". Also published online at www.dailypioneer.com and archived there under Columnists.