View: Four steps that can help India become $5 trillion economy

By Punit Renjen
India’s elevation in the World Bank’s 2020 ease of doing business index is credible evidence of the country’s passage. In five years, India has shot up from the laggards in the bottom third to just outside the top third, to a respectable 63 in the ranking of 190 countries. This clearly indicates that the business of making business simpler in India must remain a strategic priority; it also sits squarely within Prime Minister Narendra Modi’s redesign of a New India.

The vision is a $5 trillion economy by 2024, twice its current size and profoundly recast to leverage its rare scale and opportunity. I share the prime minister’s faith in the potential of foreign capital. For many years this has been the key source of investment and a motor of India’s transformation.

For global investors, India’s improved ranking in the World Bank index is a meaningful step towards economic reform. Recently in New York with business leaders – I was there – and earlier with the Indian diaspora in Houston, Modi reminded investors and admirers that India must make itself a safe, secure and predictable destination for foreign capital.

There are four broad themes that arguably will aid India’s climb on any ranking of growth and self-improvement – and ensure it stays near the top.

First, India’s economy is now wrapped around the global marketplace and so its adherence to a rule-based regime, predictable regulations and due process must remain unshakeable. The rule of law, consistency and independent oversight – will bring in investment. India’s Insolvency and Bankruptcy Code is an example of the creation of a rule-based marketplace, in this case for distressed assets, with independent oversight. No surprise, then, that despite a few challenges, foreign investors still see it as an attractive way to access India’s marketplace.

Second, a $5 trillion economy implies a larger economic base of an order of magnitude unknown in India’s history. This structural expansion is, realistically, only achievable with the support of world-class advisory services firms able to accompany and sustain the maturing economy. In any global and mature economy, businesses work with these advisors for trade facilitation and the due diligence that contributes to decisions on FDI. Among them are firms with global reach that also create large direct and indirect employment opportunities in India. They are investing in infrastructure, technology, innovation and skilling of people. They are also one of the largest exporters of services from India that bring in foreign exchange.

This is an ecosystem that enhances, not diminishes, the India growth story in overseas markets, with a ripple effect on confidence and reassurance among a larger pool of investors. Anything less will reduce the community of established and trusted trade facilitators for investors, ultimately inhibiting the passage to a $5 trillion ambition.

Third, with the preceding two factors embedded, India can in time step forward as an alternative for global manufacturers reassessing operations in the wake of trade uncertainties elsewhere. ‘Make in India’ is a dynamic idea and can be even more compelling if, as is increasingly the case, India builds better highways, improves turnaround at ports, consolidates labour laws into a single code that actually encourages employment – these are the factors that hasten the movement of finished goods from factories in the hinterland to ports, airports and export markets. China and Vietnam have set a high benchmark for India.

Finally, there is the universal belief that the next decade and beyond belongs to Asia as the balance of economic power tilts in its favour. At its heart is the rise of a new middle class with the elevation of millions of more people out of poverty and into a higher consuming class in India. Global companies’ capital allocations will reflect this economic rebalancing.

A financial services leader in Mumbai said recently there were two things that India lacks: oil and capital. Both are foreign and finite. Achieving India’s vision implies, as my four themes demonstrate, a deepening relationship between India and foreign investment: this is a partnership India should not reject. From his time as chief minister of investment friendly Gujarat to his second term as prime minister, Modi has consistently demonstrated his commitment to making India an attractive destination for foreign investors; they would be well served to seize the opportunities India offers.