Dynamic Shifts Underway In the Indian Economy

Address by Mr Shaktikanta Das, Governor of the Reserve Bank of India, CII National Council   I would move away from this preoccupation with the uncertain present and reflect on some dynamic shifts that are underway in the Indian economy. They may escape our attention in this all-consuming engrossment with the pandemic, but they could be nursing the potential to repair, to rebuild and to renew our tryst with developmental aspirations. These dynamic shifts have been taking place incipiently for some time. In order to recognise and evaluate these shifts for their potential in shaping our future, one needs to step back a bit and take a more medium-term perspective.   Fortunes Shifting in favour of the Farm Sector Shifting the terms of trade in favour of agriculture is the key to sustaining the dynamic change and generating positive supply responses in agriculture.  An efficient domestic supply chain becomes critical here. Accordingly, the focus must now turn to capitalising on the major reforms that are underway to facilitate domestic free trade in agriculture. First, the amendment of the Essential Commodities Act (ECA) is expected to encourage private investment in supply chain infrastructure, including warehouses, cold storages and marketplaces. Second, the Farmers' Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020 is aimed at facilitating barrier-free trade in agriculture produce. Third, the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020 will empower farmers to engage with processors, aggregators, wholesalers, large retailers, and exporters in an effective and transparent mannerAll these initiatives have opened a whole new world of opportunities for industry and businesses. The consequential creation of jobs and augmentation of farmers' income can indeed be enormous.   Changing Pattern of Energy Production in favour of Renewables As much as 66.6 per cent of the addition to total installed capacity during the last five years has been in the form of renewable energy, which contributed 33.6 per cent of the incremental generation of electricity. About 90 per cent of this jump stems from solar and wind energy. This spectacular progress has set the stage for India targeting to scale up the share of renewable energy in total electricity generation to 40 per cent by 2030. Going forward, this lprogress could result in a significant overhaul of the power sector, encompassing deregulation, decentralisation and efficient price discovery. Policy interventions in the form of renewable purchase obligations (RPO) for DISCOMs, accelerated depreciation benefits and fiscal incentives such as viability gap funding and interest rate subvention will have to go through a rethink/need review. Reforming retail distribution of electricity while reducing commercial, technical and transmission losses remains a key challenge. The end of cross subsidisation by industry for other sectors, and closing the gap between average cost of supply (ACS) and average revenue realised (ARR) will require speedier/accelerated DISCOM reforms (including privatisation and competition).   Leveraging Information and Communication Technology (ICT) and Start-ups to Power Growth Information and communication technology (ICT) has been an engine of India's economic progress for more than two decades now. The ICT revolution has placed India on the global map as a competent, reliable, and low-cost supplier of knowledge-based solutions. Indian IT firms are now at the forefront of developing applications using artificial intelligence (AI), machine learning (ML), robotics, and blockchain technology. The 'Start-up India' campaign recognizes the potential of young entrepreneurs of the country and aims at providing them a conducive ecosystem. While Healthtech and Fintech are the leading segments, entrepreneurs are leveraging opportunities across sectors and markets, and increasing the depth and breadth of this ecosystem. COVID-19 has impacted the outlook for startups, particularly availability of funding due to the generalized atmosphere of risk aversion. Fierce competition from other developing economies with the potential to provide cost-effective IT services, is rapidly emerging as a challenge to India's position as the leading outsourcing hub of the world. Creative destruction is an integral feature of a robust dynamic economy. The IT sector is best placed to drive this process and also manage its consequences. Innovation and ability to nurture ideas into actualisation would be the key challenge. In this context, private enterprise and investment have a game-changing role.   Shifts in Supply/ Value Chains - Domestic and Global In a competitive market economy, an efficient supply chain can enhance economic welfare. Investment in sectors with strong forward and backward linkages in the supply chain can generate higher production, income and employment. Consequently, identification of such sectors becomes critical for strategic policy interventions. Stronger inter-sectoral interdependence can help enhance efficiency of domestic value chains. Strengthening the position of a country in the global value chain (GVC) can help maximise the benefits of openness. The higher the GVC participation of a country, the greater are the gains from trade as it allows participating countries to benefit from the comparative advantage of others in the GVC. More than two-thirds of world trade occurs through GVCs.   Infrastructure as Force Multiplier for Growth In India, the progress made on physical infrastructure in the country in the last five years needs to be viewed as no less than a dynamic shift. Notwithstanding the progress, the infrastructure gap remains large. According to estimates of NITI Aayog, the country would need around US $4.5 trillion for investment in infrastructure by 2030. As in the case of the golden quadrilateral, a big push to certain targeted mega infrastructure projects can reignite the economy. Both public and private investment would be key to financing our infrastructure investments. These dynamic shifts in our economy need to be converted into structural transformations which yield sizable benefits for our economy and help to position India as a leader in the League of Nations. They involve testing challenges but also the reaping of significant rewards. Indian industry will have the pivotal role in what could be a silent revolution.   Picture by Press Information Bureau, Government of India