In India’s early years, we had internalised poverty. In debates whether subsidies or infrastructure should be government priority, subsidies won hands down. Our views are more balanced now. But another series of era-defining bets are needed.
First, the upside. India’s nominal wage growth has averaged 9% over the last decade, translating to 5% real wage growth and 20%-plus growth in disposable income. This spurt, combined by the fact that most consumer sectors have limited penetration, has ensured decades-long double-digit growth for businesses as varied as automotive, telecom and insurance.
A Mirae Asset Management report outlined how emerging markets contributed less than 15% to the global consumption growth in the late 1970s. This reached 75% in the last decade. India witnessed this consumption story and will continue to be a potent force. As per CLSA, in most consumer segments, Indian growth rates will lead countries such as China, Indonesia and South Korea, primarily because of reduced dependency ratios and disproportionate disposable income growth.
This dynamism is amplified by seemingly opposite forces: rural demand and digitisation. A recent Nielsen report showed that overall growth in fast-moving consumer goods (FMCG), which had been 13.4% in March 2019, recovered from a–20% low in mid-2020 to 9.4% in March 2021, before the second Covid wave hit. The breakup of this uptick was skewed: metro demand had inched up 2.2%, demand from small towns was up 6.9%, but rural demand had shot up 14.6%.
Add technology. eCommerce gross merchandise value has compounded at 42% over the past five years. India boasts 57 unicorns. It leads in real-time payments, clocking 25.4 billion transactions last year, compared to 15.7 billion for China, the runner up. Such trends will be game-changers.
Maximising this will need multiple initiatives, from ecommerce regulations and agricultural productivity, to promoting fintech and upgrading infrastructure, to widening India’s tax net and deregulating trade. These will not fit neatly into a Left-Right box. India needs to be more pro-business. Yet, it needs more State capacity.
This leads to the next core issue: individual heroism amid institutional failure. India’s institutions typically cater to a range of conflicting demands. Regulators often play catch-up with market realities. And many government policies have a crisis as a frame of reference.
Institutions, long neglected or treated as political vassals, are incongruent with our modern aspirations. The police usually mimic India’s caste fault lines. Judicial backlog of 26 million cases is scary. Regulators get tripped, less by ideology, more by vested interests. Over the past 50 years, India’s 4,817 legislators — MPs and MLAs — have been spending progressively less time in their elected jobs.
Contrary to popular perception, India’s bureaucracy is not big and bungling, but small and struggling. Compared to other G20 countries, it has the smallest number of bureaucrats per capita.
Traditional rigidities in government finances have created a spiral. As per Moody’s, interest payments are touching 28% of GoI’s revenue, further reducing degrees of freedom and crowding out productive investments. Staggered state elections every year serve as a premature referendum. Shortterm opportunism dominates. Inertia is accepted as a by-product of democracy, punctuated by eventdriven overreaction. ‘Confusionism’, a term coined by Harvard’s Stephen Walt to describe US foreign policy, often prevails.
Fixing institutions needs structural changes. Many are on the way. Policies for lateral moves into India’s bureaucracy will change its gene pool. Advancing federalism and devolving power to the states is giving them a sense of agency and increase efficiency. If India gives up selected central taxes in favour of state-imposed ones, it will further empower the states. Campaign finance, at the heart of India’s dysfunctional patronage networks, is being overhauled. Slowly, but surely, a combination of rule of law, markets and incentives are being addressed.
India’s 1991 history was made by a month-old coalition government trying to solve India’s record of ‘playing with matchsticks in a firecracker factory’. India’s 2021 history should ignite minds, and needs be written by a government with the strongest majority in India’s recent memory. It needs to use its political capital wisely. Playing to win cannot depend solely on the government. And it’s not easy.