The Big 5 Viral Acharya mantras to benefit from China Plus One strategy

"It is hard therefore to find many products outside India that are manufactured by Indian firms," he said

From reduction in protectionism to dismantling Big 5 businesses, former deputy governor of the Reserve Bank of India (RBI) Viral Acharya has come out with five challenges India must address head-on to turn the corner in the coming decade.

In a paper titled India at 75: Replete with Contradictions, Brimming with Opportunities, Saddled with Challenges, Acharya, the CV Starr professor of economics in the Department of Finance at New York University Stern School of Business, shared five points in a “to-do list” to restore industrial and macroeconomic balance.

“I argue that while China Plus One global pivot has put India at a crossroads of a potential manufacturing breakthrough, to navigate it well Indian policy must focus on sound industrial and macroeconomic balance,” he said in the paper.

Reduce tariff

Observing that India is a contender for being the “Tariff Kind” of the world, he cited World Trade Organization data to show that its average tariff rate of greater than 15 per cent is the fourth highest behind Sudan, Egypt, and Venezuela, on par a with Brazil, and substantially higher than China and Mexico.

He said India exports to the rest of the world by processing and adding value to imported raw materials and goods, and due to high tariff that increases the cost of imports, the exports by Indian firms are costly and globally uncompetitive, lowering India’s goods exports and in turn its share in global goods trade.

Dismantle concentration of power

After 1991 economic liberalisation, industrial concentration, measured using the share of top five groups across the non-financial sector by sales or assets in a given year, fell dramatically.

The paper said the Big 5 firms’ share in total assets of the non-financial sectors rose from 10 per cent in 1991 to nearly 18 per cent in 2021, whereas the share of the next Big 5 business groups fell from 18 per cent in 1992 to less than 9 per cent.

“In other words, Big 5 grew not just at the expense of the smallest firms, but also of the next largest firms,” Acharya said.

The Big 5 industrial groups referred to in the paper are Mukesh Ambani-helmed Reliance Group, Tata Group, Aditya Birla Group, Adani Group, and Bharti Telecom.

He said the growth of such conglomerates raises several concerns – like the risk of crony capitalism, related party transactions within their byzantine corporate organisation charts, and over-leveraging due to an implicit too-big-to-fail perception among others.

Getting Insolvency and Bankruptcy Code (IBC) back on track

The former RBI deputy governor in charge of monetary policy said that while the deterrence effect of Indian bankruptcy is well at work, the progress of the cases through bankruptcy is slow which adds to the substantial erosion of asset and franchise values of defaulted companies.

The paper said a true stress test for IBC would be whether it can handle a large conglomerate’s default, either at the group level or at one or more of its subsidiaries.

Fiscal deficit

Observing that India’s fiscal deficit targets were first missed and then kept in abeyance, Acharya emphasised a credible growth path to bring realised deficits in line with these targets.

In this context, he also had a suggestion for the Indian central bank’s inflation-targeting mandate.

Skill and education gaps

He suggested three steps to address the gaps.

First, the share of low-earning agricultural labour needs to reduce over time and be transformed into better-skilled higher-earning manufacturing and services labour.

Second, the huge primary education gaps created in children’s learning all over India during the pandemic need to be addressed decisively.

And third, according to Acharya, it is important to make it easier for women to join the labour force, especially in urban areas where the fall in their participation rate has been the highest.