Three wishes for 2025: Tech innovation, reforms, and idea-driven politics

Industry must invest in technology and international sales, economic policy must focus on structural change and productivity, and politics on ideas

A New Year is a time to take stock. This next quarter-century can be India’s if industry, economic policy, and politics make it so. Industry must invest in innovation and manufacturing at scale. Our economic policy must focus on long-run productivity growth and its root in structural change. And our political debate must be about ideas.

 

Indian industry must have the ambition to lead: Start with investment in innovation. I have written often here (email us for links) on this subject, so I will be brief: For Indian industry to lead, we have to be much more serious about innovation. Indian industry invests 0.3 per cent of gross domestic product (GDP) in in-house research and development (R&D), compared to a world average of 1.5 per cent.  We spend $7 billion annually on industrial R&D, compared to $625 billion in the US, $335 billion in China, $130 billion in Japan, and $90 billion in Germany. We are the world’s fifth-largest economy and manufacturer, but rank 21st in industrial R&D. Our 10 most successful non-financial firms have a very healthy profit by world standards but invest little in R&D: A mere 2 per cent of profit. By contrast, firms in the US, China, Japan, and Germany invest between 29 and 55 per cent of their profits in R&D. To put this in perspective, 25 individual firms — from Alphabet ($40 billion) to BMW ($7.6 billion) —invest more in R&D than all Indian firms combined. 

 

Together with R&D, we need to invest in world-scale manufacturing and international sales. Dr Manmohan Singh published a book based on his PhD thesis, which drew attention to our export pessimism.  He argued, so presciently, that India needed to shift its focus from import substitution to export ambition.  He was right in 1964; he is still right in 2025. Indian industry must see the world as our market, investing in capacity and developing markets in the world’s largest countries. 

 

Structural change must deliver long-run growth in productivity: Our aspiration is to be a developed economy by 2047, with a per capita GDP above $14,000 in today’s dollars.  To grow five times from our current $2,700 demands a 2 per cent higher rate of growth, bringing it to 8.5 per cent. Consistent high growth needs the structural change that makes the economy more and more productive. A major source of long-run productivity growth is putting more people to work, and shifting them to higher-productivity occupations.  Increasing female labour force participation from its current low rate and driving a shift in employment from agriculture to industry and modern services is the kind of structural change we need. But industry and services need to invest much more to attract the hundreds of millions who must shift out of agriculture.  What policy change would drive this investment? The government has invested strongly in infrastructure, but industrial investment by firms has been lukewarm.

 

We can learn from our history. The Rao-Singh reforms of 1991 to 1993, and their progeny, led to a substantial inflection in growth.  Scrapping industrial licensing meant the government stopped trying to play God in deciding which sectors industry should or should not invest in (the production-linked incentive scheme uses incentives instead of controls but attempts the same thing). Opening the economy to imports with lower tariffs meant Indian firms had to compete with the best.  Scrapping institutions like the Director General of Trade and Development (best known for neither T nor D) removed an obstacle to progress. Independent institutions were allowed to function and set the rules under which we all operated. A reduction in corporate and personal income taxes, between 1991 and 2018, enabled the legal accumulation of wealth by entrepreneurs. The goods and services tax (GST) reform of 2017 greatly facilitated the free movement of goods around the country, though the government still insists on helping us choose salty over sweet popcorn. In area after area related to industry, the government stepped back, allowing industry to step forward with an investment boom that lasted, with occasional blips, for 20 years.

 

It is time to look beyond industry. We need reforms in education and tourism. Both sectors require the state to play a role, but a different one from what it does now. In school education, the role is to fund efforts by states to raise quality, build accountability at the local level, and enable schools to hire better principals and teachers. In higher education, it is to regulate much less, provide public institutions with far greater autonomy in selecting their boards, heads, and faculty, and encourage private institutions to experiment with new ways of teaching and research.  Academic research must be funded in both private and public institutions on the basis of excellence defined by academic peers alone. 

 

Tourism also needs reform. As the latest Economist says, India is being left behind in the current world tourism boom: Dubai, a single city, now attracts twice as many tourists as all of India. Marketing India effectively is a role for the government, as is making it easier for foreigners to enter.  More and more countries are waiving visa requirements for Indians (Thailand, Malaysia, the Philippines, Sri Lanka). If they are not afraid of being swamped by a country of 1.4 billion, why should we hold back for countries with a tiny fraction of our population? Land use regulations should permit many more hotels — including those that cater to the sandaled and not just the well-heeled. And we need far better air connectivity heading both West and East. We should free any airline, domestic or foreign, to increase direct connectivity to all major Indian destinations, regardless of bilateral air rights.

 

A politics of ideas, not insults: I wish for content in our political discourse, and for a press that values substance — one that ignores insults rather than blowing them up into “news”. We need to hear what economic reform agenda the government has for the country in the next four and a half years. Is privatisation of public sector enterprises really on the cards, or only for Budget announcements? What is the Opposition’s view of privatisation?  For all its current glitches, do they really think that Air India was better run three years ago when it was starved of investment, management — and passengers.  What about the implementation of the Insolvency and Bankruptcy Act? It was intended to speed up the repurposing of distressed assets?  Has it? The Jet Airways and GoAir sculptures dotting our airports say no.

 

And maybe even some big questions. How will we create millions of jobs in industry and services? What is the government and the Opposition’s vision of how public research and firm innovation must work in tandem to build a more innovative India? When will our much-delayed Census actually happen? How can we densify and greenify our cities at the same time, as Ahmedabad says can be done? How will we clean up our environment so we can stop having the world’s largest number of cities with air pollution levels that reduce life expectancy?  Trading insults and allegations may make for good television, but it is ideas — debated, improved, questioned, answered, and implemented — that will lead to a developed India. 

ndforbes@forbesmarshall.com, The author is co-chairman Forbes Marshall, past president, CII, chairman of Centre for Technology Innovation and Economic Research and Ananta Aspen Centre. His book, The Struggle and the Promise has been published by HarperCollins