With the number of coronavirus infections falling sharply and India launching a mass vaccination drive on January 16, we finally may have an end date on the pandemic, even if it is a little far.
As India finds its way to recovery, a survey conducted by Deloitte says there is an underlying optimism in the industry, with 68 percent of leaders positive on economic revival. That said, the pandemic has triggered new norms that businesses and policymakers have to be ready for to make the best of the opportunities that arise. The government's policy measures and their effectiveness will be important in determining the strength of the revival.
To gauge the industry's reaction to the measures announced by the government since the pandemic and their expectations from the Budget, Deloitte reached out to 180 CXOs and CFOs through a survey. Based on their response, our budget recommendations are anchored around three themes: build a stronger foundation today, prepare for tomorrow’s opportunities, and grow beyond borders to make an impact in the long run.
Increased spending on infrastructure is probably the biggest expectation from the Budget. To its credit, the government had already set the ball rolling by announcing one of the largest and ambitious infrastructure projects even before the pandemic. What is needed is to ensure that the projects are executed rapidly, while reviving a few of the stalled ones, even as new ones are launched. This will require the government to quickly raise funds from the private sector and foreign sources.
As many as 65 percent of the respondents favoured innovative ways such as InvITs and Fund of Funds to boost financing The responses also suggest that there is a need to create a favourable and predictable business environment, ensure speedy resolution of disputes and safeguard the interest of investors to attract investment.
The government must also prioritise among its projects and focus on social and physical infrastructure that build resilience and prepare India better for future uncertainties.
The emphasis must be on building the next-generation infrastructure that provides thrust to ongoing schemes and reforms to realise our vision of Atmanirbhar Bharat. For instance, the production-linked incentive for select industries has been announced to encourage the domestic production of goods. However, the success of such schemes will depend on improved logistics and an evolved ecosystem to attract investment to manufacture more at competitive prices. Investing in economic corridors (after a careful assessment of comparative advantages in sectors and value chains), developing data centres and smart factories enabled with digital capabilities and building productive assets, such as road, power, ports, communications, and water infrastructure must be the priority.
India must prepare its workforce of the future to cope with technology disruptions and get ready for the jobs that don’t exist today. With the world going virtual and businesses adopting digitisation, several jobs will be at risk, especially the low-skilled jobs. While India may have to target specialising in labour-intensive industries, it has to ensure that it does not get locked in low-skilled and low value-added activities.
The government must invest in specialised education and targeted training to upskill its working and youth population. Investment in R&D and technological innovation will be essential for industries and talent to stay ahead in the competition, which is also highlighted by the survey respondents.
Finally, as the world looks for alternative destinations to diversify supply chains, India can capture value addition in midstream stages instantly due to its cost advantages. That said, India must aim at gradually moving upstream and downstream of the global value chain in the long run. Production-linked incentives, which is an impactful initiative for the manufacturing sector, according to the survey, should be associated with the creation of domestic value addition and high value-adding operations. For instance, incentives should be proportional to the extent of participation in domestic production, improved quality and even moving up the global value chain to encourage manufacturers to engage in high-level value addition.
MSMEs with proven track-records should be provided the necessary support and allowed to scale up facilities and improve their linkages between larger foreign and domestic firms.
A business-friendly environment, investment in quality infrastructure and services, innovation and technology transformation and skill development are must for a sustainable rebound. There has to be an ongoing effort by the government during the upcoming budget and thereafter.
(Rumki Majumdar is the Economist at Deloitte India.)Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.