Decades of prioritizing economic growth over social equity has led to historically high levels of wealth and income inequality, Menon says.
The World Economic Forum's India Economic Summit 2019 was held on October 3-4. After the 35th year of the Forum's engagement with India, Mr. Anil Menon, Managing Director and Head of Centre for Global Industries - World Economic Forum, answers some of the pressing questions in an interview with Moneycontrol.
Q: The India Economic Summit met in the backdrop of a massive recent mandate for the NDA government, which is seen as a steady reformer. Still, there appears to be growth challenges. How do you assess the economic situation?
A: The global economy is going through a significant slowdown. India, too, witnessed a GDP growth weakening in the first quarter of fiscal year 2019 (ending March 31, 2020). The full-year forecast, as per official government estimates, is expected to be around the 7 percent region. Moderation in growth was widespread as consumption, investment, manufacturing, and services suffered slowdowns.
However, the government proactively initiated several policy interventions, which should foster recovery for the latter half of this year and carry momentum into FY2020. This includes a 'surprise' fiscal loosening with the finance ministry slashing basic corporate tax rate from 30 percent to 22 percent .
This will result in effective corporate tax rates (taking account surcharges and levies) will drop from 34.94 percent at present to 25.17 percent. New manufacturing companies will be treated even more favourably with their basic rate falling from 25 percent to 15 percent provided they incorporate after October 1 and commence production by March 2023. The fiscal stimulus is expected to lift the Indian business community, make India more competitive vis-à-vis its ASEAN and East Asian neighbours and boost appeal to foreign investors. The move is also expected to spur manufacturing production, which is essential to absorb India’s growing work force.
On the monetary policy side, the recapitalization of state-owned banks and mergers of 10 public banks into four will improve the health of the banking sector, as will governance reform have announced in August. This action, along with recent policy rate cuts and likely further easing, will reduce the cost of borrowing and improve the flow of credit to industry and infrastructure projects while supporting higher business investment as the growth outlook improves. The government’s decision to provide additional liquidity to housing finance companies and partial credit guarantees for purchasing the pooled assets of NBFCs will help NBFCs to repair their balance sheets and restore lending.
The biggest challenge for the government is balancing fiscal prudence with policy interventions to kick-start the economy.
Q: Inclusive growth is an important discussion point at the IES, with data showing that inequality is worsening in both developing and developed countries. In a country like India, what can be done to ensure gains of economic progress are distributed more equitably.
A: Decades of prioritizing economic growth over social equity has led to historically high levels of wealth and income inequality and caused governments to miss out on a virtuous circle in which growth is strengthened by being shared more widely and generated without unduly straining the environment or burdening future generations. Excessive reliance by economists and policy-makers on gross domestic product as the primary metric of national economic performance is part of the problem since GDP measures current production of goods and services rather than the extent to which it contributes to broad socio-economic progress as manifested in median household income, employment opportunity, economic security and quality of life.
The World Economic Forum’s Inclusive Development Index report is an annual assessment of 103 countries’ economic performance that measures how countries perform on eleven dimensions of economic progress in addition to GDP. It has three pillars: growth and development; inclusion; and intergenerational equity – sustainable stewardship of natural and financial resources.
India, with an improving trend, ranks 62nd out of 74 emerging economies. The country performs best (44th) in terms of Intergenerational Equity and Sustainability, profiting from a low dependency ratio that is set to further decline as the economy reaps the dividends of an extremely young population (28 percent of the Indian population was younger than 14 in 2017).
Though the incidence of poverty has declined in India over the past five years, six out of 10 Indians still live on less than $3.20 per day. Given the prevalence of inequality both in terms of income and wealth, there is substantial scope for improvement for India in this aspect. Both labour productivity and GDP per capita posted strong growth rates over the past five years while employment growth has slowed. Healthy life expectancy also increased by approximately three years, up to 59.6.
GDP growth is a necessary, but not sufficient, condition for achievement of the broad-based progress in living standards by which most people judge countries’ economic success. This message is particularly relevant at a time when the global economic growth is returning to a more robust level and policy-makers could do more to future-proof their economies and make them more equitable. Political and business leaders should not expect higher growth to be a panacea for the social frustrations, including those of younger generations who have shaken the politics of many countries in recent years.
Q:Artificial intelligence is considered as an opportunity, as well as a threat. How well are Indian companies prepared to harness it, and what are the negative outcomes that its adoption could lead to?
A: AI will be of great benefit to humanity in the future but to ensure this happens we have to put in foundational ethical frameworks as soon as possible. As the technology is self-learning, a small mistake can be magnified very quickly and that can affect the user and the maker of the AI tools adversely. It is one of the things we are addressing in our project Empowering AI Leadership which we will be piloting with NITI and some India companies. Getting AI wrong can significantly affect brand value.
Healthcare, agriculture and education are all areas with promise but need governance structures to protect citizens and enhance the benefits of AI. Our GenAI project which we are doing with UNICEF and will be working on in India seeks to address the use of AI in Education.
Facial Recognition and the challenges it brings for companies and governments using it (such as privacy and civil liberties) are now at the forefront of thinking about the technology. India will be piloting and developing for India a framework we are working on with France. Session on this yesterday.
In India’s National AI Strategy, they said that India would look at developing AI for All, there is a large ethical component which we will be working with NITI to develop in the coming months.
Q: India has taken the lead when it comes to combating climate change. How would you rate its efforts to help save the environment and what else needs to be done? Specifically, how could companies contribute to this change?
A: India is on the forefront of the battle against climate change and the changes we are seeing in our land and ocean resources. The challenge the country faces is how to marry targets for protecting the Earth with the ones for its boosting economy and help companies turn the risks of environmental failure into new opportunities for smart, clean industrial production.
The good news is it can be done. But, the speed and the scale of collaboration needed are unprecedented. Only by mobilising and joining together policymakers with states, cities, civil society groups, businesses, investors, innovators and technologists can India trigger widespread systemic change. On the government side, it means remodelling laws, incentives, taxes and subsidies. On the business and civil side, it means seeing the competitive advantage in working outside of traditionally siloed sectors to drive innovation. It is a tall order, but I am confident that India can rise to the challenge.
Q: We have made progress in terms of gender equality. But more than labour force participation, do you think industry-specific participation needs more focus? For example, AI. Only 22 percent of global AI professionals are women. How can we make working across industries more equal for women, especially in India because even women’s labour force participation in India is among the world’s lowest.
A: According to the Forum’s Industry Gender Gap Report, the burden of job losses that will result from automation and disintermediation as a result of the Fourth Industrial Revolution will impact women and men relatively equally, with 52 percent of the 5.1 million net job losses expected globally between now and 2020 affecting men, compared with 48 percent affecting women. However, the fact that women make up a smaller share of the workforce means that today’s economic gender gap may widen even further than the current 40 percent .
Across all industries, women make up on average 35 percent of junior level staff, 25 percent of mid-level staff, 15 percent of senior level staff and 10 percent of chief executive officers (CEOs). The industries with the worst junior level uptake include Mobility, Information and Communication Technology (ICT), Energy, and Basic and Infrastructure. They also report more dramatic drop-offs along the talent pipeline, with low intake at the junior level translating to similar underperformance later on, creating a vicious circle. At CEO-level, women continue to be profoundly under-represented, reflecting the drop-off at board and senior levels.
The Global Gender Gap Report 2019 benchmarks 149 countries on their progress towards gender parity across four themes: Economic Participation and Opportunity, Educational Attainment, Health and Survival, and Political Empowerment. In addition, this year’s edition studies skills gender gaps related to Artificial Intelligence (AI). South Asia is the second-lowest-scoring region, with a remaining gender gap of 34.2 percent , ahead of the Middle East and North Africa, and behind sub-Saharan Africa. India (108th, 66.5 percent ) records improvements in wage equality for similar work and fully closed its tertiary education gap for the first time, but progress lags on health and survival, remaining the world’s least improved country on this subindex over the past decade.The team is working with NITI Aayog after it released the national strategy for AI to identify top areas and use cases related to AI for social good. The team is also exploring a facial recognition pilot with NITI Aayog and other ministries to scale the work being done with C4IR Network partners in the French government.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.