How can India achieve 8% growth? Motilal Oswal Financial Services' Nikhil Gupta's new book has answers

Nikhil Gupta, chief economist and senior group vice-president at Motilal Oswal Financial Services, and the cover of his new book 'The Eight Per Cent Solution: A Strategy for India’s Growth' (Bloomsbury, 2023).

Nikhil Gupta, chief economist and senior group vice-president at Motilal Oswal Financial Services, talks about his book The Eight Per Cent Solution: A Strategy for India’s Growth (Bloomsbury, 2023), which looks at how India can achieve a higher growth rate. According to Gupta, an economy is made up of four participants — households, corporate, government and external. In this book, he addresses the lack of attention towards finances of the household sector and the unlisted corporate sector, and suggests that India needs to create jobs for millions of young people and build infrastructure for education, health and security. Edited excerpts from an interview:

What made you write this book?

This is my humble attempt to bring the analysis of the Indian economy through the sectoral financial position into the limelight. I wish this analysis helps to shift some focus of experts on the broader household sector and the unlisted corporate sector. An economy is much more than the farm sector, listed companies and the government. Notably, the listed companies and the government sectors have performed much better than the broader household and the unlisted corporate sectors in the post-pandemic period. Without the improvement in the latter, the former would find it difficult to achieve an eight per cent economic growth.

What target audience did you have in mind?

The primary audience consists of domestic and foreign policymakers, financial sector participants who have invested or are willing to invest in India, academicians and subject matter experts. The book will come in handy for all who want to understand the structural story of the Indian economy from an important but not-so-mainstream perspective and make an informed decision. I kept the language as simple as possible, so that even non-subject matter experts can relate to it. There are no models or complicated statistical equations. It is widely perceived that the subject of economics is not for everyone but, in reality, economics is used by everyone — not only financial planners and policymakers — in their daily lives.

Could you define ‘growth’ for non-economists? Why is eight per cent an ideal number?

Growth is synonymous with improvement. As an individual, when I spend Rs 100 today, compared to Rs 50 yesterday, my spending growth is 100 per cent. Gross Domestic Product (GDP) growth represents an improvement in the spending ability of the economy as a whole, including the companies, the unincorporated enterprises, and the government(s), along with individuals/citizens. It also takes into account the transactions done with the rest of the world. The driver of growth must be sustainable, if it is wished to be continued for a prolonged period. For instance, the implications of higher spending growth supported by borrowings are very different from higher spending led by income.

It is widely known that India is targeted to become a developed country when it achieves its centenary of independence by 2047-48. If so, it is estimated that India’s real GDP needs to grow at 7.6 per cent per annum over the next 25 years; thus, the importance of eight per cent.

You note that “weak household investments in residential real estate have made the economy suffer during the past many years”. How can it recover from this situation?

Household investments have two parts — residential real estate, primarily done by the individuals, and machinery and investments (including construction investments by the unincorporated enterprises). The former accounts for 60-65 per cent of household investments. Higher income, lower interest rates, lower house prices and higher rentals are the major drivers of residential real estate for the end-users and thus, they hold the potential to reverse the weak residential real estate investments. At the same time, a strong economic environment and financial safeguards/supports for the Micro Small Medium Enterprises (which are also included in household sector) could boost other household investments. It is generally perceived that the latter has weakened substantially in the post-pandemic period.

You say that low education standards could make it difficult for India to continue to grow its services sector. What can be done at the policy level to raise these standards?

I am not an expert in the education sector but I believe that the worries in this area are multi-dimensional. It is not only limited to the quality of education but also related to the access, the funding and the governance of these institutions. A need to get better education has been a long-standing demand for decades. We know that human capital played a very critical role in the successful transition of most successful economies, including the United States, Japan, Russia, East Asian Tigers (South Korea, Taiwan, Singapore and Hong Kong), among others. And thus, the experts in this sector must be very active in getting the desired outcomes.

What can the government do to incentivise corporates to contribute to the economy?

Serious deliberations must be held to invite the best minds to bring into alignment our corporate and national objectives. Since the corporate sector is the most efficient investor, it pays to increase its share in total investments. But to do that, the government first needs to realize the need for this. In the past, South Korea managed to achieve this through force. This is neither ideal not suggested. Instead, the government could think of various financial incentives for companies, which could be linked with say, higher exports (especially in segments where we are lagging) and/or higher investments. One of the surest ways to incentivise companies to align with national objectives is to link the latter with higher profits.