The High Commissioner of India to Singapore addressed a room full of APAC executives from across the industry spectrum on 23 November in the sky-high City Space bar at Swissotel The Stamford.
High Commissioner Ashraf first pointed out that now is a good time to talk about India and the changes taking place under Prime Minister Modi’s leadership, because of a number of positive developments that had dispelled any doubts about the pace of reforms and direction of the economy. This year, India climbed significantly on the World Bank’s ‘ease of doing business’ index, the stock market is doing well and recently Moody’s upgraded India’s credit rating for the first time in almost 15 years. India’s fiscal deficit remains low and is on course to decrease further, the current account deficit is low, the exchange rate remains stable and the foreign exchange reserves have never been higher.
So, India’s growth story remains strong. Nevertheless, Ashraf noted that there are some downside risks that have been in the news recently so he began by briefly addressing these. The first relates to the recently announced bank recapitalisations to address distressed assets on the banks’ balance sheets, which have caused private sector investment in the economy to be anaemic. The recapitalisation plan involves a US$32 billion injection into the banking sector and is expected to spur growth. Relatedly, Ashraf noted that as the banks are likely to see consolidation and further they will have to rely more on the corporate bond market, which has so far been somewhat weak in India, meaning we’re likely to see strong growth there.
Next, the High Commissioner addressed GST implementation. The magnitude and complexity of India’s tax system were staggering—29 states, 17 taxes and 23 cesses needed to be combined into a single system while remaining revenue neutral and taking into account the extraordinary disparities and diversities that characterise the Indian economy. Ashraf joked that the genius of Indian bureaucracy, to which he belongs, is that it can turn something complex into something really, really complicated. So the GST that was implemented in July has five different rate bands and requires filing three tax returns every month. In the short term, this has been burdensome for businesses but it was ultimately preferable to get GST done than to let the debate go on indefinitely without reaching a conclusion. The good news is there’s been a 35% increase of those registered under GST in just a few months so the tax base is expanding and the rates are now slowly being rationalised and reduced. Ashraf is confident that India is on course to a stable future on the GST and described it as a once-in-seven-decades reform that has unified the market like never before. He predicted that in two to five years, GST would be seen as one of the most historic and far-reaching reforms undertaken in India since independence.
Finally, the High Commissioner noted that demonetisation, despite all the disruption and pain it has caused, is changing behaviour in the Indian economy in important ways. In the past, the economy has seen cash-driven and investment-driven growth without an increase in efficiency. The demonetisation process has unleashed a range of entrepreneurial initiatives and has changed the way people look at things. For example, in the last four months, transactions on UPI (Unified Payments Interface, the integrated payment mechanism platform) have risen from seven million to 31 million. Fortunately, Ashraf noted, with no legacy of existing systems across the country, the possibility of leapfrogging from a cash-driven to a more digitally driven economy is more likely. Thus, while demonetisation and GST implementation have been very disruptive in the short run, the services sector continued to show strong growth in the last quarter, which means that the disruption has likely bottomed out and we can look forward to a stronger future.
Having put these three issues in perspective, High Commissioner Ashraf turned to some of the underlying trends that, in his view, characterise the Indian economy and Indian society in general and what they mean for the future.
India’s demographics are one of its great strengths. Sixty-five percent of the 800 million-strong population is under the age of 35. But it’s not just the size of this cohort, Ashraf explained, it’s the energy driving them. They don’t want handouts, they want to be educated and empowered to pursue their dreams. They are eager for change, confident in their ability to achieve it and willing to do anything to pursue it. This is also what is beginning to drive the polity in India.
Change in governance is taking place in India in dramatic fashion. Ashraf has worked for former Prime Minister Singh and the current Prime Minister. The 2014 election demonstrated that people are willing to vote based on their aspirations for good governance, clean administration, growth, jobs and inclusion, instead of based on identity politics. For the first time in 30 years, a party commanded a majority on its own in the lower house of the parliament—something people thought would never happen. Clean, transparent, responsive, proactive, accountable and policy-driven—rather than discretionary—governance has become the norm. Modi is motivated by a desire to clean up corruption in government and he has been able to motivate those at the state level to solve intractable problems in areas like infrastructure. In this way, Modi has turned governance into a collective process. Progress at the state level requires a visionary Prime Minister and good chief ministers eager to compete with each other to draw investment and jobs into their states and that is the model Modi calls ‘competitive and cooperative federalism’.
Ashraf continued by noting that this emphasis on good governance has spurred a deluge of legal reforms. Over the last three years, 1200 laws have been repealed, 700 processes have been eliminated and there have been over 7,000 specific reform measures passed at the federal level and by the states. Reforms have made it easier for FDI to come in and have made it easier to set up a business: this now takes less than 30 days, down from 127 days, according to the World Bank, and a week or less according to the government. Everything has been put on the eBiz-India portal and there are fewer forms and less red tape. Compliance has also become easier and more states are practising ‘management by exception’. The federal government has tackled barriers to exit and enforcement of contracts by passing the Insolvency and Bankruptcy Code, amending the Arbitration and Conciliation Act 1996, creating the National Company Law Tribunal and passing the Commercial Courts Act. The government is also setting up a special mechanism for settlement of infrastructure-related disputes.
Ashraf commented that so much is happening on the infrastructure front. Everyone is focused on the Belt and Road Initiative, which is seen as a great economic opportunity, but the Indian Garland and the Maritime Garland projects are also worth noting. The government is planning to double national highways from 96000 km to 200,000 km of roads and has already awarded construction contracts for 60,000 km of new national highways. The pace of highway construction has gone up from 2 km per day in 2014 to 23 km per day in 2017. Rural roads are being added at the rate of 133 km per day. The railways have invested US$45 billion into their infrastructure in the last three years and plan to spend another US$125 billion in the next five years. India is on the verge of starting work on the bullet train from Mumbai to Ahmedabad. Billions are being invested in shipping and the transportation sector with six new ports, 1,000 new kilometres of expressway and 18 new greenfield airports. In the power sector, 76 gigawatts of power capacity has been added in three years and 22 gigawatts of that is in renewables. All of these are welcome, transformational developments.
One driver of transformation has been Modi’s effort to digitalise governance. Modi understands technology and is a great communicator through social media, but he also recognises the power of technology to facilitate economic growth and development. Over one billion Indians now have a biometrics-driven UID (unique identification number) and over the last five years the government carried out a socio-economic and caste census to link benefits UID. Over 300 million new bank accounts have been opened in the last three years and now 99% of Indians have one. This has brought the rural poor into the formal banking sector and these accounts can be linked to insurance, pensions and direct benefit transfers from the government. Broadband is being wired into 250,000 villages and common services facilities have been set up in these 250,000 villages. Ashraf explained that all of these efforts are enabling a leapfrog in development through the power of technology. Further, demonetisation and the implementation of the GST have opened up digital opportunities for online payments. This is having a transformative impact on SMEs, which are critical to overcoming India’s employment challenges.
Finally, the High Commissioner turned to the subject of inclusive growth. There has been a change in the way the country harnesses the power of digital technology to transform the lives of the poor. Growth for growth’s sake is not the objective—growth must be a means for transforming lives and meeting the basic necessities of people. For example, by 2022, when India celebrates 75 years of independence, it is aiming to build 40 million new houses in order to put a roof over everyone’s head. Ashraf says this goal may seem impossible to meet but estimates they’ll achieve 15 million by 2019 and between 25 and 30 million by 2022. Sanitation and ‘clean India’ projects are also important. He also said agriculture is receiving attention and investment not seen in decades.
Having laid out these big trends taking place in India, Ashraf concluded by remarking that a lot of this is being driven by Modi’s legendary work ethic and his insight that the country must move from the burden of proof to the ease of trust. The idea is that if you make processes easier, development will come. The High Commissioner noted that the government will continue to try to make it easier to do business in India and will focus on consolidating the big reforms that have already taken place. Further, the government will continue to invest in rural development, agriculture, infrastructure and transforming lives and all of that will drive growth in the future. He then took questions from the audience.
One executive asked Ashraf to comment on India’s demonetisation process compared to China’s progress towards a cashless economy. Are the two related and is India on the path to being a cashless economy?
The High Commissioner responded that while investors may find it useful to compare China and India, the Indian government has its own objectives for demonetisation and is not chasing China on this. Modi is convinced that a less cash-based economy will be more efficient, more formal and will help more people to achieve financial inclusion. Demonetisation was a catalyst to bring about behavioural change. How fast this change takes place will be a function of how fast India is able to ramp up its financial infrastructure and how responsive entities are to the tax incentives that have been put in place. For example, India has reduced the tax rate for small businesses with a turnover of fewer than 20 million rupees if they move to digital payment systems.
Next, an executive from SAP asked about India’s urban pollution problem, specifically in New Delhi. Is this just an unavoidable cost of economic development?
Ashraf agreed that the pollution in Delhi recently is a real problem and recalled a similar situation in the 1990s. Since then, efforts have been made to put more fuel-efficient cars on the road and Delhi’s buses and auto-rickshaws now run on domestically-produced natural gas. But it’s a massive, growing city and a change in construction-industry norms are sorely needed, as is a reduction in crop burning. More can be done with respect to improving public transport and creating more green spaces but there are no easy, short-term solutions. Ashraf reasoned that a combination of greater public awareness, legislation and technology would make it better.
A final question from an executive in the audience focused on India’s vision for frontier technologies such as biotechnologies.
High Commissioner Ashraf commented that ‘Make In India’ is an important element of the strategy in this regard. Over the past 20 years, the country has experienced a degree of de-industrialisation so Modi launched this campaign in 2014 and since then the country has seen US$100 billion of new FDI in all sectors. There’s been great interest in defence manufacturing, pharma and chemicals. There is also a great deal of emphasis on new technologies and biotech is one of the premier sectors. Between private sector investments and government labs, there is a lot of activity in this area. This is a way to achieve market expansion but also a way to find affordable solutions to pressing health challenges.
In terms of the start-up and tech industries, the government is funding skills training, tax incentives, incubators and accelerators, and micro-lending. The central government’s ‘innovation mission’ is not just focused on digital start-ups in Bangalore but on four or five start-ups each year in 600,000 villages across India. This is how we can create jobs. Last year there were 39 million loans given to micro-enterprises, which amounted to US$35 billion. Seventy-five percent of those loans went to women in rural areas. That is the way to create inclusion. Infrastructure, logistics, skills and credit are all important as is the general ease of doing business and all of this is happening now.
Andie Rees, the Managing Partner of Odgers Berndtson Singapore, thanked High Commissioner Ashraf for his insightful remarks on behalf of the executives in the room. Attendees stayed after the talk to mingle with a glass of wine and enjoy the city views.
Jawed Ashraf, High Commissioner of India
Mr Jawed Ashraf was appointed High Commissioner of India to the Republic of Singapore in November 2016. A career diplomat, High Commissioner Ashraf joined the Indian Foreign Service in 1991. He has served in Frankfurt, Berlin, Kathmandu, Washington D.C. and New Delhi in a variety of posts. High Commissioner Ashraf served as Joint Secretary in the Prime Minister‘s Office under former Prime Minister Singh and current Prime Minister Modi. His portfolio included External Affairs, Defence, National Security, Atomic Energy and Space. He returned to the Ministry of External Affairs in January 2016 and was Joint Secretary (Special Projects) until his appointment in Singapore. High Commissioner Ashraf studied economics at St. Stephen‘s College, New Delhi, and received a master’s degree in management from the Indian Institute of Management, Ahmedabad.
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