Despite political difficulties and uncertainties often plaguing India, the country’s vibrant democratic structure is a help rather than hindrance to the economic growth, according to panelists at the World Economic Forum (WEF). This view emerged at a session on ‘Growth Hotspots - Focus on India’ attended by panelists from India at the WEF summit here.
“It’s the only system by which we can correct ourselves,” Gujarat Chief Minister Narendra Modi said at the WEF’s ‘Inaugural Annual Meeting of the New Champions.’
One of India’s greatest challenges will be sustaining bipartisan support at the federal level for a broad reform agenda — “How to get the government structure in Parliament driven by the politics of coalition,” former member of Planning Commission, N K Singh said.
The session, not open to the reporting media, noted that over the past 15 years, India’s states have gained influence as its Central Government has gradually lost power.
The devolution of power from the Centre to the States has created new centres of economic dynamism, but has reduced the ability of any one government to alleviate the growing gaps in development between states, the panelists felt. At the same time, India’s economy has been shifting from a state-centric to a more market-based model. “I think States will begin to really vie for private sector investment,” Singh said.
“I believe competitive federalism instead of competitive populism will become an increasing force to foster changes in the right direction,” a WEF Session Summary quoted Singh as saying.
Meanwhile, at the local level, there are already signs that India’s best-known growth hotspots are running up against the limits of their own infrastructure, the session noted.
“Bangalore still remains the darling of tech and R&D today, if you look at where Microsoft or GE or Bell Labs or HP or GM wants to establish their research lab. The talent pool of PhDs is just so concentrated there,” Founder, Chairman and Chief Executive Officer, Strand Life Sciences, India, and Technology Pioneer, Vijaya Chandru said.
“The question of whether there will be another Infosys or Wipro in Bangalore, given its infrastructure—- I think probably not in Bangalore. That’s going to happen in other places,” he said. Mysore and Hyderabad are two possibilities.
Modi said Gujarat, a major engine of India’s growth, has chosen to attract corporate investment not through tax breaks and other incentives, but by creating a sound infrastructure in areas like good roads and uninterrupted electricity. Against this backdrop of strong economic growth at home, India’s companies are increasingly looking to go global. Indian companies have moved beyond the initial stages of “flag planting,” President, International Business Unit, Asian Paints (India), Jalaj A Dani said.
One factor aiding the overseas move is that Indian companies have traditionally raised capital globally, a practice that has reinforced strong standards of corporate governance and transparency, he said.
India may emerge from the current turmoil in credit markets with an even greater ability to make overseas acquisitions. Its relatively Westernised business culture has instilled companies with more rigorous corporate governance that will endear them to creditors in a tighter market for funding, the panelists felt.
For Asian Paints, overseas acquisitions are a way of expanding their brand and gaining new distribution channels, Dani said. “Because of the diversity we have in India, I think India will find it easier to manage different cultures abroad. As we say, there are many Indians within India,” he said. On the domestic front, India stands to benefit from the development of a new business culture that supports entrepreneurship and risk taking, said Shamsher S Mehta, Director-General, Confederation of Indian Industry (CII).
India’s youthful demographics should also work in its favour, he said, though he acknowledged the need for considerable educational reform. Other points that emerged from session are that India’s vast population of young people is both an asset and a liability: while preponderance of future wage earners and consumers will provide an engine for continued rise up ranks of global economies, they also pose a threat to already inadequate educational system that has left India with a growing skills shortage.