Budget 2024: India's Growth Blueprint Has To Lead Towards Inclusive Prosperity

With the recent large RBI dividend issued to the government, the critical question is whether these funds will be allocated towards repaying national debt or directed towards infrastructure capital expenditure. If the latter is pursued, it remains to be seen whether the spending will focus on projects that cater to coalition partners or genuinely contribute to integrated national development. 

In recent years, the Indian economy has experienced remarkable aggregate growth, standing out globally amid a geopolitically volatile period. However, a critical and often unaddressed issue is that this growth has not been inclusive across all socioeconomic strata. It is hoped that coalition politics will foster a narrative that debates this issue openly, rather than ignoring it.

This economic trend, alongside detailed data slices, must be analysed in conjunction with actual unemployment data. Despite India's demographic dividend and large productive population, even a small percentage of unemployment equates to the entire population of a large European country being fully unemployed.

The issue of varying unemployment data is concerning. Detailed, granular data with higher frequency is essential to build on various available surrogate variables. India's digital public infrastructure offers a wealth of attributes to capture this information. However, the overwhelming proportion of employment in the informal sector presents a challenge.

This is where political stewardship is crucial for shaping the long-term socio-economic future, rather than merely politicising data points and the topic.

Making Indian SMEs Global-market Ready

For a sector employing over 11 crore Indians, more than policy presentations for SMEs and MSMEs is required. Highlighting double-digit growth with a low base effect will not suffice for sectoral progress. Significant efforts have been made to mainstream SMEs, but wider preparation is needed to make Indian SMEs global-market ready.

Government entities, as the largest clients of SMEs, must pay vendor dues on time to preserve essential working capital for SMEs. Unfortunately, even the law mandating timely payments to SMEs has been delayed.

Despite misconceptions about China, we can learn from their development strategies, particularly how they leveraged SMEs to fast-track economic growth from the mid-1980s until the last decade. This approach also fostered women's entrepreneurship and employment. An India-focused model incorporating Chinese lessons could address both SME growth and women empowerment. 

The services sector has experienced steady and encouraging growth over the past three decades. However, this growth alone is insufficient for the Indian economy to elevate to middle or upper-middle-class status in terms of per capita growth.

Service Sector Needs To Focus On Cutting Edge Products

A critical observation is that the Indian services economy has largely thrived on global talent and forex arbitrage rather than producing cutting-edge, value-added, high-margin outputs. Without a shift towards more innovative and high-value services, the sector will struggle to remain competitive with other nations. The pressing question is: how can the Indian services sector become the global best in terms of quality and pricing power?

This underscores the need to enhance knowledge-based intellectual property development. For instance, India has yet to establish itself as a product nation in the software sector. The IT/ITES sector primarily relies on arbitrage rather than offering high-value services.

Similarly, India's efforts in AI, Web3, and other emerging technologies over the next few years will determine whether it remains the world's vendor, subject to geopolitical pressures and pricing concerns, or whether it can develop its own expertise and achieve global mastery using proprietary technologies. This will be the key to determining India's economic power and global supremacy in the 21st century.

The discussion on enhancing India's manufacturing capabilities must address the issue of low labor productivity compared to many other countries. This challenge is more cultural than merely a matter of skill development. A mission akin to the White Revolution or Green Revolution is needed to drive a mindset shift toward higher productivity.

Cooperative Vs Competitive Federalism

Many Indian states have yet to build their revenues on the strengths inherent to their regions, such as natural resources, talent availability, or the potential for specific industries.

This gap is significant in a country that aspires to provide livelihoods for all. States often become protective and politicise "son of the soil" issues, creating barriers for other Indians seeking employment within their borders. Unless this challenge is addressed, states will continue to rely on constant borrowing and unsustainable revenue sources, such as alcohol taxes, which generate substantial income but bring social ills and do not foster long-term economic growth.

It is essential that cooperative federalism prevails over competitive federalism. Collaboration is crucial; we cannot afford a scenario where states compete for the last slice of the economic pie. There is an urgent need for collaboration between central and state governments to develop a differentiated competitive edge for India and its states. A tough task that hopefully Finance Commission could steer. 

This approach is essential for generating sustainable and increasing GDP. The reality is that we must uplift one-sixth of humanity with progress and dignity for all. This requires a focus on developmental politics rather than mere politicking. India's political ecosystem, at both the central and state levels, must work cohesively for the benefit of all of its people.

Srinath Sridharan is a Mumbai-based researcher and corporate advisor. Views expressed are personal