The McKinsey Global Institute (MGI) has recently published a report, ‘India’s turning point: An economic agenda to spur growth and jobs’. This comprehensive report outlines a possible reform agenda which, if implemented over the next 12 to 18 months, could significantly boost productivity and job creation in India.
Data Analysis and Current Demographics
According to MGI, urbanisation and population trends indicate an increase of around 90 million additional workers looking for non-agricultural employment by 2030. Consequently, India needs to triple its current job creation from 4 million non-farm positions per annum (2013 to 2018 figure) to 12 million to meet this demand.
Furthermore, as the Gross Domestic Product (GDP) is expected to contract by over 5% in 2020-21, it must increase to 8-8.5% per year over the next decade to ensure opportunities in the post Covid-19 era. It’s noteworthy that manufacturing and construction sectors are promising areas for such growth and employment.
However, without urgent steps to stimulate growth, the country faces a risk of stagnating incomes and quality of life over the next decade.
Proposed Measures for Growth
Among the global trends that can shape the post-pandemic economy, MGI highlights digitization and automation, shifting supply chains, urbanization, rising incomes, demographic shifts, and a greater emphasis on sustainability, health, and safety.
To potentially double productivity, privatisation of around 30 of the largest state-owned enterprises is suggested. The government has already shown a focus on privatisation in the Aatmanirbhar Bharat Package.
MGI also recommends sector-specific pro-growth policies to attract investment in sectors like manufacturing, real estate, agriculture, healthcare, and retail.
Labour Reforms and Infrastructure Improvement
The creation of flexible labour markets for the industry, complemented with better benefits and safety nets for workers, is a crucial proposed reform.
India needs to improve infrastructure by unlocking supply in land markets to reduce land costs by 20-25%, enabling efficient power distribution to bring down commercial and industrial tariffs by 20-25%. It also needs to improve the ease of doing business while reducing its cost.
Big Business and Efficient Financing
India needs to triple its number of large firms (revenues over USD 500 million), according to the report. To boost entrepreneurship, fiscal resources must be streamlined to deliver USD 2.4 trillion in investment, decreasing the cost of capital for enterprises by about 3.5 percentage points.
MGI suggests various measures to achieve this. These include channelling more household savings to capital markets, reducing the cost of credit intermediation, and streamlining government finance.
Dealing with Inoperative Assets and Responsibility Sharing
Creating a ‘bad bank’ could solve the issue of inoperative assets according to the recommendations.
As for responsibility sharing, the MGI report suggests that about 60% of the reforms will need to be implemented by states, while the remaining 40% should be handled by the Centre.
