Nikolaus S. Lang, Managing Director and Senior Partner of Boston Consulting Group (BCG), feels India should focus more on addressing the headwinds it is confronted with, instead of concerning itself with China’s growth rate. In an interview with businessline, he said the right talent, right infrastructure, and right trade regulations were key for India to enhance its share in the global supply chain.
Everybody is talking about India’s high growth potential. However, the real problem for the country is that the headwinds are stronger than the tailwinds. What should India do to minimise the impact of headwinds and accelerate growth with help of tailwinds?
Let me first start with the tailwinds. The geopolitical development of the last five years is very beneficial for India. On a rational point of view; companies will say China is so big that we need to be there. However, there is also a very strong wish to move towards other options. India, with its sheer size and with an improving infrastructure, is seen as an interesting target.
Now, in terms of the headwinds, I’m not the right person to talk about all the specifics of India. But, when you look at it from a foreign angle, I think, traditionally, there were still questions around ease of doing business, heterogeneity of infrastructure, and heterogeneity of business systems. And I’m using the past tense deliberately here. There were very different expectations with regard to cost and pricing, for example, which made it, for many in Russia (where I worked for some of these players), literally impossible to match Indian expectations. So my feeling is that we have seen over the last few years, actually an improvement along all these dimensions, such as ease of doing business, homogeneity of business rules, and infrastructure. Also with the advent of a bigger middle class, there are also other price expectations that make it easier for MNCs to sell products here.
India has a very low share in the global supply chain. And with the changing global economic quarter, there is a huge potential for India to increase its shares in the global supply chain. What are the basic things India should do to achieve this?
You need to get the right talent, which means skilled labour in different industrial applications, that’s number one. The second is infrastructure. The global supply chain requires adequate port infrastructure. Look at what, not just China, but also countries like Singapore, have invested in their port infrastructure. A right trade approach is also important, which means, not only trade regulation, but also export promotion. Going forward, this is something that will play an important role.
China has announced its GDP grew by 4.5 per cent in the January-March quarter. This exceeds expectations. What does it mean for India?
First of all, at least to my understanding, the projected GDP growth for India in the years to come is to be around 6 per cent or 7 per cent per annum. And I’ll now be doing a daring projection--I doubt that China will be able to match that number (India’s projected growth figure) in the next decade. China is much more likely to be somewhere around 5 per cent or even below that. So actually, you will have delta growth in GDP between the two countries.
Second, I would not worry too much on this growth part because a lot of the growth in China is also driven by internal consumption. We have trillions of dollars that were saved during Covid-19 because people couldn’t spend it, which will generate a lot of additional demand. And so GDP growth in China is switching. Traditionally, the GDP in China was very much focused on investment. And now, we’re moving towards much more internal consumption in the GDP and that will play an important role. If the Chinese consume more internally, it does not affect India‘s position on the global stage. I think for India, with a growth projection of 6-7-8 per cent, how it addresses headwinds is much more important than the rate at which China is growing.
Also read: Editorial. GDP growth numbers: No surprises
Considering current geo-political situation, do you think, there will be delay in implementing new global tax order as proposed by the OECD?
I see the setting up of global regimes of taxes, carbon mechanisms, and so on, getting more complex because of this global fracturing and the global divisions we will have. So, from that perspective, I think that there might be a delay. I don’t know the intricacies of the OECD. On the other side, there might be more tendencies towards regional regulatory systems and bodies. I was just last week in Washington DC, at the spring meeting of the World Bank and IMF and I was speaking at the world economic summit there, and what you hear is that Europe has now a carbon border adjustment mechanism. Now, the US is thinking about one, then Japan is thinking about one and then China‘s thinking about one. But just this is an illustration that we’re far away from a globally coordinated approach.
Now, when India is moving towards general election, there is feeling that reforms process will slow down and there will be more focus on populism. How do you read the situation?
First of all, I’m not Indian, and I’m not a specialist of Indian politics. So bear with me that I will not be able to comment on that specific situation. But I’ve been working for BCG in more than 50 offices around the world. I’ve worked on every continent and I’ve seen many governments act in this situation. And yes, I think every political environment has a choice between two things. One is striking the tones of populism and that might or might not work out. And on the other side, what I found more sustainable, is actually governments being re-elected on really factual, sustainable change in the livelihoods of their people, be it better education, better sanitation, better economic support, and so on. So from my point of view, each political party or government has these two approaches. Again, from what I could observe in many countries around the world, the growth-oriented approach is more sustainable.