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In order to reverse declining GDP, India needs to boost consumption, private investment: Ajit Ranade

Our Bureau Chennai | Updated on May 16, 2020

Ajit Ranade, Group Executive President & Chief Economist, Aditya Birla Group   -  File photo: THE HINDU

In order to reverse the declining GDP growth and set its eyes on the ambitious target of a $5 trillion economy in the post Covid-world scenario, India needs to boost consumption, private investment and achieve double-digit export growth, said Ajit Ranade, President & Chief Economist of Aditya Birla Group.

He was delivering a lecture on ‘Economic Prospects in a Post-Covid World’ as part of the 36th Palkhivala Memorial Lecture organised by Palkhivala Foundation here on Saturday.

Global trade

“India’s share of world export is about 1.7 percent. Even in a world which is showing protectionist tendencies, if we manage to double our exports to about 3 percent of global trade, our exports will go from $300 billion to $600 billion, which is eminently doable,” Ranade said.

Highlighting that China delivered a fully-constructed Ocean liner to the US even at the height of trade tensions, Ranade said, even amidst all protectionist rhetorics, the world is interconnected and will continue to have international trade dependency.

Ranade also noted that despite contributing around 14 percent of the country's GDP and employing about 55 per cent of the workforce, India’s agriculture is not sustainable and the solution for the agricultural stress lies outside the agricultural sector.

However, he also highlighted that, despite all efforts towards industrialisation over the years, India’s manufacturing to GDP ratio currently stands only at 16 per cent, which was the same ratio in 1991, the year in which India unleashed bold economic reforms including industrial de-licensing.

“In the last 30 years, the share of manufacturing to India’s GDP is stuck at 16 per cent and the share of the Industrial workforce is only 12 million out of 480 million of India’s total workforce,” Ranade said.

Citing a World Bank report, the economist also said that 69 per cent of India’s Industrial jobs are susceptible to automation and robotics.

“So, in the post Covid-19 scenario, we have to face the challenges of focussing on industrialisation with the challenges of automation and changing consumption demand,” Ranade added.

Noting that the pandemic-led lockdown has created a demand shock, supply shock and financial shock in the economy, Ranade said, India’s GDP, however, was already on a 6-year decline even before the pandemic hit the country.

“India’s GDP growth trend has come down from 8 per cent to 5 per cent between 2016-17 and 2019-20. This is a declining trend which is almost 4-5 years old,” Ranade said. He also pointed out that exports and private investments had taken a beating in run-up to the virus attack. NPAs too, he added, had risen sharply.

Post-Covid world

However, the economist highlighted that favourable demography, large domestic consumption, high savings rate and infrastructure deficit are some of the structural features of the Indian economy, which the country can use to its advantage in the post-Covid world.

“India is a continental economy with a large domestic consumption. Despite its massive industrialisation in the last 30 years, China’s domestic consumption- GDP ratio is only 36%, whereas in India this number is already at 65%,” Ranade said.

He also added that India typically has a high savings rate and increasing demographic of population aged between 18-64 both of which are beneficial and can potentially be harvested for the country’s GDP growth.

On infrastructure deficit, Ranade said, “On many parameters, our Infrastructure is far below the world averages, therefore that represents an opportunity for huge investments, whether from the public or private sector which can sustain economic growth.”

“All these are structural features, which does not depend on weather cycle, macroeconomic shock falls, political cycles or even a pandemic. So I think we should not lose sight of those opportunities in the post-Covid world,” Ranade added.

Published on May 16, 2020

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