As another black swan event engulfed the world with Russia and Ukraine at loggerheads, it is a clear call for economies like India to draw lessons from it.
Which aspects need to be focused more by India?
Utilising services sector- India’s global share in services sector in 2005 stood at 2% which increased to 4.1% in 2020.
The share of the services sector in India’s GDP increased from 45 % in 2001-02 to 54 % in 2020-21.
The contribution of services exports in India’s total exports has been surpassing that of merchandise goods.
A sustained stability in net earnings from services trade has supported India’s current account by partly offsetting the merchandise trade deficit.
According to RBI, an optimistic service exports led by IT are likely to keep the current account deficit contained well below 2% of GDP during FY22.
India has a huge headroom for growth such as remote onboarding of new employees, lectures from remote locations, tele-healthcare across geographies, a big jump in e-commerce, etc.
Need
Increased access to mobile connectivity
Mutual recognition agreements on legal services with countries
Reduce dependency on crude- India’s dependency on crude has increased by more than 165 times between FY01 and FY21.
With the ongoing crisis in Europe, the elevated oil prices will result in a domestic inflation and raw-material prices going up.
Exploring unconventional energy will not only help the country save billions on imported fuel but also protect it from energy price jolts.
Need
Encouraging investors to take interest in alternative fuels
Across the board availability of electricity and expansion of battery charging stations
Diversifying defence sources- India accounts for 3.7% of the world military expenditure, making it the third highest military spender.
Nearly 70% of military hardware of India is of Russian origin.
Government has launched two Defence Industrial Corridors and hopes to attract investments of ₹20,000 crore by 2024.
Need
India based production of defence equipment and sharing of technology know-how.
Leverage and incentivise defence companies to produce in India.
Financial infrastructure- After the onset of the Russia-Ukraine crisis, the SWIFT sanctions against Russia have caused payments being stuck, including from India.
The ongoing crisis in Europe has also shown the impact of suspension of popular global platforms like MasterCard, Visa and American Express.
In 2012, the National Payments Corporation of India (NPCI) introduced RuPay as an Indian multinational financial services and payment service system which has still to compete with the global majors.
Need
Consider building an alternative to SWIFT similar to the one developed by Russia and China
Work along with South Asian counterparts in promoting financial instruments for the common good
Strong domestic consumption- Household consumption constitutes the largest part of aggregate demand.
The level of consumption by every household is mainly dependent on their level of income.
Latest data show that private consumption as a share of nominal GDP slipped further to 57.5 % in FY22 from 58.6 % in FY21.
Need
Boost household consumption to facilitate the growth of the consumer market, which would have a multiplier effect on the economy.
Promote a strong self-reliant domestic market that would create jobs, leading to increase in income levels
