Issues related to Economic growth

How to unleash the entrepreneurial power of 1.3 billion Indians

Note4Students

From UPSC perspective, the following things are important :

Prelims level : SEZ Act

Mains level : Paper 3- Learning from the success of IT industry in India

Context

Last Independence Day, the PM announced that 15,000 of our current 69,000+ employer compliances and 6000+ filings have been identified for removal.

Why India is a development economics outlier?

  • Software industry despite being low-income country: Few models predict a $2,500 per-capita income country with five million people writing software and internet data costs per GB at 3 percent of US levels.
  • Digital identity: In India there are1.2 billion people empowered with paperless digital identity verification.
  • Digital economy: India also witnesses 3.5 billion real-time monthly digital payments.
  • Attraction for Investment: $10 billion in private equity raised in July, and a $3 trillion public market capitalization.
  • Harvard’s Ricardo Hausman believes, the only sustained predictor of sustained economic success is economic complexity and suggests that India’s prosperity is less than our economic complexity would predict.

India’s software industry

  • Our software industry is an oasis of high productivity — 0.8 per cent of India’s workers generate 8 percent of GDP.
  • The mandatory global digital literacy program and digital investment super-cycle sparked by Covid will double our software employment in five years.
  • Our software industry’s talent, alumni, and global engagement — 50,000 tech startups that have raised over $90 billion since 2014 from 500+ institutional investors.
  • India’s software services industry and tech startups are each estimated to be worth about $400 billion today which is expected to grow to $1 trillion by 2025.

Why did India’s manufacturing sector fail to perform while its software industry flourished?

  • One of the reasons is the different regulatory thought worlds of the Software Technology Parks India rules of 1991 (STPI) and the Special Economic Zones Act of 2005 (SEZ).
  • STPI’s genius was simplicity. It allowed rebadging existing assets, embraced trust over suspicion, and adopted self-reporting that was largely paperless, presence less, and cashless.
  • SEZs largely replicated the regulatory cholesterol and distrust that has made India unfavorable for employment-intensive industries.

Way forward

  • Productivity: Raising per-capita needs high productivity manufacturing and domestic services firms that disrupt our low-level equilibrium of labor handicapped without capital and capital handicapped without labor.
  • Opportunities for India: Until recently, China’s tech industry seemed unstoppable — half of their 160 unicorns operate in AI, big data, and robotics. But this is changing.
  • Over 50 recent regulatory actions against China’s tech industry have already cost investors over $1 trillion.
  • This offers an opportunity for India due to its attractiveness to factories, multinationals, startups, venture capital, and pension funds.
  • Replicate regulatory trust and simplicity offered to the technology industry to other sectors: India’s global soft power by reaching revenue and valuation possibilities that felt unimaginable — have come before physical infrastructure, farm employment reduction, and higher women’s labor force participation.
  • Massifying our prosperity needs massive formal, non-farm job creation.
  • Creating the productive firms that will offer these jobs to our young needs replicating the regulatory trust and simplicity that our technology industry enjoys in the rest of our economy.

Conclusion

Imagine India@100 if we cut regulatory cholesterol today and spent the next 25 years unleashing the entrepreneurial energies of 1.3 billion Indians — 65 percent of whom are below 35 years old.

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