Exceptional Competitiveness Must Become the Bedrock of India’s Growth Model
There is a lot of discussion in economic slowdown. Many industrial bodies including automobile manufacturers are pleading with the government for concessions and benefits citing lack of growth. Some people think that it is only a cyclical phenomenon. Others think it is structural. We discussed one reason - how rapidly lowering inflation stalls growth. But that is not the only reason. Another reason growth is sluggish is because older growth models are broken. India needs a new growth model. Various growth models have been tried over time and we have followed any. What are these and what we do we need to be successful?
 
Colonial Model: This model involved control over the supplier of raw material and the buyer. The coloniser was the intermediate processor and controlled wealth creation. To gain control over the value chain the colonial power used military force.
 
American Model: This model used innovation, capacity and competition to build wealth. It involved developing new products (light bulb), new methods of production (cars), scale (retail) and intense competition to create wealth. In essence, markets here are not controlled. The seed capital for the American industry came from being productive suppliers to colonial powers.
 
Post War European Model: This model is quite similar to the American one except that it uses borrowed external capital. It also relies upon expansion of trade across the world, but importantly, between American and Europe.
 
Japanese Model: This model used policy liberalisation, external capital and ideas but built upon it, first with lower costs and then with superior quality, to deliver competing products to expanding developed market. Japan had held its advantage by keep its domestic consumption in check. Two shocks pushed Japan towards innovation – end of US Dollar -Gold linkage in 1970s and the Plaza accord in 1985.  
 
East Asian Model: This model followed the Japanese prototype but in later stages developed their advantage by using a devalued currency. The east-Asian crisis required the creation of dollar reserves which allowed them to keep their currencies low. They also benefitted from the US guarantee of being the policeman of the world.
 
China Model: This is the East Asian model on steroids –in overabundance.  So much so that it may have broken the entire system. While East Asian growth was based on private enterprise, Chinese growth model was based on government trying to replicate that model on a very large scale and blistering speed. In many products China installed a capacity twice the global demand within just 20 years.
 
Older Growth Models Are Broken
During the 1970s and 1980s Japanese growth was going to cause large scale unemployment in the US because of its actions. But the American response almost pushed Japan to the brink. Treasury Secretary, John Connally, famously said, “Dollar is our currency but it is your problem”. 
 
But China is way bigger than Japan. China broke the normal growth model by scale and speed. It did not allow the developed markets to adjust to the shifting of production centres. The Chinese investment-subsidy model hollowed out the middle class from the entire developed world except, may be, Germany. This time too, there will be a response -- possibly a global one. The trade war and the resulting protectionism are going to get worse. 
 
Thus, India has to grow at a time when global growth is sluggish, globalization has plateaued and is likely to reverse. Countries will create barriers to protect domestic markets. India will have to fight for the global consumer, on unfavourable terms, with entrenched players. India will face stiff competition winning in the markets outside India. 
 
There is a shortage of consumer demand globally. So, all the top global companies will look to gain from addressing the Indian demand. Within Indian markets too, there will be intense competition. India will not have any advantage except what naturally accrues to it. 
 
Competitiveness Alone Will Drive Growth
The way to win in this environment is by competitiveness of an exceptional grade. Indian firms need to be super innovative, and create better products that the world wants to buy. Most of the Japanese iconic products – Walkman, Casio watches, Honda Accord, came in the face of American response to Japan’s rise. 
 
The Chinese too want to follow that strategy. For example, Huawei phones are winning consumer appreciation for innovation in photography.
 
Indian firms must be super productive by having the best product at the lowest prices. Even today, our firms compete with products from China and across the world which tend to be cheaper despite high import costs. Indian firms need to win in this battle. 
 
Indian firms should be able to scale rapidly when their product or service becomes successful. Firms should be able to procure global equipment, upgrade skills of the manpower and reach the market quickly. 
 
Indian firms also need to be opportunistic. For example, we can leverage the global supply chain created by Amazon and allow our entrepreneurs to sell globally. We must also seek out firm relocating out of China in the light of trade tensions.
 
Building Competitive Firms Needs Support
Just to help small firms sell through Amazon we need to help them set up Amazon sellers’ page, identify the product trends and create marketing, advertising and outreach strategies. Access to risk capital would help firms scale up rapidly. 
 
Thus, building competitiveness requires a network of practitioners, consultants, investors – in short, an ecosystem. While such talent and capital do exist in India, it is not organised effectively. 
 
We have experts to help a bankrupt firm resolve its bankruptcy, but we do not have experts who can help the firm grow. Government should help create this mechanism with help from industry bodies. Institute of Management Consultants of India (IMCI) and such other bodies should be pushed to help Indian firms in building exceptional competitiveness.
 
In Sum
The path for Indian enterprises is difficult but not impossible. The first step on this path is to understand and acknowledge that our growth cannot come using the old models. The days of being a cheap, high quality, large scale supplier to MNCs are over.  
 
Just as we are adopting global and domestic training methods to win medals in the Olympic Games, we need to similarly adopt a mix of global and domestic strategies to be globally competitive. If we train hard, we can win in the coming uncertain global environment.
 
Disclaimer: The author has advised IMCI in a legal capacity.
 
(Rahul Prakash Deodhar is a private investor and advocate, Bombay High Court. He can be reached at [email protected], on twitter at @rahuldeodhar or at his website www.rahuldeodhar.com.)
 
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    COMMENTS

    sanjeev naik

    2 weeks ago

    We can win.. but when ? Is the key question

    What lower GDP means for you and me
    While a decline in GDP affects the poor worse as India is one of the most unequal societies, it hits your wallet each time a slowdown is recorded. It takes toll on average income of the people and signals a squeeze on job opportunities.
     
    Illustrating the impact of lower GDP growth, R. Nagraj, professor of economics at Indira Gandhi Institute of Development Research, said that given per capita monthly income of Rs 10,534 in 2018-19, an annual GDP growth of 5% means that the per capita income will go up by Rs 526 in FY20.
     
    "Instead, if per capita monthly income grows at 4%, then the income growth will be only Rs 421. This means a 1% reduction in the growth rate has reduced per capita monthly income growth by Rs 105. In other words, a decline in the annual GDP growth rate from 5% to 4% would mean getting Rs 105 less per month," he said.
     
     
    Taken on an annual basis, the total loss to a person would be 1,260 in a year.
     
    It may be noted that the GDP has been slowing down quarter after quarter reaching 5% in April-June period of FY20 from 8% during Q1 of 2018-19. Most economic research firms have lowered their GDP forecast for full financial year.
     
    Cutting down FY20 GDP growth to 6.7% (six-year low) from its earlier forecast of 7.3%, India Ratings and Research (Ind-Ra) on August 28 said the current fiscal would be the third consecutive year of subdued growth.
     
    Moody's Investors Service sees India growing at 6.4% in FY20 as domestic and external headwinds would persist over the year.
     
    Aditi Nayar, Principal Economist, ICRA, said the pace of expansion of GDP and GVA in Q1 FY2020 was resoundingly lower than forecast, driven by a collapse in manufacturing GVA growth, even as the performance of most of the other sectors was largely along expected lines.
     
    Explaining the impact of lower GDP on common man, senior economist Nagraj said that lower GDP means a proportionate decline in per capita income. Further, given high inequality in the economy, it is very likely that the poor will suffer more from the decline in the GDP growth rate than the rich.
     
    "Correspondingly, the number of people below poverty line could rise. A decline in the GDP growth rate could mean a decline in the employment rate," he said.
     
    The GDP at constant (2011-12) prices in Q1 of 2019-20 is estimated at Rs 35.85 lakh crore, as against Rs 34.14 lakh crore in Q1 of 2018-19, showing a growth rate of 5%.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    India's Q1 FY20 GDP growth slows to 5%
    The pace of India's GDP growth slowed during the first quarter of FY2019-20 to 5 per cent from 5.8 per cent in Q4 of FY2018-19, official data showed here on Friday.
     
    This is the fourth successive decline in the GDP growth rate.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    Kushal Kumar

    3 weeks ago

    According to news reports on 30 August , 2019 , RBI Annual Report has suggested that bank frauds saw a whopping 74% jump in value in 2018-19 as compared to the previous year. In terms of number of cases , it was up by 15%. Besides , GDP for Q1 of 2019-20 covering April -June in 2019 reportedly grew at 5% , lowest in over six years past. In the context of these major worrisome concerns in financial and economic sector in India , it is apt to refer readers to this Vedic astrology writer’s predictive alerts in article - “ The year 2019 astrologically for India” - published last year 2018 on 7 October at theindiapost.com. The predictive alert for more care and appropriate strategy reads like this in the article :-
    “ February –March onward in 2019……………….Some sort of crisis or worrisome concerns in financial and economic sector look to be there.
    July to September in 2019. These three months may also call for more care and appropriate strategy against floods , landslides , etc. Over reaction may not drag us to war or wastage. Distribution of central finances may be disputed by a State or States. Liabilities or restrictive complexion of the past policies may weigh heavily on the success or completion of the ongoing ambitious projects , particularly those related to energy generation.” These themes were also dealt with in predictive alerts in another article - “ World trends in April to August 2019” - brought to public domain widely in March and subsequently on 5 April 2019. The alert had said that a period of four and a half months from mid- April to August , particularly June around , in present year 2019 looked to be having major worrisome concerns in - “ financial and economic sector in India as well” calling for more care and appropriate strategy. A review of planetary impacts around May had suggested that such trends could reach out as far as mid-October , particularly about 7 August to 9 October , in 2019.
    Note :- This writers significant predictive work about the US most relevant to the ongoing times in 2019 and 2020 can be visited at wisdom-magazine.com/Article.aspx/4897/ and wisdom-magazine.com/Article.aspx/5060/.

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