An (Infinite) Game Theory strategy for India to be a global power

India is at a unique inflection point. In 2019-20, our GDP was nearly $3tn, catapulting us into the top 5 economies. In terms of purchasing power parity, we are a top 3 economy at $12.6tn, behind China and the US. For the first time this year, due to the economic fallout of COVID-19, India will witness 4% negative growth. The pandemic is realigning the global order and may have forever changed the world. There are generational opportunities here, and the challenge is deciding which goals to pursue.

Here, game theory offers a useful framework for decision-making—to understand the theatre, build alliances and common objectives, formulate strategies to reach milestones, and then make the necessary near— and long-term decision-cascades to execute these strategies. The theory classifies all contests as finite or infinite.

Recent events, especially at the Indo-china border, have demonstrated that a stable economy is a prerequisite for indomitability. With it comes global respect, a shift in attitudes from allies and adversaries, optionality in resource allocation, and a security apparatus that can pre-emptively protect its borders and citizens. A robust economy has tremendous feedforward effects— high incomes and quality of life, capacity to maintain peace at all costs, and the unrelenting pursuit of excellence. Sustaining a resilient economy in a sovereign nation is an infinite game.

By definition, an infinite game has no beginning or end, can support known and unknown players, must continue with an evolving ruleset, and the only known boundary condition is that the game must be perpetually played. In contrast, finite contests have bounded rules, scores, and playtime. Unlike basketball or chess, players in an infinite game cannot call time on the game after it reaches a pre-agreed result. For example, India can’t achieve a $10tn GDP by 2031 and then retire its growth and development. Building a resilient economy can only be defined in terms of intermediate objectives that perpetuate the game—grow the country to a $5tn GDP by 2026, $10tn by 2031, $20tn by 2041, and beyond.

Having established that India is playing an infinite game, the methods it must use to set objectives, design strategies, and forge alliances will shift in approach and urgency.

More importantly, India must align its decisionmaking, policy formulation, incentives, and investments toward these goals. With this lens, here are some of the growth drivers India has to pursue to become a dominant player in this infinite game.

URBANIZE SYSTEMATICALLY BUT RAPIDLY

Urbanization concentrates human activity, leading to depth of specialization and irreversible productivity enhancements; crucial to accelerating socio-economic growth. India (34% urban) lags behind the world (55%), China (59%) and the US (82%). Urbanization is critical for India’s growth, as exemplified by these two superpower contenders.

No longer should India’s growth depend only on 10 cities with a combined GDP of $1 trillion (33% of India) and a combined population of 11 crores (8% of India). The next 100 cities must be planned to contribute $1 trillion and house 20 crore people. Another tier of 1,000 towns can be developed for the next $1 trillion. In this manner, we could develop a total of 5,000 census towns all over the country, connect them with high-speed infrastructure, and concentrate resources to develop a tiered and reliable urban engine of growth. An India-wide phenomenon means every citizen can fully participate.

We can do this systematically by incorporating sustainable energy technologies, incentivising job creation and training, urban mobility solutions, and supporting quantum leaps in material reuse and recycling. This distributed growth engine can maintain a value-added agricultural surround system, self-reliant manufacturing ecosystem, increase overall savings and investment, and support human capital development.

LABOUR-INTENSIVE GROWTH

For self-reliance and sustained economic growth, India has to develop high labour-utilization strategies via urbanization, construction, manufacturing and services like tourism. It is the only sustainable way to support wage-growth and mass-upskilling of the 50% of India that is unskilled or low-skilled. After 70 years, agriculture even today employs 43% of the workforce which must quickly reduce to 25%.

The recent migrant crisis has demonstrated that six states in the north have surplus labour that migrates for a living. The Rs 50,000 crore PM-GKRY program has to be dovetailed with creating labour-intensive industries. An incentive program could be worked out where for 1 crore jobs created in specific industries in these six states, the government could pay Rs 2,000/month/worker employed with verifiable social security. With a combined Centre-state program, this will work out to INR 24,000 crores a year for 1 crore jobs; the creation of which will radically transform these states. Moreover, a majority of the 6,844 products we import from China at $65.3Bn can be produced domestically with labour-intensive strategies.

HIGH VALUE-ADDED MANUFACTURING

Labour-intensive manufacturing unlocks opportunities for current economic growth while hi-tech manufacturing unlocks opportunities for the future. Today’s frontier technologies are tomorrow’s growth engines. Electronics design, 3D printing, advanced biotechnology, defence parts, space applications, robotics, and other areas are a formidable value-add to the nation that holds the intellectual property (IP) and manufacturing rights.

The world’s superpowers deploy significant innovation budgets because they have strategized the value of this investment in securing economic growth. While India has an abundance of talent, we have not pursued a perpetuating strategy here. To maintain a resilient economy, decades into the future, we must invest today in deep research, IP creation, and specialized workforces supported by centres of excellence, world-class R&D laboratories, manufacturing facilities and a deepening startup ecosystem. A Rs 50,000 crore PM Hi-tech Industry Abhiyan is required. The returns on this investment will translate into extensive value-added output and growth.

EXPORT ORIENTATION

The endurance game strategy around export-orientation is evident: if we target only domestic markets, the limit is $3tn. With export-orientation, the market swiftly expands to the $82tn global economy—a 27x expansion. In a decade, even this would have expanded further at 4%

YOY. With export-orientation, all Indian producers have an opportunity to expand their market reach, growth and earnings.

India’s IT industry has proven this value proposition. Three Indian IT companies are in the Top 5 globally, and five in the Top 10. In the early 1990s, if the thenburgeoning IT industry had limited itself to the domestic market, it would have probably died out because the market was limited. By consciously orienting their services toward the global economy, IT companies saw exponential growth and took advantage of the expansive growth opportunities.

INFRASTRUCTURE DEVELOPMENT AND SUPPLY CHAIN EFFICIENCIES

China’s infrastructure boom has enabled unprecedented delivery and supply chain efficiencies—a significant contributor to their ability to produce and deliver high-quality goods at cheap prices. To compete, reducing our supply chain costs from 14% of GDP to 6% is essential.

The introduction of GST, and focus on road and airport development is paying off. In the wake of economic standstill, the administration can consider fast-tracking a National Infrastructure Pipeline 2.0 program, the freight corridor projects, and developing ports throughout the coastlines. We have to match carriage speeds and port turnaround times of China, Singapore and other places to capture export market share.

AGRICULTURAL EXPORTS

India is a fertile, multi-climate country with a strong agricultural base. We are the largest producer of milk, cotton, spices, and second largest in food grains, horticulture, and sugar. We are a major producer of agrochemicals, tea, jute and oilseeds. We have the largest cropland and livestock sector in the world. Despite this, we lag in agricultural exports and value-add due to the lack of a cohesive growth strategy.

A long-term vision to increase value-add in agriculture necessitates exportorientation, building a global India agri-brand, food processing, grading and sorting standardization, large-scale dairy procurement and branding cooperatives, and more. Agriculture will also capitalize on the increased supply chain efficiency to drive output up.

GOVERNANCE AND TAXATION REFORMS

India’s economic growth is heavily weighed down by compliance laws, some dating to the colonial era of the late 1800s. Teamlease’s analysis of India’s compliance universe shows the centre and states together have 1,536 Acts, 69,233 compliance paradigms and 6,618 filings for companies and citizens to navigate. This impossibly high compliance burden is a drain on the time and resources of taxpayers, wealth-creators and job-creators, and is antithetical to value creation.

There are also discrepancies in taxation laws. Domestic investors pay higher taxes than equivalent overseas investors. Higher capital gains tax is levied on unlisted stock compared to listed, despite the highly variant risk-reward paradigms.

The world’s most productive economies have all deployed vastly-simplified compliance and tax regimes. President Trump has reduced friction by 30% in one term. With India’s pioneering tech-enabled governance, this is a generational opportunity to build transparent compliance and taxation systems that boost India’s productivity multifold. India needs a new movement to free citizens from the tyranny of over-compliance, a PM Zero-friction Compliance Yojana.

AN ENDURING INDIAN NATION

An enduring nation is borne by a robust economy that continuously unlocks pathways for economic growth. While India has grown admirably since 1991, it has been mostly organic with the lack of a long-term cohesive strategy that every citizen can align behind. By formulating an infinite game perpetuating strategy today, India can become an inclusive growth driver for the whole world.

T.V. Mohandas Pai is Chairman, Aarin Capital Partners, and Nisha Holla is Technology Fellow, C-CAMP.