INFRASTRUCTURE IN SPOTLIGHT:

Minister says Modi government in its first year has laid the groundwork for momentous changes in Indian economy and society.

“If you think of India as a market then you are thinking in a very narrow way. Think of India not as a market but as an opportunity to transform your businesses” JAYANT SINHA State minister for Finance

India will continue to focus on investing to upgrade its infrastructure, both soft and hard, to help it achieve and sustain the momentum to make it the “growth engine” of the region in the years ahead.

“Our aspiration is that when we usher in the changes to the Indian economy and when we have the capacity, the hard and soft assets all ready, then India can aspire to be the economic engine for the next 6 billion people on the planet,” Jayant Sinha, India’s state minister for Finance, told a recent gathering of business and government leaders.

Mr Sinha said that since taking office just over a year ago, the Narendra Modi government had been working on changes that could be used as a template to help “next 6 billion people” all over the world who are not in the top and middle-income classes.

He also urged companies from around the world to look at India not just as a base to serve a big market but also as a place for innovation, as some companies such as Amazon have done.

Amazon, he said, had adapted to the Indian market by using a radically different business model compared with the way it operates in Europe and United States.

“If you think of India as a market then you are thinking in a very narrow way. Think of India not as a market but as an opportunity to transform your businesses. Companies can practise frugal innovation and develop affordable products and services that I think will be the next phase of globalisation,” he said at the Future of Asia summit held by Nikkei and co-sponsored by the Bangkok Post.

Apart from discovering innovative ways to do business, companies that participate in India’s rapid growth would benefit from the l arge market po t e nt ia l t hat it offers.

“We in India have a US$2-trillion economy in absolute terms that we think is poised for a growth rate of 7-9% for the next decade or decade and a half,” he said. “If we grow at that rate we will increase [GDP] to $4-5 trillion.

“Using a purchasing power multiplier of 3 or more, if we have a $5-trillion economy, we will have an economy with purchasing power of $15-17 trillion. That is the size of the US economy. That is the size of the opportunity.”

To usher the growth phase, the Bharatiya Janata Party lead government has been undertaking major reforms

Among the major reforms the Modi government has pursued in its first year was the unwinding of entrenched “fiscal federalism” that had been holding back growth, he said.

“These are revolutionary changes that we have implemented and this is as important for India as end of the ‘licence raj’ in 1991,” he said.

Loosening the grip of the central government on budgets is a three-stage process, starting with empowering the governments of the 29 states.

The central government now gives as much as 42% of divisible taxable income — up dramatically from 32% earlier — to the states to develop social and other services as they deem most appropriate.

The second big step was to abolish the Planning Commission, which used to be in charge of all disbursement of funds to the states.

“Powerful chief ministers who were ruling states bigger than Brazil or Thailand had to line up at the Planning Commission and ask f or money,” said Mr Sinha. “We have abolished this body and allowed the states to decide how to spend the money.”

The third aspect has been the introduction of a goods and service t ax, which will help to integrate state economies and promote growth. It will replace a regime that f eat u re d , among other confusing aspects, taxes each time goods left one state and entered another one. The taxes collected under the new system will be shared more equitably with all states.

The country is also undertaking many other changes, such as plans for universal social security, which Mr Sinha said would be as momentous as what happened in the United States and Germany.

Universal social security, he said, would represent the end of deprivation, which is one of the Modi government’s top priorities.

Turning to the huge but inefficient agriculture sector, the government is trying to make it more productive. Farmers will have greater access to irrigation, as well as proper information on soil conditions to help them decide what crops to grow, which will lead eventually to greater productivity.

Infrastructure i nvestments are also receiving greater attention, said the minister.

“This year alone we have provisioned $15-20 billion for both railways and highways,” he said. “The railways had received no investment despite being the backbone of the Indian economy. We will have everything from bullet trains to freight trains that would help.”

Similarly, the government aims to increase the pace of highway construction to 20 kilometres per day from 10km per day in its first year, and just two or three kilometres under the previous government.

The stepped-up infrastructure work will help promote the “Make in India” campaign that the premier has been pitching to investors from all over the world.

It will go hand-in-hand with measures to make it easier to do business in India, said Mr Sinha.

“We want to step up manufacturing, we want to set up townships where each country could have their own zones and be comfortable, and we are also working on ‘skilled India’ to build the skills of the employees,” he said.

“We are also looking at streamlining the ease of doing business. Our aim is to increase the country’s standing from 142nd [in a World Bank survey] to being in the top 50. That is the goal that the PM has set for us.”