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The year 2020 began on a sombre note, as the economy was already facing challenges. In the quarter ending December 2019, GDP growth had decelerated to 4.1% while the ratio of fixed investment to GDP had steadily declined to 29% from 32% a year ago. With the slowdown in global trade, both exports and imports have continued to decline. Consumer spending was still holding up when the onslaught of the pandemic resulted in a sharp decline. The growth in private consumption expenditure fell from 6.6% in the third quarter of FY2020 to 2.7% in the fourth quarter, leaving only government consumption to drive growth.
COVID has changed the status quo and all stakeholders are trying to find out the new realities. The policy planning and the road ahead for India, its economy and Indian businesses will have to take this uncertainty and its impact into account. And yet our aim will be to strategize and navigate through the unchartered territory to bring back growth. Given that this has hit the economy and people significantly (only the 5th such time in the last 70 years of independent India) and in ways that it does not relate to the previous such challenges, we will need to take macro and micro steps to address the impact.
A distinguishing feature of the contraction this time is that both demand and supply have collapsed. The three major contributors to GDP – Private Consumption, Investment and External Trade – all have got affected. The previous contractions were all driven by decline in agricultural production, while this year, agriculture is likely to be the only one to expand.
To begin with, protecting lives and livelihoods is most crucial and critical, especially in a country like where more than 80% of the employment is in the unorganised sector. It is also a challenge that India is slowly removing restrictions when the spread, on the other hand is going up. Healthcare and Education needs to be prioritised. India is ramping up its health facilities in a short time to test, treat and contain the spread of the economic.
As is said, Mother Nature has its own ways of re-establishing the nature’s equilibrium, when disturbed. The increase in the incidence and intensity of natural calamities and spread of this disease are signs. As we re-visit our development models, we need to be conscious of keeping harmony with nature. We will also have to deal with the sudden change in the balance between digital and physical which will now have a lasting impact. Businesses will need to orient their offerings to a completely new consumer who will prefer digital choices.
For the first time in India, we are witnessing reverse migration with migrant workers going back to their hometowns. We should take this as an opportunity to create more geographically distributed model of development. A vibrant rural sector can be an important pillar of India’s growth strategy in the post COVID world. Rural India has been relatively insulated from COVID, which has been more of an urban phenomenon across the globe. Therefore, a higher GDP coming in from rural areas, will mitigate the risk to growth from pandemics. In addition, it will reduce the pressure on urban economic centres. The rural folk will be able to find employment near their homes, providing them with a better quality of life.
The traditional four engines of growth are Investment, Consumption, Net Exports and Government Expenditure. For the last few years the economy has been primarily growing on government expenditure. Therefore, it is important to re-start the other engines of the economy. Similarly, with global trade falling precipitously, India has to be a net exporter both for manufactured goods and services. To achieve this, integration with global value chains is important. Competitiveness has to be at the core of the strategy for achieving this goal.
Getting growth back is essential, for that is the only way to protect, generate jobs and livelihoods and to retain the great strides that India has made. The need of the hour is for government and industry to work together to return to a sustainable growth path. CII believes that a self-reliant India, which is globally competitive and sustainable with high governance is the only way forward. Intent, Inclusion, Investment, Infrastructure and Innovation play a key role.
Given the likelihood of fewer jobs being generated in the present structure of the economy, Manufacturing, Agriculture and Infrastructure sectors gain greater importance. With its focus on land, labour and laws, mission Atma Nirbhar Bharat lays a very strong foundation of reforms for making India a leading global manufacturing hub, as also envisaged by the Make in India initiative. In addition to the capability, India’s ideals of peace, democracy and free expression resonate well with many developed countries inspiring mutual trust. All these make it possible to transform India into a global manufacturing hub, strengthening the economy and creating jobs.
In order to revive and make the economy self-reliant and support the Industry / Economy in this crisis hour, the Government of India announced a stimulus package of INR 20 Lakh Crore. The big-bang reforms are expected to bring about transformational changes in the industrial backdrop and help bring growth back to the economy. While the Government continues to provide support the industry through incentives like loan moratorium, an additional multi-pronged strategy in diverse areas will be required, with active participation from all stakeholders, including industry for rebuilding a strong vibrant Indian economy.
The Southern Region which accounts for close to around 30% of India’s GDP has numerous strengths and has played a significant role in India’s growth story. Leading nationally in sectors like Drugs & Pharmaceuticals; Agriculture; Fish & Shrimp; Mineral Based Industries; IT&ITES; Aerospace & Defense; Biotechnology; Machine Tools; Tourism; Electronics; Rubber; Automobile & Auto Components; Textiles; Leather; Healthcare; Mining & Education, the Southern States have also been pioneers in the knowledge based sectors. A stronger redemption of economic activity in South India will have positive vibe across the country. It will trigger growth across the world and bring about the much needed balance between lives, livelihood and growth.
The CII Southern Region’s theme “Building South India for a New World: Lives, Livelihood, Growth” links very well to the theme of the Summit, “Rebound South”.