Naushad’s opinion column in the Business Standard: Three wishes for 2025

Three wishes for 2025 

Industry must invest in technology and international sales, economic policy must focus  on structural change and productivity, and politics on ideas.  

A New Year is a time to take stock. This next quarter-century can be India’s if industry,  economic policy and politics make it so. Industry must invest in Innovation and  manufacturing at scale. Our economic policy must focus on long-run productivity  growth and its root in structural change. And our political debate must be about ideas. 

Indian industry must have the ambition to lead: Start with investment in innovation.  I have written often here (email us for links) on this subject, so I will be brief: for Indian  industry to lead, we have to be much more serious about innovation. Indian industry  invests 0.3 percent of GDP in in-house R&D, compared to a world average of 1.5  percent. We spend $ 7 billion on industrial R&D to $ 625, 335, 130 and 90 billion in  the US, China, Japan, and Germany respectively. We are the world’s fifth largest  economy and manufacturer, but rank twenty-first for industrial R&D. Our 10 most  successful non-financial firms have a very healthy profit by world standards but invest  little in R&D: a mere 2 per cent of profit. By contrast, firms in the US, China, Japan and  Germany invest between 29 and 55 percent of their profit in R & D. To put things in  perspective, 25 individual firms, from Alphabet ($ 40 billion) to BMW ($ 7.6 billion), 

invest more in R&D than all Indian firms combined.  

Together with R&D, we need to invest in world-scale manufacturing and international  sales. Dr Manmohan Singh published a book based on his PhD thesis which drew  attention to our export pessimism. He argued, so presciently, that India needed to shift  its focus from import substitution to export ambition. He was right in 1964; he is still  right in 2025. Indian industry must see the world as our market, investing in capacity  and developing markets in the world’s largest countries.  

Structural change must deliver long-run growth in productivity: Our aspiration is  to be a developed economy by 2047, with a per capita GDP above $14,000 in today’s  dollars. To grow five times from our current $2700 demands a 2 per cent higher rate  of growth, bringing it to 8.5 per cent. Consistent high growth needs the structural  change that makes the economy more and more productive. A major source of long 

run productivity growth is putting more people to work, and shifting them to higher  productivity occupations. Increasing our female labour force participation from its  current low rate and driving a shift in employment from agriculture to industry and  modern services is the kind of structural change we need. But industry and services  need to invest much more to attract the hundreds of millions who must shift out of  agriculture. What policy change would drive this investment? The government has  invested strongly in infrastructure, but industrial investment by firms has been  lukewarm.  

We can learn from our history. The Rao-Singh reforms of 1991 to 1993, and their  progeny, led to a substantial inflection in growth. Scrapping industrial licencing meant  the government stopped trying to play God in deciding which sectors industry should  or should not invest in (the PLI scheme uses incentives instead of controls but attempts  the same thing). Opening the economy to imports with lower tariffs meant Indian firms 

had to compete with the best. Scrapping institutions like the Director General of Trade  and Development (best known for neither T nor D) removed an obstacle to progress.  Independent institutions were allowed to function and set the rules under which we all  operated. A reduction in corporate and personal income taxes, between 1991 and  2018, enabled the legal accumulation of wealth by entrepreneurs. The GST reform of  2017 greatly facilitated the free movement of goods around the country, though the  government still insists on helping us choose salty over sweet popcorn. In area after  area concerned with industry the government stepped back. And industry stepped  forward, with an investment boom that lasted, with blips, for twenty years.  

It is time to go beyond industry. We need reform for education and tourism. Both  sectors require the state to play a role, but a different one from what it does now. In  school education it is to fund efforts by states to raise quality, by building accountability  at the local level, and enabling schools to hire better principals and teachers. In higher  education it is to regulate much less, to provide public institutions with much greater  autonomy in selecting their boards and heads and faculty, and to encourage private  institutions to experiment with new ways of doing teaching and research. Academic  research must be funded in both private and public institutions, on the basis of  excellence defined by academic peers alone.  

Tourism also needs reform. As the latest Economist says, India is being left behind in  the current world tourism boom: Dubai, a single city, now attracts twice as many tourists  as all of India. Marketing India effectively is a role for the government, as is making it  easier for foreigners to enter. More and more countries are waiving visa requirements  for Indians (Thailand, Malaysia, the Philippines, Sri Lanka). If they are not afraid of  being swamped by a country of 1.4 billion, why should we hold back for countries with  a tiny fraction of our population? Land use regulations should permit many more hotels  – including those that cater to the sandaled and not just the well-heeled. And we need  far better air connectivity heading both West and East. We should free any airline,  domestic or foreign, to increase direct connectivity to all major Indian destinations  regardless of bilateral air rights. 

A Politics of Ideas, not Insults: I wish for content in our political discourse, and a  Press that values content – ignoring insults instead of blowing them up into “news”.  We want to hear what economic reform agenda the government has for the country in  these next four and a half years. Is privatisation of public sector enterprises really on  the cards, or only for budget announcements? What is the opposition’s view of  privatisation? For all its current glitches, do they really think that Air India was better  run three years ago when it was starved of investment, management – and  passengers. What about the implementation of the Insolvency and Bankruptcy Act. It  was intended to speed up the repurposing of distressed assets? Has it? The Jet  Airways and Go Air sculptures dotting our airports say no.  

And maybe even some big questions. How will we create millions of jobs in industry  and services? What is the government and opposition’s, vision of how public research  and firm innovation must work in tandem to build a more innovative India? When will  our much-delayed census actually happen? How can we densify and greenify our  cities at the same time, as Ahmedabad says can be done? How will we clean up our  environment so we can stop having the world’s largest number of cities with air pollution  levels that reduce life expectancy? Trading insults and allegations may make good 

television, but it is ideas – debated, improved, questioned, answered, and implemented  – that will lead to a developed India.  

Naushad Forbes 

ndforbes@forbesmarshall.com 

Co-Chairman Forbes Marshall, Past President CII, Chairman of Centre for Technology  Innovation and Economic Research and Ananta Aspen Centre. His book, The Struggle  and the Promise has been published by HarperCollins. 

(Published in Business Standard dated 3rd January 2025)