Food for Thought

US presidential candidates, sensing anti-trade sentiment among voters, rely on populist strategies, much like Indian Prime Minister Modi’s “Make in India” campaign, encouraging manufacturers to create jobs close to home. “Even if protectionist urges dwindle after the election, anti-trade sentiment will linger to the detriment of export-dependent emerging economies,” writes Nayan Chanda in his column for Businessworld. “In this context, Nandan Nilekani’s counterintuitive proposal to emphasise domestic consumption and services as main drivers of the economy offers food for thought.” Nilekani has argued that services, domestic markets and small businesses will drive India’s growth rather than manufacturing, exports and multinational corporations. India happens to be well positioned for new growth patterns because of unique Aadhaar identification cards, a national banking system and digital payment platform, universal access to mobile phones, and the potential for Indians to collect, analyze and distribute their own data sets. India’s service sectors are growing, and “Serve in India” might be a better slogan for the country in pursuit of prosperity. – YaleGlobal

Food for Thought

With anti-trade sentiment on the rise globally, services, domestic consumption and small businesses could become the key growth drivers for India
Nayan Chanda
Monday, August 15, 2016

With world trade already slowing, the US’ new enthusiasm for import substitution could deliver a heavy blow to emerging economies. Recent US party conventions provided a vivid demonstration of the changing mood, with Democrat delegates holding up anti-trade signs even as President Barack Obama addressed them. Donald Trump too has been lambasting American businesses for moving production abroad, prompting Hillary Clinton to accuse him of hypocrisy. Trump calls for America First, she said, but his name-branded products are manufactured in China, Mexico, Turkey and India. Trump “wants to make America great again”, she mocked, “well, he could start by actually making things in America again.”

Judging by her programme, the US may be on course to launch its own variant of Prime Minister Modi’s ‘Make in India’ programme and heavily cut back on outsourcing. Even if protectionist urges dwindle after the election, anti-trade sentiment will linger to the detriment of export-dependent emerging economies. In this context, Nandan Nilekani’s counterintuitive proposal to emphasise domestic consumption and services as main drivers of the economy offers food for thought.

Speaking at a business meeting in Bengaluru, Nilekani challenged the conventional wisdom: “India’s growth will be led by domestic consumption, not by exports; services, not manufacturing, small business and not large employers.” Indeed, trade slowdown – both globally and especially for India which has seen its exports fall for 18 consecutive months – offers an important argument. Consumer spending in India, meanwhile, has been going up. As far as services – from banking, telecom, insurance to capital markets – are concerned, the gigantic Indian market is one and growing at a fast clip. The rising importance of service tax (as opposed to excise imposed on goods) is exhibit A for the argument. The combination of a free market for labour combined with a single market for services, he said, is the reason why services offer the most promising growth area for India. Growth of the country’s domestic market is being constrained by a lack of infrastructure and fragmented excise and tax jurisdictions. If the GST Bill is passed in the monsoon session, domestic consumption will receive a huge boost.

Another lift comes from two enduring legacies of the Congress-led UPA government: the Aadhaar unique identification card and National Payment Corporation of India (NPCI), a non-profit company collectively owned by banks. They have combined to help create an interoperable digital payment platform, Unified Payment Infrastructure. Designed to work with private banks, the platform will facilitate easy nationwide transactions. Already Aadhaar-linked bank accounts have facilitated cash-less, presence-less operations. The introduction of one-click payment could revolutionise retail businesses and give small and medium enterprises opportunities to promote domestic consumption. This does not obviate the need to invest in manufacturing, which remains necessary to absorb millions of youth coming to the job market – but fast spreading cellphone and digital infrastructure could propel the service sector to generate jobs and stimulate consumer demand.

If the government can achieve its goal of imparting skills to India’s youth, they too could become a powerful driver of service sector growth. A lack of investment and skills have held back the ‘Make in India’ programme, but given the momentum in housing, education and retail trading, ‘Serve in India’ might have better prospects. The digitisation of retail sales and financial management will not only smoothen transactions but also generate huge volumes of data, in turn generating further business opportunities.

Nayan Chanda is the author of Bound Together: How Traders, Preachers, Adventurers and Warriors Shaped Globalization and is consulting editor of YaleGlobal Online, published by the MacMillan Center, Yale University.

Read "India’s Digital Revolution Poised to Propel Services" by Nandan Nilekani, chairman of EkStep Foundation, which is focused on enabling learning opportunities.

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