Why New India Needs A Grand Reconstruction Budget Post Covid-19

India currently operates with more than 80 per cent workers in small firms of under 50 workers, and only 10 per cent in large firms like Mahindra or Tata.

GOI has to focus on enabling the building of large firms to leverage the economies of scale and develop global players. Private business alone does not have the reach or means to execute this; GOI has to be main driver.

Similarly, GOI has to invest in infrastructure (pts 1 & 5) to spur construction and help the labour segment earn consistently. The opportunity for wage consistency over five-10 years in a factory or a construction project is a luxury for workers now; let us make this ‘new India’s’ modus operandi.

Apart from investing, GOI’s duty to its citizens, both workers and job creators, is a complete policy overhaul to facilitate large manufacturing and construction. India is buckling under the weight of 70 years’ worth of archaic tax rules and regimes. It is the sovereign duty of government to simplify this for its citizens.

None of these ideas are novel or unprecedented. What matters now is the serious urgency with which decisive action must be demanded from the administration to remove friction to job creation and secure India’s economic interests via bottoms-up and top-down change.

7. Development Of Human Capital: As we set up a reinvigorated manufacturing economy, skills development programsme are required to train the workers shifting over from the agricultural sector (pt 5).

China progressed from labour-intensive industry to light manufacturing, then heavy manufacturing and hi-tech industry.

We foresee India will also follow this trajectory but with the added advantage of an established hi-tech industry network. By planning skills development through this loop, India can accelerate economic growth.

The Union budget currently allocates Rs 3,000 crore annually to skills development. It is suggested the annual budget ramp up to Rs 15,000 crore amounting to Rs 60,000 crore over four years.

In parallel, higher education needs focused investment to design world-class universities. Our report on Human Capital Development in India (November 2019) demonstrates that India has built the soon-to-be largest education system in the world.

Rapid brownfield expansion to improve quality, access and affordability is the need of the hour. We currently produce 40,800 PhDs a year and must ramp up by an additional 50,000 high-quality PhDs annually.

To develop human capital on par with the US and China, India needs to invest in state-of-the-art laboratories, specialised PhD programmes in keeping with future requirements, and developing world-class curricula to train our young population for a technology-first future.

This investment has the added advantage of retaining more students who are today going abroad in search of better opportunities.

Federation of Indian Chambers of Commerce and Industry (FICCI) estimates that an investment of Rs 8 lakh crore is required by 2030 to improve quality and increase gross enrolment ratio to 50 (from 26.3 today).

The NIP includes about Rs 1.18 lakh crore (pt 1). Another Rs 3 lakh crore is needed by 2025, and a further Rs 4 lakh crore by 2030.

At this time of crisis, the GOI must re-establish its commitment to its citizens and take their long-term resilience seriously. Such investment is a strong signal that the administration can deliver upon its duty to strengthen our collective capacity and prepare the next generation to be stronger than the last.

8. Healthcare infrastructure: In India needs reinforcement, as the pandemic has demonstrated. Of 718 districts, at least 500 require a large 500-bed multidisciplinary hospital that can cater to the needs of the community.

These hi-tech facilities will also attract doctors and medical staff to work in small towns instead of moving to large cities in search of good hospitals. Building these hospitals at the cost of Rs 50 lakh per bed for (500×500 beds) could cost Rs 1.25 lakh crore over the next four years.

Today, India graduates about 51,000 MBBS, 14,000 post-graduate (PG) specialists and 70,000 nurses a year.

The number of MBBS seats has increased to almost 80,000 and PG seats to 36,000. The World Health Organization (WHO) estimates there is a deficit of 6 lakh doctors and 20 lakh nurses in India – which can be remedied with focused investment over four-five years. Rapid brownfield expansion of existing colleges can double the graduates to reduce the shortfall.

Medical colleges over 20 years old with a proven track record can be provisioned to increase capacity by 50 per cent over the next five years with government assistance. They have facilities and human capital to produce high-quality medical staff.

Similarly, the training capacity for health technicians in radiology, pathology, anaesthesiology, and other critical functions must increase. Doctors in India perform many small tasks that can be handed over to other staff to optimise the utilisation of doctors for specific specialised tasks.

We also need primary health centres in every taluk/tehsil. Today, rural citizens travel needlessly for tens of kilometres to access basic healthcare. Primary facilities can cater to 60-70 per cent of their needs. An investment of Rs 1 crore per year for each of the 5,650 taluks amounts to a total of Rs 22,600 crore over four years.

Unfortunately for India’s citizens, the country’s best medical students are continuously poached to fill shortfalls in medical staff of more mature economies. This is an intolerable brain- and talent-drain of essential skills that compromises the country’s ability to react to crises such as this.

Unless there is a coordinated shift in how we build our health infrastructure, the GOI will leave its citizens susceptible to future epidemics and continue to suffer trained staff shortages.

The administration can make India the best place to work for her doctors, nurses, and trained medical staff by prioritising such investments and fortifying its systematic response capacity in the interests of its citizens.

9. Startups To Leverage The Knowledge Economy: With 40,000 startups and more than 33 unicorns, India is home to the third-largest startup ecosystem, behind only the US and China. They have created a combined value of Rs 11.4 lakh crore and employ 7.5 lakh people collectively.

Projections indicate that by 2025, India may well have more than 100,000 startups, employ 32.5 lakh people, and produce more than 100 unicorns, with a total market value north of Rs 35.5 lakh crore.

The rise of startups in India in 2014 was accelerated by Prime Minister Modi’s strong push to build the world’s most sophisticated digital banking and payments system.

Now a second push for urbanisation, industrialisation, high-quality infrastructure, and tax regime simplification will enable the next wave.

As India emerges as a gravitational centre of a burgeoning knowledge economy, it is unfortunate that only 10 per cent of total investments in Indian startups is by Indian capital – a dangerous position. With 90 per cent capital coming in from countries like the US, China, Japan and Singapore, India is on track to becoming a captive digital colony.

If we are to command our digital destiny, more Indian capital is required. To accelerate investment into this sector, we suggest that the government increase allocation to Rs 50,000 crore via the SIDBI Fund-of-Funds and funds run by banks like SBI, HDFC and ICICI.

The 2019 National Democratic Alliance (NDA) election manifesto included a promise of Rs 20,000 crore seed capital for startups.

In the light of the coronavirus pandemic and the unconditional support lent to the government by many startups during this trying time, we recognise the value of enhancing allocation to Rs 50,000 crore. This should enable investment into at least 500 funds; if each fund invests in 25 companies, this will create capacity for 12,500 new startups.

Once the world recovers from the pandemic, it will realise the digital era that we have irreversibly shifted into during the lockdown. People who have been locked in the world over have used digital infrastructure for their every need – payments, food and grocery delivery, communication, health and medicine delivery, teleconsultations, education, entertainment, and more.

This has transformed people’s habits and will accelerate immigration to the digital dimension. India has the basic building blocks in place to now turbocharge into this new digital reality, fuelled by this Rs 50,000 crore investment.

10. Poverty Eradication: The development and digital push by NDA-I have undoubtedly empowered the poor to weather this crisis, as discussed here.

The recent outflow of migrant labour from Delhi has also demonstrated that people migrate long distances in search of work. Staying power and liquidity in hand is low; they live day-to-day. India’s poor require minimum income support to sustain themselves in times of crisis.

It is evident India needs a new approach to eliminate poverty and increase purchasing power by 2025. While the government has many schemes for the poor, the system is unsustainable in times of crisis.

The JAM (Jan Dhan, Aadhaar and mobile) trinity, which has enabled many productivity improvements including direct benefit transfer (DBT) in India, can be leveraged further and that requires a separate analysis.

With these spend items over NIP’s Rs 102.5 lakh crore, an additional Rs 33.5 lakh crore ($470 billion) is required. This Rs 136 lakh crore is India’s grand reconstruction budget for FY 2022 through FY 2025.

Financing India’s Grand Reconstruction Budget

India’s grand reconstruction budget, above the current budget, will elevate India to a ‘Top 3’ economy. It is suggested that India borrow $500 billion globally for this purpose.

Internal savings in India is inadequate to fund India’s reconstruction. Financial savings through households is only 11 per cent and 7-8 per cent from the corporate sector.

Adhering to the 3-3.5 per cent ceiling on fiscal deficit may have served India well in a high-inflation environment.

Over the last five years, however, the Modi government has kept inflation below 4 per cent.

In this low-inflation environment, the government can afford to boldly invest more and maintain additional borrowing as a special situation development-linked line item.

India must now tap global capital markets to raise long-term debt of $500 billion.

With India’s stellar reputation as a financial stalwart that doesn’t default on loans, overseas markets will engage with the opportunity to lend long-term 20/30 year loans to us.

If the government is uncomfortable raising debt directly, capital can be raised through parastatals like the National Highway Authority of India, Indian Railway Finance Corporation, National Housing Bank, NABARD, Power Finance Corporation, Higher Education Finance Corporation and others for the respective sectors, and Indian commercial banks for on-lending to infrastructure.

These parastatals have raised money in the past and must now avail 20/30 year loans.

Long term debt is optimum, so there is no repayment pressure on the principal for 20 years by which time India might grow to a $15-20 trillion economy with the ability to repay these loans with ease.

In the meantime, interest can be easily serviced. India’s debt-to-GDP ratio has steadily decreased from 60 per cent in FY2008 to 48 per cent in FY2020, aggressively pursued by the Modi government since FY 2015, as seen in Fig 2.

Undoubtedly, India is in an optimum position to take on long-term debt.

Moreover, the Finance Ministry estimates India’s FY2025 GDP at Rs 365.5 lakh crore or $5 trillion. The $500 billion borrowed is an additional 10 per cent of our projected FY2025 GDP – very respectable for special development debt.

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