Q: Prime minister Narendra Modi has given an alternative definition of FDI as 'first develop India'. What is the role of foreign investment in the government’s vision?
A: The stated objective is to make India a global manufacturing hub. India has well demonstrated the strength of its frugal engineering, meaning doing it cheaper, as well as doing it better. That’s the origin of the Make in India campaign. It was established when the government started looking into sectors with a strong global impulse, trying to figure out what can be done to make it easier for foreign investors to invest in them.
Q: Manufacturing accounts for less than 20% of India's GDP right now. Why has the sector struggled to flourish so far?
A: Services have dominated India’s [recent] growth, which was primarily led by the IT revolution. However, manufacturing has always been a very strong focal point where India is concerned.
India’s share of global trade and GDP was close to 20% to 24% at the beginning of the 20th century, then it fell to close to 1% between 1900 and 1947 as our level of industrialisation and commoditisation was brought down to a lower price point and level so that it could assist the industrialisation of other countries. For us, it was just about bringing our industrial prowess back into place.
In the 1960s and early 1970s, we made an effort to become self-reliant on primary requirements. That was the time when the focus on industry started to re-emerge, particularly in the cottage industries. Today, the share of manufacturing is about 17% of GDP, and the government wants it to have at least 25% of GDP by 2025 to 2030.
Q: What will drive this growth?
A: According to some estimates, an Indian born in 1960 would spend about $10,000 to $15,000 in his lifetime. An Indian born in 2000 is expected to be spending anywhere between $165,000 and $175,000 in his lifetime. Multiply that by 1.3 billion people, most under the age of 35, [and] we are looking at a huge, homogeneous market. There is an automatic stimulus for manufacturing to take over.
Q: The fundamentals of the Indian economy have not changed, but foreign investment has been steadily growing in the past few years. What has changed?
A: Now there is a very unambiguous faith and trust in the leadership. Here is a government that has created one of the most open economies on the planet. Every sector of the Indian economy is open for foreign private capital participation today. The investment community has realised that, for once, there is a government that is decisive, that doesn’t shy away from taking strong decisions, which is global and investor-friendly.
Q: What has yet to be done?
A: Transparency is one of the biggest points. In each sector we are asking ourselves how to bring in development processes in the most transparent way. Every aspect of these processes is being re-engineered so that it becomes more transparent, and more efficient in terms of cost and time.
Q: Is [Mr Modi's] demonetisation programme part of this effort?
A: Every foreign investor I have met has commended this highly for two reasons. The level of [transparency] in the system has gone up immensely. Second, everyone has recognised that now there is a government that has the ability to take strong measures. In a world that is desperately looking for a strong leader, this stands out.
We believe [that the demonetisation programme] could be a bit painful in the short run, but it is definitely going to lay down the foundation for future Indian growth. We are at inflection point: never before in the free world has change happened at such a scale and speed.