Two recent national announcements need mention. The first is the welcome launch of the ‘National Quantum Computing Mission’ to bolster India’s technology prowess. The other is the somewhat mystifying and disturbing move by NCERT to “rationalise” the Science and Mathematics syllabi by omitting entire topics and sections in various STEM (Science, Technology, Engineering, Mathematics) disciplines. We discuss this latter development from the lens of India’s global trade.
India has had strong economic growth in the last 30 years. The GDP has gone up 12 times. In 1991, we ranked 12th (GDP $266 billion). We were also a financial basket case, like Pakistan is today. Our GDP is now ranked fifth. We are fourth in terms of foreign currency reserves. Apparently, we are doing well. We need to discuss ‘why’.
An interesting aspect of the Indian growth story is that our trade to GDP ratio has risen from 17 per cent in 1991 to over 45 per cent at present. However, we have always remained net importers, with a large current account deficit. Our global rank in merchandise exports is 14th but we are seventh in merchandise imports. Yet, we are growing faster than most nations. We need to understand ‘how’.
The answer lies in our response to the internet revolution of the mid-1990s. A short summing up is the oft-used phrase ‘Indian Services Revolution’. It is well-recognised that one of the primary drivers of the Indian growth story has been the emergence and subsequent vigorous growth of ‘services exports’-- primarily IT services, as also NRI remittances of a newly-created ‘tech-enabled diaspora’, perceived as the ‘toast of the world’. We are also known as the ‘Office of the World’, hosting over 1,500 Global Capability Centres (GCC), representing 45 per cent of the global total, created by the multinationals in the internet-ruled world. These handle not only IT-related activities but also other service verticals (Legal, Medical, MNC back-offices, etc).
Additionally, we have benefitted from large capital market-oriented FDI inflows, a large portion of which go to our services sector companies as also our numerous start-ups in the same sector. The primary reason why our services sector has done better than our competing peers is because of the unique combination of our English and STEM skills. Our talent pool of English-speaking STEM-qualified workforce is the largest in the world. It has clinched our successes, just as a very large number of well-planned cities and industrial areas have done for China’s attractiveness in manufacturing.
What needs to be noted is that our somewhat lackadaisical performance in manufacturing was not because of a lack of State support. On the contrary, Indian manufacturing was cossetted and pampered all through the planning era and the post-liberalisation decades by all ruling parties across the political divide. We have had special protection for MSMEs, and dedicated ministries for all important sectors -- textiles, steel, chemicals & fertilizers, electronics, etc. However, despite all this and continuous State support by a variety of policy measures, apart from heavy subsidies, Indian manufacturing never really took off. It is not that it did not increase in size or complexity. It did. We have the fifth-largest manufacturing base in the world. But it is not export-competitive. Tiny countries export more manufactured goods than us.
We now need to ask why we could do well in services exports but not manufacturing exports. The answer is that our services sector came into being only with the dawn of the internet and associated rapid technological changes, which enabled offshoring. We had long invested in high-quality education. Our education sector was admittedly a mixture of ‘highly competitive islands of excellence’ located mainly in metros/state capitals, but surrounded by lower quality institutions in tier 2 and 3 towns and cities. The existing ‘islands’ were, however, large enough to sweep the world when opportunities arose because of technological change. Our services sector became globally prominent because our well-skilled and competitive people are considered the best in the world in this new technological era.
On the other hand, because the governmental machinery was protective about manufacturing, it never seriously insisted upon globally competitive quality, environmental standards, etc. In fact, the phrase often used was that India cannot ‘afford’ to implement global standards in manufacturing. So, our companies lack competitive strength.
Now, a very similar mindset is entering our education arena, saying that we cannot afford to “burden our students” with complex education and stiff standards. The focus of this mindset is not global excellence but a more equitable and manageable mediocrity. What’s working well does not need fixing, and what’s dysfunctional needs additional support, but not by diluting existing standards of excellence. In fact, lower tier cities require all-round upgradation, which can only happen if senior meritorious officials with financial and executive empowerment are relocated as tier 2/3 cities, instead of wasting away in the myriad ministries that have never delivered results when viewed from the lens of global trade. Sad days may well lie ahead if this is not done!
(TCA Ranganathan The former chairman of the Export import Bank of India is a banker with a theory of everything, @tcartca)