THE CONTEXT: The World Economic Forum (WEF) Annual Meeting 2023 will be held on the theme, ‘Cooperation in a Fragmented World,’ and convene government, business, and civil society leaders to address the state of the world and discuss priorities for the year ahead.In line with this year’s WEF theme, “Cooperation in a Fragmented World”, India has reiterated its position as a resilient economy with a strong leadership providing stable policy to the global investors at the World Economic Forum (WEF) at Davos. This year, India’s focus areas at WEF are investment opportunities, infrastructural landscape and its inclusive & sustainable growth story.
THE WORLD AT GLANCE: The world today is at a critical inflection point. The twin triggers of the COVID-19 pandemic and the war in Ukraine rattled an already brittle global system. For the first time since the 1970s, the world is facing a precarious disequilibrium with growth and inflation moving in oppositive directions. Economic growth in the world’s largest economies is stalling, while navigating headwinds from rising food and energy prices. This is occurring alongside heightened geo-economic fragmentation, financial sector vulnerabilities, including stretched asset prices and high debt levels, and a climate crisis spiralling out of control.
FOCUS AREAS OF THE SUMMIT
- Addressing the Current Energy and Food Crises in the context of a New System for Energy, Climate and Nature.
- Addressing the Current Industry Headwinds in the context of a New System for Harnessing Frontier Technologies for Private Sector Innovation and Resilience.
- Addressing the Current Social Vulnerabilities in the context of a New System for Work, Skills and Care
- Addressing the Current Geopolitical Risks in the context of a New System for Dialogue and Cooperation in a Multipolar World
- Energy transition and climate change are inextricably linked, with its impact being felt in recent months. While a global energy transition is underway, further action is needed to reduce carbon emissions and mitigate the effects of climate change.
- Policymakers are now operating with limited fiscal space, while inflationary pressure is forcing a tightening of monetary policy. Tighter monetary policies also have knock-on effects on emerging markets, with many now struggling to service their debts.
- Industries are being forced to reassess their investment, production and innovation decisions with the advent of the Fourth Industrial Revolution (4IR), climate change and geopolitical fragmentation of recent years.
- Official statistics show that despite a growing global economic crisis, workers continue to leave – or consider leaving – their jobs.
- In parallel, emerging markets are facing pressure of significant unemployment driven by the economic slowdown, leading to heightened social pressure.
- Systems that brought common benefit, such as trade, have been used as weapons to punish rivals, and areas that were once paragons of cooperation, like climate change, are at risk of becoming frontlines of competition.
INDIA AT DAVOS 2023
KEY HIGHLIGHTS
INDIA’S TARGET
INDIA’S ‘HIGH GROWTH, MODERATE INFLATION’ STRATEGY
STRATEGY TO ACHIEVE IT
High Growth Rate: London-based consultancy Center for Economics and Business Research (CEBR), predicts that India will become the third $10 trillion economy by 2035.
Demographic Dividend: More than half of India’s population, which is estimated to have already overtaken China’s, falls in the working age group of 15-64 years—the segment known as the demographic dividend.
Indian Government in ‘India’s Road to a $10 Trillion Economy’, highlighted four key factors that will make all the difference: The first dimension is to make sure India’s economy is resilient, and there is consistent 6-8% growth rate for a complete decade with moderate inflation.”
Second, as the world moves towards resilient supply chains, India must figure out how to ‘attract a large number of supply chain participants’ while using local research and development capabilities.
The third and fourth cover areas of energy transition and digital transformation.
India aims to promote just and equitable growth while also making significant progress on the most pressing domestic challenges.
CHALLENGES
Structural issues in the economy:
- Inadequate Infrastructure: One of the biggest challenges faced by the Indian economy is inadequate infrastructure. India’s infrastructure cannot keep up with the population growth. This leads to a lot of problems such as traffic jams, power cuts, and water shortages.
- Infrastructure deficit– hi\gh logistics cost- (14-15%) as compared to 7-8% in the Developed world.
- Inefficient agriculture: Agriculture produces 17.4% of economic output but, over 51% of the workforce is employed in agriculture.
- Poor tax collection rates–According to the Economist, India has one of the poorest tax-to-GDP rates in the whole world. India’s tax revenue as a % of GDP is just 12%. Compared to an EU average of 45%.
ON ENERGY TRANSITION: TOP PRIORITY WITH INDIA’S G20 PRESIDENCY:
India has sizeable and growing energy needs, and with this, comes the risk of rising greenhouse gas emissions (GHGs)
During 2022, extreme weather events were recorded in India during 80% of the year, underlining how much the country is already suffering the effects of climate change.
India claimed that “India is the only major economy whose energy transition is consonant with a sub-2 degree rise in global temperature. We achieved our NDCs nine years in advance – we had said that we’ll have 40% of our capacity coming from non-fossils by 2030, and we achieved that in 2021.”
- Rising oil prices– As a net importer of oil, India’s economy is sensitive to increases in the price of oil (and other commodities, such as gas, steel and precious metals. The high price of oil in 2021-22 will worsen India’s current account deficit and put upward pressure on consumer prices.
- Russia-Ukraine Crisis threaten the energy security– Between April 2020-March 2021 : Since the 2022 invasion of Ukraine by Russia, India has been caught in the crossfire of international sanctions against Russia.
ON RESILIENT TECHNOLOGY: ‘DIGITAL VISION BEING IMPLEMENTED IN INDIA
Manufacturing Base– India is now committed to spending very large amounts of money over the next 5-10 years to finally attract the semiconductor base, which we could never build over the last several decades.
Digital vision-
- Rolling Out of 5G
- Chat GPT is being utilized to benefit farmers in India
Global supply chain – China+1 has become the norm in the world: everybody is talking about being in India in addition to China, not necessarily replacing China. Europe+1 has started to be talked about.. because they feel India could become a very important part of the supply chain of the world
- Skill Gap In India– According to the Global Business Coalition for Education (GBC-Education), United Nations Children’s Fund (UNICEF) and the Education Commission, more than 50% of Indian youth is not on track to have the education and skills necessary for employment by 2030.
- Huge dependency on China– this will limit the alternative supply chain-and going beyond the China-centric supply chain.
THE WAY FORWARD:
To deal with the global financial situation: a new debt architecture is needed, and Multilateral Development Banks must change their business model. Development banks must concentrate on multiplying their impact, leveraging massively private finance in a systematic way, providing guarantees, and accepting to be first risk-takers in coalitions of financial institutions to support developing countries.
Climate action: bridging divides and restoring trust means meaningful climate action, and climate action now. The battle to keep the 1.5-degree limit alive will be won or lost in this decade. Further G20 must unite around a Climate Solidarity Pact in which they make extra efforts in the 2020s to keep the 1.5-degree limit alive.
Achieving Sustainable Development Goals:
1. expand economic opportunities for women.
2. greater engagement and cooperation for vaccine equity.
3. Global food security: In the current global scenario, we need the cooperation of the private sector to keep Ukrainian and Russian food and fertilizer exports flowing and affordable.
India needs to take steps to deal with the challenges:
Economic front-
Employment and Labour Reforms: Fully codify central labour laws and enhance Female Labour Force Participation to 30%.
Issues like regulation and clearances need to be solved to increase the investment environment in the economy.
Industry—
Develop self-sufficient clusters of manufacturing competence, with plug & play parks for MSMEs
Impetus to Labour Intensive Export firms
Launch a major initiative to push industry to adopt Industry 4.0
Introduce a “single window” in states providing a single point of contact between investor & government.
For skilling –
The employability of labour needs to be enhanced by improving skilling outcomes and a massive expansion of the apprenticeship scheme.
Upskilling and reskilling steps are needed to increase employability of the workforce. In this regard New National education policy is launched that focuses on the vocational education. PM Kaushal Vikas yojana need to be implemented in letter and spirit.
Logistics cost- Steps is needed to decrease this to increase competitiveness of the industry. Various schemes like PM Gati Shakti yojana have been launched to increase infrastructure development.
Banking issues need to be resolved— like NPA issues that decrease the effectiveness of banks. Prompt Corrective Action (PCA) guidelines need to be reframed in a balanced manner to address the dual objectives of growth and NPA resolution.
THE CONCLUSION: The World Economic Forum Annual Meeting 2023 in Davos ended on Friday after five days of intense conversations and debates. The end of the summit saw India emerging as a key pillar in the world order with WEF Founder and Executive Chairman Klaus Schwab describing the country as a bright spot in a fragile world. This shows a bright opportunity is present in the Indian economy, which is having a huge demographic dividend. This can help it in playing an important role at the world stage.
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