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A reasonable bet for India’s growth would be about 7% or higher in the next few years. The baseline growth draws upon the average growth rate of about 6.75% in five pre-Covid years. In the near term monetary and fiscal policies are unlikely to be able to contribute to this growth estimate any more than they have in the past five years.

Economic growth is arguably the best antidote to poverty. Not only does it ensure the material well-being of those who directly participate in economic activity but it also generates fiscal revenues that allow public policy to benefit those left behind in income and wealth creation. Hence our policymakers’ fixation with the pace of India’s growth is well justified. So where will growth settle in the next 2-3 years?

Forecasts are known to suffer from large errors not because they tend to have an inherent systemic bias but due to the inability of forecasters to foresee shocks. These shocks are more commonly seen and are larger in developing economies than in advanced economies.

Look Back to Look Forward

A credible forecast exercise is underpinned by three factors. One the growth rate recorded in the past few years. Since economic structures policy environment and initial conditions evolve rather slowly the average growth rate in say the past five pre-Covid years should serve as a useful guide.

Two a realistic assessment of the direction and pace of key policy decisions including monetary fiscal regulatory and structural policies. This assessment should be done knowing that regulatory and structural policies impact growth with a 2-3 years’ lag. The goods and services tax (GST) which was introduced in 2017 took about three years for its design and tax collections to stabilise. Thus the growth forecast for the next few years should take into account the impact of both recent reforms and those likely to be introduced soon.

Third domestic and external shocks. Domestic shocks emanate from factors associated with macroeconomic or financial sector stability. External factors are the outcome of sharp revisions in global growth investment or trade outlook tightening of global liquidity – as evidenced by Wednesday’s announcement by the US Federal Reserve of doubling the pace on tapering – and elevated risk aversion.

Accounting for all these considerations a reasonable bet for India’s growth would be about 7% or higher in the next few years. The baseline growth draws upon the average growth rate of about 6.75% in five pre- Covid years. In the near term monetary and fiscal policies are unlikely to be able to contribute to this growth estimate any more than they have in the past five years.

Having been exceptionally accommodative in the past two years monetary and fiscal policies are unlikely to exhibit any additional room for supporting growth in the next couple of years. As normalisation gathers pace they may impart a slight negative impulse to growth. In contrast reforms undertaken in the past few years should yield a growth dividend. Additional contribution to growth may result if policy efforts continue to focus further on easing the regulatory burden and as wider structural reforms are implemented.

There are unlikely to be any unforeseen domestic risks. The risk of macroeconomic instability – a combination of high inflation high current account deficit (CAD) and high fiscal deficit – is low. Inflation remains range-bound under an inflation targeting framework and an independent central bank. CAD too is unlikely to bloat because of a runaway real exchange rate appreciation or a large terms-of-trade shock.

Fiscal deficit has breached past records during Covid and will hopefully regain sounder footing by the restoration of high nominal GDP growth and a medium-term fiscal framework. The financial sector is also likely to remain healthy. When Covid struck India this sector had already achieved a measure of stability through policy efforts over the last five years even as they have not yet succeeded in yielding a growth- supportive rate for bank credit.

Caution Tapered Road Ahead

The global tightening of liquidity is likely to have implications. But India has adequate policy room and a full toolkit – judicious use of foreign reserves the exchange rate monetary policy communication swap lines and the reforms narrative – to respond to these repercussions. Storms such as tapering have not lasted for more than 1-2 quarters in the past and can be handled so that they pass without inflicting any significant real damage on the economy.

A large increase in oil prices has traditionally mattered for India. But the impact of this shock has declined over time because of three factors: a shift of the economy towards the less oil-intensive services sector a shift toward renewables and greater energy-efficiency of economic activities.

The global growth and trade outlook too matters. Any decline in global demand has direct implications for India’s exports and growth. Yet with global trade having overcome challenges the world trade outlook seems robust especially if India can maintain a competitive exchange rate.

What then would be the preconditions to attain growth rates much higher than 7%? Whenever India has recorded rates higher than the trend growth rate it has been due to the two engines of private investment and exports reviving faster than they did in the past. The investment cycle seems to have started to revive due to ample liquidity in the system and improved availability of financing as well as the near completion of the decade-long deleveraging cycle.

As the global trade outlook improves it would pay to leverage the situation by enhancing India’s share in the global market for exports of both goods and services. Success in exports depends on competitiveness and the ability to penetrate new markets. Market access is determined by joint efforts of the private sector and the government.

There are lessons to be learnt from countries like Vietnam Cambodia and Bangladesh which did not just maintain but actually grew their export shares even in the middle of a slowing global market. Hence the key for India would be to actively scout for new export markets and continuously build the export potential of both goods and services.

The writer is Director General NCAER. Views are personal.

Fearing the risk of failure very little R&D funding goes towards innovative ventures and emerging technologies.

Over the last decade the government has been encouraging domestic firms to come up with innovations in product manufacturing and services. The focus of the NDA government’s programmes like ‘Make in India’ is not only on manufacturing in India but also producing goods that are indigenously designed.

To promote innovation policymakers have made attempts lately to increase India’s expenditure on R&D. It is now significantly below 2 per cent of GDP which is the benchmark value that most innovating countries spend on R&D.

While India ranked only 46th in the latest Global Innovation report it has climbed two spots over the previous year’s standing. And the performance is labelled ‘above expectations’ against the yardstick of the level of development. However Asian countries like Malaysia Vietnam Thailand and even some of the East European countries like Bulgaria Estonia Slovenia and Hungary scored above India. Thus the notion that Indian entrepreneurs lack innovation culture continues to hold good.

At a micro level though Indian entrepreneurs function effectively in implementing quick fixes commonly called “jugaad” which serve as low-cost innovative workarounds or solutions to problems.

While India seems to score low in innovation in multiple areas of technology there are two sectors that stand apart. These are technologies related to atomic energy and space science. Incidentally both these areas are under direct control of the Prime Minister’s Office and many of the standard rules of audit including Right to Information Act do not apply to them.

R&D centres

In the Indian context innovations are carried out primarily by public sector or government R&D centres. Of late however a number of R&D centres have been set up by multinationals (MNCs) and funding for them has been increasing. Elsewhere in the world the private sector particularly MNCs plays a significant role in ushering innovation. Why the same is not happening in the R&D centres of MNCs in India?

As fDi Markets database indicates of the three heads of R&D — Design Development and Testing (DDT) Education and Training (E&T) and Core R&D — support for Core R&D one that focusses on making real innovations is limited in India. Thus one cannot depend much on private FDI to help India have a significant presence on the innovation map.The R&D in public sector or government labs is governed by standard rules (audit Right to Information Act etc) even though at best only 5 per cent of the attempted innovations results in success. This is probably true in other countries as well. Thus one needs to understand that experimenting with innovative ventures can be a total failure.

Typically the committee members responsible for allocating funds for innovation are government employees. So there is always a chance of them being questioned by the CAG (Comptroller and Auditor General) if there is recurrent failure of innovative ventures. Hence it is not surprising if they are risk averse and do not support blue sky innovative ventures. The chances of failures are low/limited in incremental innovation and so most of the funding of public R&D centres goes for same. As Indian Space Research Organisation is not governed by mundane rules the progress of Indian space research has been amazing and on a par with those of developed countries.

Hence to imbibe a culture of innovation the rules need to be amended and failures need to taken in their stride. The gains from one blue sky innovation would be enough to compensate the losses in all other cases. India has never really made a forward looking strategic plan to channel R&D expenditure on emerging technologies. As a result India is usually a late entrant to a new technology. By the time India puts its imprint on a technology the world has moved up the technology ladder or the technology has moved in a different direction.

Thus Indian firms find little space to enjoy the gains of innovation. By contrast industrialised countries including Korea and Taiwan adopt a strategic plan based on Technological Forecasting exercise to direct their R&D expenditure.

Unfortunately India has never attempted a serious endeavour of this kind barring half-hearted attempt by the Technology Information Forecasting and Assessment Council. So it is not surprising that India has not been able to leapfrog on the technology front.

The writer is Professor NCAER. Views are personal.

Contrary to popular perception that international tourists bring in all the lucre it’s actually domestic travellers who set the cash registers ringing

Tourism along with travel is one of the largest service industries in India estimated to be worth over $200 billion in 2018. However being one of the most contact-intensive and socially active sectors tourism has been among the hardest hit by the Covid-19 pandemic. The consistent rise in the number of infections and mortalities and consequent protection measures like lockdowns quarantines and curtailment of travel through most of 2020 and the first half of 2021 wrought havoc on the industry.

The criticality of the tourism sector for India’s economy is evident from the fact that it directly contributed an estimated 2.7 per cent to GDP and 6.7 per cent to the employment of the country in 2019-20. And if the indirect shares of related services were to be included in these estimates the corresponding shares would go up to 5.2 per cent and 15.3 per cent respectively. These numbers are also substantiated by international assessments of the vast economic potential of one of India’s sunrise industries. And we are talking of really large numbers.According to the estimates based on the structure of India’s Third Tourism Satellite Account prepared by the National Council of Applied Economic Research (NCAER) tourism is expected to have exclusively generated Gross Value Added to the tune of Rs. 5.18 lakh crore (or $70 billion) and supported nearly 34.83 million jobs in India in 2019-20.

The latest Travel and Tourism Competitiveness Report (TTCR) released in 2019also ranked India 34th out of 140 countries overall. As per this report India improved its ranking in tourism competitiveness by six places in just two years which was the greatest improvement among the top 25 per cent of the countries ranked. The TTCR which is published by the World Economic Forum ranks selected nations according to the Travel and Tourism Competitiveness Index which scores from 1 to 6 the tourism-related performance of a given country in three sub-indices viz. regulatory framework; business environment and infrastructure; and human cultural and natural resources.

In view of these remarkable growth figures achieved by the tourism industry in recent years Covid-19 has undeniably acted as a huge dampener. Although tourism has seen a marginal revival post the decline in Coronavirus cases after the ebbing of the second wave during April-June 2021 the emergence of the latest variant of the virus Omicron again threatens to neutralise the gains of the last few months for the industry. In this context it is important to take stock of the current situation and examine the potential gains and losses for the tourism industry to enable it to chart a roadmap for recovery and renewed profitability in the long run.

Another recent study by NCAER shows that the overall economy saw a decline of 20.1 per cent in the first quarter of the fiscal year 2021 and of 5.1 per cent in the second quarter but rebounded to record a growth of 4.3 per cent in the third quarter all in nominal terms.In contrast the tourism economy or Tourism Direct Gross Value Added (TDGVA) saw correspondingly much greater declines of 42.8 per cent and 15.5 per cent in the first and second quarters and continued negative growth even in the third quarter of 2021 recording a fall of 1.1 per cent. Commissioned by the Ministry of Tourism to assess the actual impact of the pandemic on India’s tourism sector in terms of loss of incomes and employment the NCAER study also outlines the need for key policy measures to restore growth in the industry and offers recommendations for its renaissance as it were.

The decline in tourist activity is largely driven by the near-complete halt in arrival of international tourists that caused the TDGVA to plummet by as much as 61.7 per cent in the first quarter of 2020-21 from the corresponding level of the previous year. However NCAER finds that the fall in TDGVA resulting from a slump in domestic tourist arrivals has been much more conspicuous and 20-30 percentage points higher than the decline in foreign tourist numbers.

It is thus obvious that contrary to the perception that international tourists bring in all the lucre it is actually domestic travellers who set the cash registers ringing for the industry. NCAER projects that domestic tourism through sheer volumes will primarily drive the recovery in the tourism economy enabling it to regain its pre-pandemic level by 2024-25. However given its huge volume in terms of the number of trips the total tourism expenditure incurred by domestic tourists is well over 70 per cent higher than the total international tourism expenditure.

It seems that we have come a long way from the genesis of tourism as a global industry in 1937 when the League of Nations the precursor of the United Nations defined the term ‘tourist’ as ‘one who goes to another country for pleasure or business or for reasons of health’. The Government of India too accepted the definition categorising a ‘tourist’as ‘a foreigner who comes to India for reasons of pleasure or sightseeing or in a representative capacity to attend a conference of an international character.’ This was reflected in India’s first tourism policy in October 1956 when the Estimates Committee of the Ministry of Tourism and Transport tabled a report before the Lok Sabha Secretariat highlighting the need to promote India as a global tourist destination as the annual foreign exchange earnings brought into the country by international travellers had gone up from Rs 7.1 crores in 1951 to Rs 10.1 crores in 1955.

Today however the Government’s priorities have changed significantly. The current tourism policy in line with the ‘Atmanirbhar’ initiative focuses on primarily promoting domestic tourism to revitalise the sector through measures such as the ‘Dekho Apna Desh’ campaign after the suspension of international travel due to Covid-19. Prime Minister Narendra Modi too has urged all Indians to visit at least 15 destinations within India by 2022 to keep the spirits of the industry alive.

Speaking at the recent Travel Tourism and Hospitality e-Conclave organised by FICCI the Secretary Tourism Government of India Arvind Singh revealed plans to promote unknown tourist spots and lesser-known facets of popular tourist destinations in the country. A uniform policy engaging with all States to lift travel restrictions and boost domestic travel while following Covid-related protocols is on the anvil. This would be part of a new national Tourism Policy focusing on promoting sustainable and responsible travel for MICE (meetings incentives conferences and exhibitions) tourism as well as for wellness and eco-tourism. Accordingly massive vaccination drives are reportedly being undertaken in tourist hotspots throughout the country where travel and hospitality staffers are being treated as frontline workers.

The NCAER study also recommends the introduction of innovative measures in pandemic times to entice potential outbound tourists to visit ‘Swadeshi’ locales instead and furthering the concept of ‘working holidays’ or ‘work from home by travelling to an interesting destination’ engendered by lockdowns and office shutdowns. As they say every adversity nurtures a hidden opportunity. It remains to be seen if India’s tourism industry will rise to the occasion by uncovering this opportunity to rejuvenate itself while successfully deflecting the challenges posed by the virus and its mutations.

Poonam Munjal is Senior Fellow and Anupma Mehta is Editor at NCAER. The views expressed are personal.

The pandemic was a health humanitarian and economic crisis all rolled into one.

The NCAER Business Expectations Survey (BES) tracked firms throughout the pandemic period on a quarterly basis trying to understand the challenges that they faced how they adapted and whether they were able to leverage government benefits targeted at them. In this article we focus on the challenges that the firms faced in 2020 and 2021. The NCAER BES covers 500-600 firms across four regions – North (NCR Delhi) South (Chennai & Bengaluru) East (Greater Kolkata) and West (Mumbai & Pune).

The BES questionnaire was kept dynamic in the sense that there were some questions that were kept constant and some were changed depending on the need of the evolving situation.  Also they were not necessarily asked in the same manner as our learning evolved.  Last but not the least we had asked firms in some rounds to rate on the severity of the challenge that they were facing.  

The challenges are divided in three broad categories – operational cash flow and hiring workers. Table 1 summarizes the responses of firms about the challenges that they faced over the last one year.

Author Provided

Operational Challenges

Faced Logistic Issues: The share of firms reporting this to be a challenge had increased over the last six quarters. It reached its peak in the second wave of the pandemic in 2021-22:Q1 39.6 per cent of responding firms had even reported this to be a severe challenge.  What is a concern is that a quarter of firms continued to report this a severe challenge in 2021-22:Q2 as well. The regional variations show that 65.6% of firms in the North reported this to be a severe challenge.  67% of service sector firms reported this to be non-issue for them in 2021-22:Q2.

Ability to source raw materials from suppliers: Slightly more than 20% of firms had reported this to be challenge in 2020-21:Q3 as against 35% in 2020-21:Q2. While this was not a challenge for majority of the service sector firms a larger share of firms with annual turnover ≤ Rs 100 crore perceived this to be a severe challenge (65%). The corresponding number for firms with annual turnover greater than Rs 100 crore was 46%.  However we had not continued with this question as both domestic & external markets opened up.

Ability to meet pending sales order: This challenge was especially acute too during the second wave of the pandemic in 2021-22:Q1. However even during the second quarter 23% of firms continued to report this as a severe challenge. This is an acute challenge in the Northern region as 54.4% of firms reported this to be a severe challenge. 66% of service sector firms reported this to be non-issue for them in 2021-22:Q2.

Cash Flow

Ability to get dues in time: 80% of firms reported this be a challenge in the second wave of the pandemic and 40% reported this to be a severe one. However this number has come down in 2021-22:Q2. This was not a problem in the services sector as 61% of firms reported that no dues were pending. However 18% of firms in the western region reported that no dues were pending.

Ability to pay suppliers on time: The prior rounds indicate that approximately 40% or lower share of firms were having problem in paying suppliers on time.  However in 2021-22:Q2 80% of firms reported this to be a challenge and 18% reported this to be severe one.  

Hiring Workers: This was a severe challenge in 2020-21:Q2 which had eased over the subsequent quarters. Currently while firms are reporting this to be a challenge it is not a severe one.

Policy Implications

The challenges have eased in 2021-22:Q2 from the time of the second wave of the pandemic. However firms in the North continue to face operational challenges in logistics issues and ability to meet pending sales order.  This needs to be examined more deeply as to what particular challenges are the firms facing which can then be addressed.  Cash flow is clearly a problem in the West.  More needs to be done by States to address the challenges that firms are facing.

Bornali Bhandari is Senior Fellow KS Urs Associate Fellow and Ajaya K Sahu is Senior Research Analyst at NCAER.  Samarth Gupta is a former Associate Fellow at NCAER. Views are personal.

The United Nations propounded the celebration of “International Days as “occasions to educate the general public on issues of concern to mobilize political will and resources to address global problems and to celebrate and reinforce achievements of humanity”. As in the past we are going to celebrate the 3rd of December as the International Day of Persons with Disabilities (IDPD). The theme for this year is “Leadership and participation of persons with disabilities toward an inclusive accessible and sustainable post-COVID-19 world.”

The WHO estimated that more than one billion people – about 15% of the world’s population – experience some form of disability. Pertinently it is possible that almost everyone will be temporarily or permanently impaired at some point in life. It is a well-accepted fact that persons with disabilities suffer from the lack of access to healthcare education and employment keeping them suppressed economically. At the same time it is often seen that they spent less time in community participation and socialising. This lead to a situation where they become less social inclusive with much negative bearing on their social psychological and physical life. They become less socially integrated and remain isolated in their communities.

In India after the Act of 1995 was repealed we now have the Rights of Persons with Disabilities Act 2016 which defines a “person with disability” as “a person with long term physical mental intellectual or sensory impairment which in interaction with barriers hinders his full and effective participation in society equally with others”. It is often observed that there is significant differences in community participation between persons with disabilities and persons without disabilities.

Some of the social & community related activities would include participating in (i) community celebrations of cultural and historic events (ii) community rites/events like weddings funerals births collective religious practice and similar rites (iii) community social functions like music dance etc (iv) civic and related responsibilities (v) organized/mass cultural events and shows (vi) attendance at sports events playing games and other pastime activities etc.

There are varied reasons that could be attributed to lesser community participation by disabled persons. Some of the reasons that could be attributed for this phenomenon could be (i) fewer opportunities to engage (ii) social activities are often infrequent and when they do occur they are reported as less fulfilling than activities for non-disabled persons (iii) inaccessible environments (iv) lack of transportation (v) greater risk for re-hospitalization and reduces their ability to participate and (vi) severity of disability or impairment. At times it could be simply the lack of support from their family and the overall community.

There is lack of data to identify the amount of time spent by disabled persons in community and social activities and the accurate and precise factors that are hindering their active participation. A country-wide survey on the lines of “Time Use Survey” can be thought of to identify the types of community activities where disabled persons participate and the time that they spent on such activities. The additional information should include the issues where disabled persons identify as hindrances or problems in fulfilling their desire to actively participate in community and social activities.

Community participation is a versatile and contextual phenomenon and it is considered vital for health and wellbeing promoting a sense of belongingness provides social support and opportunities for physical activity. But community participation does not take place in a vacuum. The environment accessibility and opportunity dynamically influences social and community participation. There is a need to ensure that persons with disabilities are able to exercise their choice and control to enable them to go beyond being only passive recipients of services and to participate meaningfully in community and social life. The realisation that unjustified segregation of people with disabilities is a form of discrimination and need to be prohibited is the starting point towards a sustainable solution.

*Dr Palash Baruah is Senior Research Analyst National Council of Applied Economic Research (NCAER) New Delhi and DL Wankhar is a retired Indian Economic Service Officer. Views and opinions expressed in this article are personal.