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India at a crossroads: Reduce the risks

of economic concentration

ndia is poised to become the world's most important served India well. Owing to superior financial management,
I country in the medium term. It has the largest the economy has grown fast, despite investment rates (as
population (which is still growing), and with a per capita
a share of GDP) that were much lower than China's, for
GDP that is just one-quarter that of China's, its
been much more efficient; indeed, many of India's
economy has enormous scope for productivity gains. example. The implication is that India's investments have
Moreover, India's military and geopolitical importance will conglomerates boast world-class levels of productivity and
only grow, and it is a vibrant democracy whose cultural competitiveness.
diversity will generate soft power to rival the US and the UK.
But the dark side of this system is that these conglomerates
One must credit Prime Minister Narendra Modi for have been able to capture policymaking to benefit
implementing policies that have modernized India and themselves. This has had two broad, harmful effects: it is
supported its growth. Specifically, Modi has made massive stifling innovation and effectively killing early-stage startups
investments in the single market (including through and domestic entrants in key industries; and it is changing
demonetization and a major tax reform) and infrastructure the government's 'Make in India' programme into a
(not just roads, electricity, education, and sanitation, but counterproductive, protectionist scheme.
also digital capacity).
We may now be seeing these effects reflected in India's
These investments-together with industrial policies to potential growth, which seems to have declined rather than
accelerate domestic manufacturing, a comparative accelerated recently. Just as the Asian Tigers did well in the
advantage in tech and IT in particular, and a customized 1980s and 1990s with a growth model based on gross
digital-based welfare system-have led to robust economic exports of manufactured goods, India has done the same
performance following the covid slump. with exports of tech services. 'Make in India' was intended
to strengthen the economy's tradable side by fostering the
Yet, the model that has driven India's growth now threatens production of goods for export, not just for the Indian
to constrain it. The main risks to India's development market.
prospects are more micro and structural than macro or
cyclical. First, India has moved to an economic model where Instead, India is moving toward more protectionist import-
a few 'national champions'-effectively large private substitution and domestic production subsidization (with
oligopolistic conglomerates-control significant parts of the nationalistic overtones), both of which insulate domestic
old economy. This pattern resembles Indonesia under industries and conglomerates from global competition. Its
Suharto (1967-98), China under Hu Jintao (2002-12) or South tariff policies are preventing it from becoming more
Korea in the 1990s under its dominant chaebols. competitive in goods exports, and its resistance to joining
regional trade agreements is hampering its full integration
In some ways, this concentration of economic power has into global value and supply chains.

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