Vision 2025

Way back in 1991, when faced with a severe balance of payment crisis, India pledged 20 tonnes of gold to the Union Bank of Switzerland and another 47 tonnes to the Bank of England as part of a bailout deal with the International Monetary Fund (IMF). Of course, this wasn’t where the crisis ended. In addition to this, the IMF had thrust on the Indian government the urgent need to undertake structural reforms so as to put the economy back on track. It was in these circumstances that Dr Manmohan Singh, the then Finance Minister, put across some breakthrough reforms. These included, among other things, the opening up of international trade and investment, deregulation, privatisation, tax reforms and many other measures to control inflation.

The result of what happened then is there for all to see now. While the same European region, which had called for our gold to be pledged with them, is reeling under economic pressures and the whole region is seen to be crumbling, India has emerged as one of the most important economic players on the global front.

Growing at a scorching pace, the Indian economy has taken long strides over the past couple of decades to become the fourth largest economy in the world after the US, China and Japan. The growth has been all round, and this is visible in the development that has taken place across the board. Today, the country has the world’s third largest road network at 1.9 million miles. Its rail network is the second largest in the world, apart from being the world’s largest civilian employer, with a work force of almost 16 million workers.

The economic progress of India is also visible in its vibrant capital markets, which have helped the development of a healthy capitalistic business environment. The BSE has more than 6000 listed companies – the highest number on any exchange only after the NYSE. The contribution of the nation to the global economy and business can also be gauged from the fact that nearly 49 per cent of the high-tech start-ups in Silicon Valley, CA and Washington D.C. are owned either by Indians or Indian-Americans.

With all the uncertainty surrounding the economic landscape across the world today, where do we see India standing over the next 14 years? What will propel us into the next orbit of growth over the time to come? In our 26th year of publication, we, at DSIJ, thought that these would be some of the most appropriate questions to be answered for the long-term benefit of our readers.

As we understand the importance of these questions for the generations to come, we decided to get opinions from those who are best-placed to do it. Coming from the Deloitte Group, which is among the four big global consulting firms, here is an analysis of what you can expect over the next decade or more. Vision 2025 seeks to throw light on where we are headed from here on. This is an analysis of what is likely to happen to the four most important quarters from India’s growth perspective – economic policy, the Indian financial and commodity markets, the telecommunications sector and last, but not the least, the developments that can be expected in the Indian defence and aerospace sector, which is a vital cog in the country’s security.[PAGE BREAK]

Economic Policy In The Coming Decade

Anish Chakravarty
Director, Deloitte Haskins & Sells

In the wake of a challenging business environment, the global economic conditions are looking bleaker day by day. The act of policy making and its appropriate implementation by governments has become one of the most crucial factors in determining the future prospects of any economy in this ‘post financial crisis era’, and India is no exception to this rule. Recent initiatives such as the liberalisation of the FDI policy and the introduction of the National Manufacturing Policy are designed to reverse the slowing growth momentum.

Although the Indian economy is rated as the ninth largest in the world in terms of nominal GDP and the third largest by purchasing power parity (PPP), its per capita GDP ranking of 129 in 2011 confirms that still more challenges are to be met before India establishes itself as a world economic leader. If the target of annual GDP growth of eight-nine per cent is achieved over the next 15 years, it would result in a drastic improvement in the real per capita income. This would eliminate the percentage of Indians living below the poverty line, effectively transforming India from a low income country into a middle income one. The target for the next decade would be to maintain the growth momentum achieved in the last five-six years.

With a consistent annual growth of around nine to 10 per cent since 2004-05, the services sector has developed as a core competency of the Indian economy. India will certainly implement policies to maintain its notable share in the total global software services exports (around 25 per cent in 2009-10), which has recently come under pressure with competition from the Chinese and Filipino service providers. With such intense global competition, it is unlikely that the services sector will maintain the growth momentum it has in the past decade. Therefore, it is essential that the industrial sector becomes the next engine of growth for India.

It is important to recognise that Indian manufacturing has lagged behind in growth as compared to the high and sustained development achieved in the services sector. A focus on industrial growth is the need of the hour, particularly in sectors like infrastructure, renewable energy and other sunrise industries. Infrastructural constraints such as abysmal warehousing facilities, low storage capacity, ineffective farm-to-market transport arrangements remain key woes of the industry. The availability of cheap credit as well as organised and skilled labour is also lacking in the rural areas. Such supply-side constraints stress the delivery mechanism, and in turn, exert pressure on the prices. As we have recently seen, unless this pressure is eased, inflation will continue to remain sticky. This, in turn, will affect the input prices, and in effect, create a vicious cycle of inflation and low industrial growth.[PAGE BREAK]

The government has recognised that a manufacturing thrust is required for the benefit of the economy. Policy level decisions are also being taken to this extent. The establishment of the National Investment and Manufacturing Zones – for example, greenfield integrated industrial townships and the development of the Delhi-Mumbai Industrial Corridor – as a global manufacturing and investment destination are ways to stimulate infrastructure growth using eco-friendly green technology. Initiatives for upgrading agricultural productivity and a support structure to efficiently market agricultural produce would also be a welcome move to improve agricultural performance. However, it is important to note that implementation would remain the key to success.

Comparisons can be drawn with Japan and Korea, as both these countries enjoyed historical periods of sustained high growth. Japan’s high economic growth of around 7.5 per cent in the 1960s and 1970s was spurred mainly by the economic policy of stimulating private sector growth by instituting regulations and protectionism and by concentrating on trade expansion. Similarly, South Korea's GDP expansion from USD 2.7 billion in 1962 to USD 230 billion in 1989 was achieved at an annual growth of more than eight per cent.

However, even if expansion through exports looks like an attractive and proven way to grow, learning from the experiences of financial crisis, India is unlikely to concentrate only on the external sector. Rather, it would follow a more balanced approach, leveraging its large domestic base as well as individual investment and consumption. The rural market continues to be untapped, and the spread of an efficient market economy in the rural sector can act as a multiplier for high GDP growth.

Currently, India is among the world’s youngest nations, with a median age of 25 years as compared to 43 years in Japan and 36 years in the US. In 2025, with more than 55 per cent of the population in the working age group, India will have the premium to be competitive at a global level. Such a demographic dividend can be best harnessed only by significantly enhancing the skill levels among workers and expanding their capabilities through vocational training institutions, etc. Here again, a thrust on making the training and development process in the rural areas more inclusive is necessary.

To sum up, with increasing financial as well as trade integration of the Indian economy with the global one, the potential for achieving sustained growth is high. However, there remains a need for efficient ground-level implementation of policy decisions and of a long-term outlook. India’s competitive edge in services may continue to remain only for a short period in the future, and newer engines of growth need to be discovered. An effective manufacturing policy that is integrated into the rural framework can go a long way in bridging the rural-urban divide and in uniting the economy to grow inclusively as one.

(Anish Chakravarty is a Director with Deloitte Haskins & Sells.)[PAGE BREAK]

Financial And Commodity Markets: Towards Greater Transparency

Dr. Chiragra Chakrabarty
Director, Deloitte Touche Tohmatsu India

Globalisation in an upward spiral, cross border funding, the integration of the financial markets and the coupling of economies are all factors that have increased the variety and quantum of risks faced by the Indian financial market participants from uncertainties in the global economic environment. Global turmoil coupled with an increase in the prices of commodities has led to greater adversities for countries like India. Despite this, however, India has been growing quite robustly, being one of the top performers in an era of global financial meltdowns. Having emerged from a financial crisis of epic proportions, the time is ripe for taking a re-look at the longer-term aspirations of India on the financial sector reforms.

Traditionally, our reforms strategy has been calculated and calibrated. Financial sector reform is viewed as a ‘cause’ rather than an ‘effect’. This approach has been vindicated during the Asian crisis as well as the recent financial meltdown. The Indian economy is expected to continue its ‘bull-run’. As is being widely recognised, the Indian economy has the potential to become the third-largest GDP in the world in the next two decades. According to the Planning Commission estimates, India’s GDP is likely to grow from USD 1.9 trillion in 2011 to USD 10 trillion by 2025. This projected GDP can be achieved by sprucing up the real sector, more particularly, the manufacturing sector, and by making sustainable investments in infrastructure. For example, during the Twelfth Five Year Plan period, the total investment in infrastructure is projected to increase to USD 1 trillion, more than half of which is expected to be contributed by the private sector.

This order of acceleration of economic growth warrants the strong growth and development of India’s financial sector. An important factor that has to be considered is that there is a large dependence on bank loans for corporate, which is accentuated by the fact that most of the Development Financial Institutions (DFIs) have been converted into banks. Due to this conversion of DFIs into banks, an institutional gap for long-term finance has now been created in the country. Also, Indian enterprises now have the ability to raise funds in the foreign capital markets, further complicating the problem.

However, we believe that with the proactive steps being taken by the policy-makers, the corporate debt market will become more vibrant within the next decade on the back of real term developments in infrastructure and regulations, akin to that noticed in the equity market. The evolution of the debt market in India would not stop here. To complete the circle, the debt markets have to go to the ‘grass-roots’ level, meaning that in the years to come, a whole new set of participants have to be introduced.[PAGE BREAK]

In such spirit, at a micro-level, municipalities would be included as issuers and the microstructure would be enhanced for the introduction of ‘muni-bonds’. Greater emphasis would be laid on the inclusion of retail investors/households in the debt market, either through direct participation (through screen-based trading systems) or through ‘pools’ (like debt mutual funds) and rationalisation of taxes across states. Over the years, as our market mature, we may also see the emergence of the Indian bond and equity markets as the ‘market of choice’ for investors from our neighbouring countries. Similarly, our markets may also become the preferred choice for raising short-term as well as long-term funds by participants in these countries.

Another important aspect in making the markets ‘ready’ for 2025 is to introduce new market mechanisms or enhance the existing market microstructure to incorporate new product classes. An innovative example of introducing new market systems can be in the form of the development of an electronic marketplace and match-making platform through which SMEs, start-ups and entrepreneurs can access funds. An example of enhanced micro structural reform can be found in the corporate bond market. The market for government bonds in India is fairly liquid, but the corporate bond market suffers from insecurities related with illiquidity and investor confidence. To strengthen the basic fabric of the market, policy strategists have to formulate policies that would infuse investor confidence in the market. Enthused confidence would bring in liquidity in the market.

On a granular level, the reforms have to take into account a fundamental fact that we have to establish a government bond yield curve for all maturities against which corporate bonds can be priced. Similarly, as suggested above, there is scope for introducing an OTC market within the organised commodity market regime, which would help illiquid contracts to be introduced into the mainstream exchange platform once their volumes pick up. Furthermore, the incorporation of commodity structured risk management solutions alongside credit, savings and insurance services within the microfinance toolkit would immensely benefit small holders in the country.

It appears that the risk of contagion between emerging economies has reduced significantly over time, and the positive sentiment towards emerging market economies is mirrored in the declining spreads of the emerging markets bond indices. Another adhesive that contributes to the positive performance has been the strong rise in commodity prices. It is conventional wisdom that economic crises often have a dramatic influence on the emergence of new institutions, especially those aimed at developing, supervising and regulating market places.

Today, market participants, not only in the capital and commodity markets but also in real sector, are increasingly becoming aware of the impact derivative instruments have on their businesses. It is our belief that the core function of the financial system is to facilitate the allocation and development of economic resources, both spatially and across time, in an uncertain environment. Derivatives are the perfect tools required for such facilitation. It is worth mentioning here that the examination of derivatives architecture yields rich information for analysing the relationship and the linkages among critical market-related parameters on one hand and the broad economic environment on the other.[PAGE BREAK]

Adjusting to price volatility through price risk management is now viewed as a prerequisite for the pursuit of long-term cost competitiveness and significant expansion of domestic markets. An example of such an undertaking is derivatives exchanges. Derivatives exchanges can yield other critical impacts – broadening access to markets, empowering participants to take better decisions, reducing information asymmetries that have previously advantaged more powerful market actors, upgrading procurement, storage, grading and technology infrastructure and finally, expanding access to cheaper sources of finance. Therefore, policy-makers would have to walk the tightrope between meeting the requirements of an increasingly complex business environment and creating policies for the regulation of derivative instruments.

Formulating regulatory policies in 2025 would also involve a ‘cost benefit analysis’ of the advantages of standardisation of processes in various market regimes – financial as well as commodities. In an era of worldwide integration of the financial markets, conformity with global best practices would ensure a convergence mechanism between various regulatory bodies, both local and international. This would ensure greater transparency in regulatory access and information dissemination to the market place. An illustration of such proactive regulation may be established, if for example, the banking regulator brings the different types of financial derivative instruments traded by Indian banks under the unified umbrella of a national clearing corporation, thus infusing uniformity in the clearing and settlement processes.

Market reforms would also entail re-examining the current regulatory superstructure. One question that comes to the forefront is regarding the continuance of multiple regulatory bodies in their present state versus the adoption of a single-window super regulatory regime for both, the financial and commodity markets. Though the advantages and drawbacks of both these regimes are being debated at length in the academic and policy-strategist circles, a clearer picture would unfold in the times to come.

India has used a macro-prudential regulatory framework to counter the potential adverse impact on the economy emanating from asset price volatilities. Several gaps, however, remain in developing a calibrated qualitative and quantitative framework, especially in respect of improving its reliability and forward-looking capacity in assessing systemic risks. These would have to be attended to as the financial sector reforms unfold in years to come.

Last but not the least, the reforms in either the financial or commodity market would not be complete without a continued commitment from the market participants towards complete financial inclusion and the development and promotion of financial literacy for the masses. Accordingly, in the coming years, India’s financial sector reforms would focus on retaining the ‘goodness’ of being calibrated, peppered with the inclusion of new opportunities that may come our way.

(Dr. Chiragra Chakrabarty is a Director with Deloitte Touche Tohmatsu India)[PAGE BREAK]

Telecom Sector: Facilitating Disintermediation Of The Economy

Hemant Joshi
Partner, Deloitte Haskins & Sells

The telecom sector will facilitate the disintermediation of the economy by way of its interplay with different industries, ushering in a new era of enhanced and expanded access to information and communication in the coming years.

The Indian telecom industry is one of the fastest growing in the world, with an average of 18 million subscribers added every month. Some of the hot sectors in the government’s Five Year Plan, viz. healthcare, education and banking can grow exponentially with the help of telecom, while others like retail, manufacturing, advertising, etc. could become more effective and efficient. An interaction and eventual convergence between these industries and telecom could lead to a market opportunity that is much bigger than the sum of all its parts. The current market size of some of these industries is as follows:

Healthcare - USD 80 billion in 2011
Education - USD 85 billion in 2011
Banking - USD 64 trillion in 2011
Media & Entertainment - USD 16.3 billion in 2010
Agriculture - 20 per cent of India’s GDP
Retail - USD 550 billion in 2011

Source: IBEF

Telecom and Information Technology (IT) have achieved unprecedented success in the recent past, and have contributed exceptionally to the economy of India. By the end of November 2011, India had a subscriber base of 917 million and a wireless tele-density of 73.44 per cent. In the future lies the opportunity to achieve socio-economic modernisation through technologically advanced solutions in rural India, which could bridge the rural-urban gap. Thus, these two sectors can help India reach new heights and become a modern and highly developed nation.

The ministries of various sectors such as healthcare, education, rural development and banking have embarked on development programs with a focus on rural communities. These projects such as the UID, National Broadband Plan, National Knowledge Network (NKN), etc. would help to build the foundation of modern India through inclusive and equitable growth. The next decade will see more digitisation and electronification of data from various verticals – healthcare, education and governance. Although India has predominantly been a cash economy, the next few years will see higher penetration of mobile payments and banking, as more people move to easier and faster options in their day-to-day activities.[PAGE BREAK]

Services are an important part of the Indian economy, contributing more than 50 per cent of the GDP. Mobile value-added services are expected to greatly transform the delivery of services through innovative solutions. The next wave of growth will come from the mass adoption of these mobile-based services in rural areas, where the tele-density is currently only 36 per cent. 3G and 4G technology will make it possible for millions of people to access services electronically through mobile devices and the internet.

The achievement in mobile-based services needs to be replicated in fixed-line infrastructure as well. Broadband connectivity through a combination of fixed-line and mobile devices will play a fundamental role in reorienting the way people live, work and learn. Rising productivity, employment, literacy and nutrition levels will bring India to a position equivalent to international standards. In the coming decade, broadband connectivity will emerge as one of the basic utilities like electricity and gas.

Further, India is likely to see a move towards ‘Made in India’ products in the telecom equipment manufacturing segment. This is one of the main emphases of the forthcoming National Telecom Policy (NTP) 2011-12. The NTP is expected to be instrumental in advancing the telecom sector to contribute about 10 per cent to the Indian GDP by 2020. It could also help in creating a healthy and sustainable environment for all players and segments in the telecom value chain by providing a clear and robust policy framework.

There will be increased adoption of mobile devices such as smart phones, tablets and dongles by people from all walks of life. The convergence between telecom, technology and media (broadcast) will provide unique opportunities for promoting education, healthcare and other basic needs on a large scale and at affordable rates.

Using the power of telecommunication networks and infrastructure, the NTP 2011 envisages expanding the footprint of these converged services to cover every individual and business in the coming years, and thus, foster a wholesome environment that is truly citizen-centric. This is summed up pretty well in the NTP 2011 vision: ‘To provide to the people of India, secure, reliable, affordable and high quality converged telecommunication services anytime, anywhere’.

(Hemant Joshi is a Partner with Deloitte Haskins & Sells. The views expressed are personal and not those of the firm.)[PAGE BREAK]

Aerospace & Defence: Aiming Higher

Nidhi Goyal
Director, Deloitte Touche Tohmatsu India

Globalisation, regionalism, an increased focus on economic growth, the indigenisation of production, and anti-terrorism strategies are some of the shaping forces that will determine the outlook for the Indian Aerospace and Defence (A&D) sector in the 10-15 years to come. The outline that the A&D sector is likely to assume will critically determine the readiness of India’s ability to deal with internal and external security concerns.

Defence

Homeland Security

India is surrounded by neighbors with whom it has had bitter relations in the past. Border disputes are at the root of this discord. Kashmir continues to be the bone of contention in Indo-Pak relations. Bangladesh could also be a potential threat, given its friendly relations and connection with Pakistan. It is difficult to understand the diplomacies and intentions of China, which is also India’s economic and military competitor. India’s strained equations with Pakistan, the connections between China and Pakistan as well as the uncertain and unstable political environment in Pakistan and Afghanistan cumulatively increase the security concerns for India.

The special forces, intelligence and surveillance agencies will play a big role in the next 10-15 years. There is also the need of Information Warfare Units for psychological operations. It may be reasonable to estimate that India could aspire to play a major role in the defence and security arena. To get there, however, the country will need to formulate a prudent plan.

Indian Air Force (IAF)

Over the years, the IAF has grown from being a strategic force to a global force. The emphasis in this transition has been on acquiring state of the art technology through acquisitions or upgrades of its aircraft, systems, precision missiles and net centricity.

In order to enhance its operational capabilities and meet the challenges posed by the security threats in and around the country, a widespread modernisation plan for the IAF is in process. Over the upcoming years, the force would be equipped with more Tejas Fighters, which are being developed by Hindustan Aeronautics (HAL), Medium Multi Role Combat Aircrafts (MMRCA), the contract for which has finally been awarded to Dassault Rafale, as well as C-17 Globemaster III air-lifters, which will be procured from US.

Further, to boost its helicopter and transport fleets, the IAF has begun acquiring additional Mi-17 V-5 choppers from Russia, Apache-64D attack helicopters from the US government, as well as Advanced Light Helicopters and Light Combat Helicopters being developed by HAL. For the transport fleet, it is the induction of Boeing Business Jets (BBJ), Flight Refuelling Aircrafts (FRA) and Airborne Warning and Control Systems (AWACS) being developed by Defence Research and Development Organisation (DRDO), Heavy Transport Aircrafts (HETAC) and C-130J Hercules and Medium Transport Aircrafts (MTA) is also planned.[PAGE BREAK]

In addition, the procurement of various systems and equipment has been approved and these are at various stages of induction. The DRDO is also developing different categories of radars to meet the air defence requirements of the IAF.

The Modernisation of Airfield Infrastructure (MAFI) Project of the Ministry of Defence aims at modernising navigational aids at all the airfields. 30 airfields are included in Phase-I, and the remaining will be included in Phase-II of the MAFI Project.

Navy

A lot of challenges have emerged in the field of naval security, particularly in the aftermath of the November 2008 terrorist attacks in Mumbai. Various new equipments have been proposed to be procured and inducted in order to strengthen the coastal surveillance system.

The Standing Committee on Defence, 2010-11 (Fifteenth Lok Sabha) found that there are huge delays in the procurement of ships and aircrafts. To counter systemic and institutional delays, the procedures and processes are being refined on the basis of the experience gained during the implementation of projects.

The transfer of Hindustan Shipyard (HSL) to the Ministry of Defence will also help in building strategic vessels and naval ships/vessels to augment the fleets of the Indian Navy and Coast Guard.

The Indian Coast Guard is improving its deep water capabilities through the procurement of a range of new ships and aircraft by 2022. The 15-year plan advocates the acquisition of 15 major ships and 23 aircraft, including multi-mission maritime planes, twin-engine helicopters and Unmanned Aerial Vehicles (UAVs).

The Thirteenth Finance Commission, is of the view that there exists considerable scope to improve the quality and efficiency of defence expenditure through increased private sector engagement, import substitution and indigenisation, improvements in procedures and practices and better projects management, all within the parameters of Government of India’s policy. Efforts in this direction will further expand the fiscal space available for defence spending. The government has taken several steps to involve the private sector in the defence sector within the parameters of government policy. The introduction of the defence production policy of the ‘Buy & Make Indian’ category of procurement is expected to lead to joint ventures between Indian companies and foreign companies with transfer of technology.

Foreign Direct Investment (FDI) barriers on foreign participation in aerospace and defence production are likely to remain. However, the FDI limit may be relaxed from the existing 26 per cent to about 49 per cent in the defence sector, while for the commercial sector, even higher limits may evolve.[PAGE BREAK]

Aerospace

Although India is emerging as a global player in the aerospace industry, it is likely that foreign players will dominate the aerospace industry in the country on account of the technological gap between them and the domestic companies. Indian companies will dominate only where cost advantages are more important than technology. Indian aerospace companies will draw their advantage from a combination of factors, primarily low costs and expertise in certain parts of the value chain like basic design and engineering services as well as low-end component manufacture.

Anglo-Italian helicopter company, AugustaWestland, has stated that the Indian military helicopter market could be worth 5-6 billion Euros in the next 10 years, involving the purchase of as many as 600 helicopters.

As far as indigenisation is concerned, Hindustan Aeronautics (HAL) (a Defence Public Sector Undertaking), the Defence Regulatory Development Organisation (DRDO) and National Aerospace Laboratories are developing several aircrafts, missiles and UAVs for the IAF and Indian Army. DRDO has also entered into various strategic alliances with foreign players like Israel Aerospace Industries (IAI) and Russia's NPO Mashinostroyenia to develop missiles.

Finally, India’s MRO (maintenance, repair and overhaul) segment is anticipated to grow at 10 per cent annually, reaching USD 2.6 billion by 2020.

Space

ISRO’s long term plans, as stated in its Vision 2025, include developing satellite systems (to augment rural connectivity, security requirements, weather monitoring, natural disaster management, etc.), working on space exploration missions, planet exploration, and developing upgraded launch vehicles.

We would need to see how fast the Indian industry would be able to leverage the benefit of the aforesaid developments that will take place in the sector in the coming years. It also remains to be seen when the current support provided by the defence public undertakings and agencies are taken to the next level via the public private partnership route.

(Nidhi Goyal is a Director with Deloitte Touche Tohmatsu India.)

These views were presented by experts from Deloitte. Further, we, at DSIJ, present our views on the political vision from now until 2025.[PAGE BREAK]

Rethinking Modes Of Governance
- Vishesh Sharma

Any idea begins its journey almost like a small sperm among millions. The journey from existence as a sperm, to life as an embryo, then as an infant and finally growing up through childhood to adult life seems full of so many risks that one cannot even attempt to predict the chances of success. Yet, just as life goes on through this difficult journey, ideas also do grow up and mature. This very thought has been the inspiration for our theme for the anniversary issue, ‘Vision 2025’.

In the past, we have gone through a curious swing of the pendulum in thinking about the State. In the 1950s, we believed that the State could do no wrong. The language of political discourse, then, was strongly influenced by a ‘virus of socialism without substance’. Cut to the 1990s, when we believed that the State could do nothing right. The language of political discourse, then, was strongly influenced by a ‘virus of liberalisation without understanding’.

Going forward, the need would be to reflect on the role of the State vis-a-vis the economy. In this era of globalisation, surprisingly enough, the role of the State is more critical than ever before. In sum, governments need to regulate and complement markets so as to make them people-friendly. The reason is simple. Governments are accountable to people, whereas markets are not.

Changing Political Ideologies

Mamta Banerjee in West Bengal! Akhilesh Yadav in Uttar Pradesh! Nitish Kumar in Bihar! Wonder what is the common link between them all? Well, all of them have been elected on the development plank, which clearly suggests that parties will have to drop the age old issues such as the Ram Mandir, Muslim Quota and rather focus on the problems of current significance, which are those related with employment, education, social stability (these could be called the issues of the new India). Hardliners would be forced to soften their approach, while liberals will have to be more focused towards issues concerning the ‘aam-aadmi’.

Going forward, it is expected that the voters would be more aware compared to their older counterparts, and the ‘Roti, Kapda, Makaan’ slogan will be replaced by more liberalised issues such as Education, Safety, Employment, Women’s Empowerment, and so on. As the country inches towards economic stability and the population becomes more and more globalised, their demands and expectations would also change with time.

The political parties would also be forced to act against the corrupt and bring in more and more transparency (as we saw during the Anna Hazare protest, and these sort of open disagreements with the ruling parties would become a common sight), as corruption would emerge as a big setback for politicians.[PAGE BREAK]

The Young Leadership

India has, for quite some time, been referred to as a country of the youth. Indian politics, though, inspires no hopes when one looks at political parties and their leaders. However, when one looks beyond the parties and leaders, one finds that the country has a large number of bright men and women who have enormous potential, are honest and are willing to risk their life for the country. With time, a political scenario would emerge where the old and weary would be replaced by a young, vibrant leadership with a broad vision for the country, which aspires to play a significant role at the global platform. Narendra Modi, Omar Abdullah, Akhilesh Yadav, Nitish Kumar and Sushma Swaraj are some of the firebrand leaders who will take centrestage going forward.

Here comes the curious case of the Congress heir apparent, Rahul Gandhi. He has failed miserably time and again. However, the ground is not yet lost. The problem with the Congress is that it has too many advisors in its ranks and lacks a sensible leadership. So, a course correction is needed. If that happens and if Rahul Gandhi succeeds in bringing significant changes while proving his mettle, the world is his oyster. Or else, the next decade would see the emergence of Priyanka Gandhi, who would lead the Congress in the absence of a natural leader.

The Emergence Of Civil Society

The last couple of years have witnessed a rising demand for the strengthening of the civil society. This emphasis emanates from a number of factors, and is global in its expression. The main factors in support of civil society include the failure of the government to deliver efficiently, adequately and in time, the gradual strengthening of the components of civil society, ease of access to information and the near impossibility of the State to sustain its activities in all spheres. The policy functions of the State shall remain with it, but in a large number of areas, particularly education, health, transport and communications, human resource development, etc., the operational aspects will pass on to the civil society.

Simultaneously, with the empowerment of the Urban Local Bodies and the Panchayati Raj Institutions and the strengthening of the civil society, empowerment of the people would be a major factor in the governance of the country. All the wings of governance, viz. the political masters, the judiciary, the permanent civil service and the legislatures will have to respect the right of the citizens to manage their affairs. This will be possible only through people's empowerment. Reluctantly but surely, people's empowerment will come to be, and will be one of the assets for self-governance by 2025.

Frequently Changing Power Centers

One major aspect as far as the country's governance is concerned, on which so much will depend, relates to the political adjustments made for running the government. The last two decades have seen a gradual weakening of the Congress party and the emergence of the BJP and some of the regional parties. This has led to many variations of coalition politics, including the NDA and the UPA. Historically, a strong Central government that makes its impact felt in different parts of the country has performed better than the weak regimes in Delhi.[PAGE BREAK]

In the context of decentralisation and devolution of powers, and the emergence of the civil society and people's empowerment, one does not look for an autocratic Central government. At the same time, a national government which is at the mercy of the constituent units of a democratic alliance and subject to the whims of regional party leaders does not enhance the country's image, nor does it provide effective governance. People also perceive the negative implications of a weak coalition. That being so, it is not unlikely that well before 2025, there could be a major political churning resulting in the emergence of a couple of strong political parties, one or the other of which will command a majority in the Lok Sabha. New political relationships are likely to emerge.

E-governance: A New Concept

The problems of governance 15 years from now will still include those issues which occupy our attention today – transparency, corruption, non-responsiveness, favouritism, bureaucracy, inefficiency, a lack of accountability, ineffectiveness of implementation, etc. However rising expectations, increasing levels of education, greater access to information and greater prosperity will be working to mitigate these factors to a large extent.

Worldwide, E-governance is such a recent development, that it is difficult to assess its potential impact 15 years hence. However, the plans and projects already being implemented by various state governments within the country suggest that it has the potential, if fully harnessed and rightly utilised, to radically improve the speed, convenience, quality and transparency of public administrative services, while enhancing the ability of individual citizens to express and exercise their democratic rights.

The essence of good governance is the capacity to envision the opportunities that lead to a better future, to build a broad consensus in support of that vision, to take the bold decisions necessary to realise the vision and to exercise the determination and perseverance required for overcoming obstacles and resistances that arise along the way.

Decentralisation Of Governance And People’s Participation

• The devolution of power to local bodies will continue at an accelerated rate. Pressure from the grassroots will increasingly supplant governance from the top down.
• Local communities will come to depend lesser on the state and central government action, and more on their own initiative and organisational capacity.
• Financial devolution will give local bodies more authority to levy taxes and greater control over the use of local natural resources. It will also make them increasingly responsible for financing local infrastructure.
• Direct democracy through gram sabhas, as opposed to representative democracy, will become more prevalent at the local level. People at the local level will be more directly involved in setting priorities for the distribution of resources and management of local projects.
• A better educated and better informed electorate will be increasingly demanding of its rights and increasingly critical of non-performing governments and their individual members.[PAGE BREAK]

CEO Vision

Indian Capital Markets 2025 – Unleashing India’s Economic Potential

- Joseph Massey
MD & CEO, MCX Stock Exchange (MCX-SX)

With the economic epicentre drifting away from the developed economies to the emerging economies, the Indian capital markets are well set to capitalise on the opportunity provided by the shifting pattern in domestic growth and increasing financial sophistication. As wealth shifts to the East, it is in the interest of the emerging economies to take their economic growth process to the next level. This would additionally help them reap their demographic and resource potential. This trend is already visible, wherein the Shanghai and Shenzhen exchanges alone have not only witnessed more than 500 IPOs in the last five years, raising an amount of USD 4 million as of Q4 2010, but their combined market capitalisation at USD 3.8 trillion has also overtaken that of the Tokyo Stock Exchange.

The efforts of the regulators and policy makers are augmenting the efforts of the marketplace to widen their participation base. Financial innovation in the Indian markets would remain the key to tapping investments, helping nurture the country’s economic growth potential. With a total of 63 IPOs, India’s primary markets are also growing rapidly, providing investors an opportunity to invest about USD 8.3 billion in them and reap their growth potential.

Factors like increasing policy reforms, regulatory sophistication, the electronification of the markets and depositories are adding to the investor base, which in turn would be more likely make India one of the favourite markets for fund raising for foreign companies as well. Measures announced in the recent past, such as allowing qualified foreign investors (QFIs) into the equity and debt markets, enhancing access to India’s debt markets for foreign institutional investors (FIIs), the tax holiday for retail investors, an electronic IPO process for promoting retail participation would remain few small steps to nurture the growth of capital markets in India. These would aid the markets in sharing the benefits of economic growth to the wider stakeholder base participating in them.

Policy making in the last few years has been tuned to get the best out of India’s demographic dividend by making the right demographic investments, especially in strengthening its social infrastructure. The middle-heavy population pyramid of India, as compared to that of its formidable competitors in Asia, will make India an economic force to reckon with. Further, as proven by the investment profile of the ageing nations wherein much of the funds would be managed by the insurance and pension funds industry, the middle-age workforce is more likely to contribute towards increased risk taking when it comes to businesses that would like to tap the Indian markets for their risk capital needs. Additionally, the middle-heavy demographic structure of India would drive India’s economic growth, strongly supported by its increasing propensity for consumption. The success of the current skill development efforts, as per the current policy focus, would be critical to nurture and sustain this demographic dividend.[PAGE BREAK]

The development of markets for debt capital would play a critical role in the development of entrepreneurship in the country. In line with the country’s liberalisation process, a robust market for debt capital would not only help in disintermediation but also in the transparent discovery of returns on debt capital. A vibrant market not only for government debts but also for corporate bonds will contribute to the healthy growth of private enterprises in the Indian economy. In the process of making these markets inclusive, banks as financial institutions would be driven by a fee-based business model as compared to their current rate differential-based profitability and business growth. As for the capital markets, which are currently driven by equity capital raising and trading-based activities, they would be dominated by the trading of debt instruments in secondary markets besides a huge market for risk management debt instruments, as has been the case with the developed economies. Currently, such instruments account for hardly about a percent of the secondary and derivative markets, as compared to 80-90 per cent in the developed economies of the US and the EU.

A slew of reform measures in the banking sector, including those related with accounting regulations, bankruptcy protection and debt restructuring procedures would help secondary markets for corporate bonds develop at a scale comparable with the current equity markets. The existence of an effective corporate governance regime with the lowest possible compliance costs, the merger of the domestic economic regime with that of the global economic order brought about by capital account convertibility in the next five years as well as the existence of innovative financial instruments to match the varied stakeholder expectations and needs would remain key to the structural transformation of the Indian capital markets in line with its developed counterparts in the years to come. As the current policy measures would provide support in this transformation, a major thrust would be provided by measures aimed at full capital account convertibility.

As the markets undergo a process of structural transformation, it is necessary for them to serve the broader social objectives in addition to the economic goals as defined by the policy makers. While the direct broader social objective has been to trickle the benefits of economic growth to those at the bottom of the pyramid, the indirect expectation of the stakeholders has been that they also operate in a fair, healthy and transparent manner to help allocate resources in the Indian economy in a socially cohesive way. The first step towards inclusive growth starts with social empowerment, which embraces education, increased employment opportunities and easy access to financial services and markets. At MCX-SX, we remain strongly committed to leverage the developments in Information and Communication Technology (ICT) to empower economic stakeholders in India and deliver the benefits to them, both in a direct and indirect manner, making the process of our economic growth sustainable.[PAGE BREAK]

Conclusion

Over the next 15 years, the object of any sensible strategy of development in a globalising world should be to create economic space for the achievement of national interests and development objectives. In pursuit of this goal, we need to think big and think long. Such thought must extend across several spheres, including the creation of world class infrastructure, the removal of supply constraints and support for social consumption.

India, with its rich cultural heritage and thousands of years of history of civilisation, need not aspire to become like country A or B. For India, realising the vision for 2025 is not an end in itself, but rather an essential condition for allowing the spirit of this country to emerge and flourish. Going forward, the country will be increasingly integrated with the global economy and will be a major player in terms of trade, technology and investment. Rising levels of education, employment and income will help stabilise India’s internal security and social environment. A united and prosperous India will also be far less vulnerable to external security threats. A more prosperous India in 2025 will be characterised by a better-educated electorate and a more transparent, accountable, efficient and decentralised government.