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Under the Banyan Tree – New India: What does tech growth mean for jobs?
29 Plays2 years ago
Fred and Herald talk to Pranjul Bhandari, Chief India Economist, about how tech-focused sectors can more than double the size of the Indian economy in a decade. But can they also provide enough jobs to deal with a rapidly-rising population? Disclaimer: https://www.research.hsbc.com/R/51/wtP77cL Stay connected and access free to view reports and videos from HSBC Global Research follow us on LinkedIn https://www.linkedin.com/feed/hashtag/hsbcresearch/ or click here: https://www.gbm.hsbc.com/insights/global-research.
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Transcript
Podcast Introduction and Accessibility
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Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
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India's Economic Potential and Population Growth
00:00:45
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Hello and welcome to Under the Banyan Tree, where we put Asian markets and economics in context.
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I'm Harold van der Linde, head of Asian equity strategy at HSBC in Hong Kong.
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And I'm Fred Newman, chief Asia economist.
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On today's podcast, how technology could help more than double the size of India's economy in a decade.
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Our chief India economist Pranjul Bhandari has just published an in-depth report on this, and she joins us from Mumbai with the details.
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We'll be casting an eye over the wider Indian economy and of course also look at some of the implications for equity markets.
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It's one of the more exciting corners in the region.
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It's time for you to join us under the banyan tree.
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Well, 2023 is the year when, according to the UN, India will overtake China to become the world's most populous nation.
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And rapidly growing population means, of course, a lot of jobs are needed.
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Chief India economist Pranjul Bhandari says tech-focused sectors could push up growth to at least 6.5%.
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Let's bring in Pranjul right now.
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Pranjul, welcome to the podcast.
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Hi, Fred, Harold.
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Great to be here.
Role of 'New India' in Economic Growth
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So Pranjal, there's a lot of excitement about New India.
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It's really a term you coined in one of your latest reports.
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What exactly do you mean by New India?
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What sectors do you think of when you coined that term?
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Yeah, so it's a small part of India, it's about 15% of GDP, but it comprises of everything high tech, in particular exports of goods and services.
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You know, India has been gaining global market share in things like the exports of mobile handsets, drugs and pharmaceutical products, specialized chemicals, automobiles.
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But it also has the exports of services where India has really gone up the value chain.
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It's not just a provider of IT services, but it's increasingly doing a lot of R&D and design work as well.
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The second part is the tech startups ecosystem.
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On the back of India's digital public infrastructure, many startups have come out with new business ideas, providing digital solutions to many real economy problems, attracting a lot of inflows and creating growth.
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So you talk a lot about very exciting new economy sectors here.
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It's only 15% of GDP, but what does it mean for overall GDP growth?
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Does that help to accelerate GDP growth?
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Right.
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You know, if New India continues to rise in the way it's been doing in the last few years, our sense is that overall GDP growth over the next decade could be about 6.5% per year, which is more than the 6% growth we saw in the pre-pandemic period.
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So much, you know, higher potential growth for India.
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And over the next decade, this would mean that India's economic size will actually more than double.
Challenges in Employment and Economic Sectors
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Hey, Pranjul Harold here.
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We know this year India is becoming the most populous nation on the planet, overtaking China.
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It is a young population, so there's a lot of people that enter the labor markets.
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That 6.5% GDP growth rate and the rise of New India, will that be enough to take on all these new people that are looking for a job out there?
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Great question, Harold.
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And the short answer is no.
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You know, new India makes up 15% of GDP, but it only hires 5% of India's labor force.
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And India has to create about 70 million new jobs in the next decade.
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And our sense is that with 6.5% growth, it'll only create about one third of the jobs.
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I think what India needs really is more than 6.5% growth if it really wants to get enough jobs on the table.
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And how will India get there?
00:04:28
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So the service sector is not so labor intensive.
00:04:32
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You say there's not so many jobs being created in that sense, but it's good for growth.
00:04:36
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So what kind of growth levels does India need to get there to absorb that labor?
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Right.
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If you want to move from 6.5% to 7.5% growth, we can't just rely on new India.
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We also have to pull up old India, which is basically India's sluggish agriculture and India's low and medium tech manufacturing, which is not very dynamic and not very exciting.
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What we really need and I think what we have right now is the private sector participating.
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A lot of the startups have been focusing on services but my sense is that if at some point they move into manufacturing, say digitization of manufacturing,
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or agri-tech, they could energize these sectors and that's where we could get our 7.5% growth from.
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By the way, if India does grow 7.5% over the next decade, it will probably be able to create about two-thirds of the 70 million jobs that I was talking about.
00:05:29
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That's pretty impressive, raising growth potentially 7.5%.
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It is a very high number, yeah.
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Maybe this is a good time to take a little break here.
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And when we come back, we're really going to talk about the bigger picture, how India compares to other development stories out there in emerging markets.
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Welcome back.
Reforms Needed for Enhanced Growth
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We've spoken so far about the rise of new India, the difficulties of maybe absorbing all kinds of new people that come to the labor market in India and the growth rate that we need to see in order to get there.
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But I have a question, Pranjul, for you.
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What sort of policies do we need to see to get to growth rates of something like 7.5% in India?
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What does the government need to do to achieve that?
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Yeah, thanks.
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So I think a lot of things are number one, it needs to keep doing reforms.
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We've had some good reforms in the past, but that's not good enough.
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We need new reforms on the tax front, on lowering tariffs, on the power sector, and also a new framework for climate change.
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So all of that must happen.
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Private CapEx has been weak for the last decade.
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It's showing some good signs, but it really needs to rise up to sort of get to higher growth.
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Educational standards and employability of people has to improve.
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There was a setback in the pandemic period, but corrective measures must be taken.
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And finally, world growth must be strong enough to be able to absorb a country like India growing fast.
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So, Pranjra, let's take a let's zoom out a little bit and put India into context.
India's Unique Growth Path and Globalization Benefits
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What you're talking about here is a potential acceleration of growth if we, of course, pursue the right policies.
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But it also is in a unique moment with new technology driving new India.
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How would you then describe how India might compare to other emerging markets?
00:07:21
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We have in Asia, for example, many emerging markets have gone through a takeoff phase in economic development earlier, arguably, than India.
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Is India following the same development path now, or how do you think of it in a comparative context?
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Yeah, so if India was to grow 6.5% to 7.5% in the next decade, the economic size would more than double in a decade.
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It would become the third largest economy in the world by 2027.
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It would obtain the upper middle income status in a couple of years.
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But I think the most important way to be different from some of the other emerging markets is its share of services in GDP.
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That's likely to be high, around 55 to 60% of GDP, one of the highest in the EM space.
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And in a way, you can say that India is going to benefit from the fact that globalization of services continues, even if trade in goods has slowed a little bit.
00:08:18
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So, Harold, that's also a question for you, really, when it comes to equity markets, right?
00:08:23
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You look at emerging market equity markets on a comparative basis.
00:08:28
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Pranjal mentioned service sector being slightly larger compared to maybe other economies at the same level of development.
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What does this mean for equity markets?
00:08:37
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Well, I would say there's two key differences where India really stands out.
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So, yes, part of that service sector is listed in the stock market.
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So we've got the IT companies that are listed amongst others, the pharma companies that provide a service to the rest of the world.
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So that is, it broadens and makes it a very diverse stock market.
00:08:53
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But what I think is probably even more important is that...
00:08:56
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The nature of the demographics, the structure of the whole economy is so different that, for example, where consumers are located, what they buy and how they buy is completely different than it is in, for example, China.
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In China, you get most people close to the factories because that's where they work on the eastern seaboard of China.
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And that's where most of the money is located.
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So if you come in
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with a luxury product, you go to the top 10 cities in China, you capture that.
00:09:28
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In India, it's completely different.
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Luxury doesn't go as well there, but you need to go into not 10, but hundreds, if not thousands of mid-sized towns that are more scattered across the region and the consumption patterns are different.
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So in India, distribution capability is much more important than in China.
00:09:45
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China branding is more important because that is really a big barrier to entry.
00:09:50
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Indian companies have emerged as the most profitable companies
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In Asia, in the emerging markets, I would say, they belong to the most profitable companies on the planet.
Future Opportunities Across Asia
00:09:58
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So a different development path really that we're spelling out here with implications for investors, different opportunities.
00:10:05
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And Pranjul, sounds like the new economy is igniting in India and with the right policies, we're really going to see a decade of tremendous growth ahead.
00:10:16
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So thank you for sharing your insights, Pranjul.
00:10:18
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This is certainly a developing story.
00:10:20
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It's one of the most exciting stories, I think, that we have across the region.
00:10:23
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There's a lot of visible growth in the next couple of years.
00:10:27
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It's an exciting place to be in Asia.
00:10:28
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So, Pranjal, we certainly have you back.
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Thanks for joining us.
00:10:31
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Great to be here.
00:10:32
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Thank you for having me.
Casual Conversations and Personal Insights
00:10:42
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So, Fred, let's step away from work for a moment.
00:10:45
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What are your plans for the weekend?
00:10:47
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Well, Harold, as you know, my family situation has changed.
00:10:50
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I have a four-month-old boy at home, and obviously we struggle every weekend with how we entertain him.
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But we discovered, actually, that he likes art, art museums in particular.
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And so we like art, and so we're just at that sweet spot where he still finds it interesting.
00:11:05
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So we go to museums, he looks at these wonderful colors.
00:11:09
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I have a feeling, though, it might not last very long, so I probably will find myself on some playground or some zoo in the near future
00:11:15
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Yeah, dolphins and these things.
00:11:16
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While we can go to museums, I think I'll enjoy that.
00:11:19
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But any museums coming up in your future, Harold?
00:11:22
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Yeah, not this particular weekend, but I'm going to fly back to Holland and see some family.
00:11:26
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But I want to go to a rather small museum in the city of Leiden where there's a particular statue.
00:11:31
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As you know, Fred, I'm looking at Indonesia's history.
00:11:33
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It's a bit of a hobby of mine.
00:11:35
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And one of the first kings that you could argue has united Indonesia as it is in the late 1200s, 1280, 1290 we're talking about here is
00:11:43
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was a king called Kertanegara and there's a statue of him quite odd whereby he's naked dancing on a graveyard with skulls around his neck and it was really to build up kind of power, spiritual power to get the country together and defend it against what he considered enemies that were attacking the region.
00:12:01
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So it might not be really appropriate for small children though but it's really an interesting statue to take a look at.
00:12:07
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And then you're trying to sort of reenact that, or is that not part of the trip?
00:12:12
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I might try to do that, but I'm not going to send you any pictures of that.
00:12:15
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All right, Harold.
00:12:16
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Well, enjoy your holidays.
00:12:17
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You enjoy your museums as long as it lasts.
00:12:20
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Yes.
00:12:21
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And thank you, ladies and gentlemen, for joining us.
00:12:23
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And see you again here under the banyan tree next week, same time.
00:12:26
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Cheers.
00:12:36
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Thank you for joining us at HSBC Global Viewpoint.
00:12:39
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We hope you enjoyed the discussion.
00:12:41
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