Dr Naushad Forbes Highlights Manufacturing for India's Economic Growth

Dr Naushad Forbes, co-chairman of Forbes Marshall, an author and former president of the Confederation of Indian Industry (CII), shared that while India is on track to surpass Germany and Japan to become the third-largest economy this decade, we should not be complacent or “too proud”. Instead, we should aim higher, setting our sights on surpassing China. “When we pass China, we can be proud,” said Dr Forbes in a conversation with Rahul Ahluwalia, founding director at Foundation for Economic Development (FED), for the fifth episode of FED Dialogues, a podcast featuring conversations with leaders from industry and academia about India’s economic growth trajectory.

Highlighting how India's per capita GDP was the same as South Korea's in 1960 and slightly higher than China's in 1990, Forbes said, “It's good to remind ourselves that from 1990 to 2024, we've had the best economic growth in our history. So, we've done pretty well. But China has done much better. So, what can we do to grow, not at 6-7% year on year, but to set our aspirations much higher and to say we have to grow at a minimum of 8-9-10% year-on-year for 30 years? That's what it will take to converge on the rich world. It’ll take 25 years to catch up with where China is today if we grow at around 9% annually[1].”

Sharing his prescription for how India can fulfil its economic promise and converge on the rich world, Dr Forbes emphasised manufacturing as the avenue that can provide high-income and high-productivity jobs, as opposed to gig work, which is growing today but would not provide opportunities to increase productivity in the long run. Dr Forbes also pointed out that while recent academic debates question the potential of labour-intensive manufacturing in India’s future economic growth, “it very much needs to be part of the story,” as it has been for every large country that has witnessed economic growth. He similarly pointed out that tourism is another area that provides lots of jobs but India has underperformed to the extent that even tiny countries like Singapore and Thailand get more tourists.

Besides these, Dr Forbes also stressed the importance of in-house R&D for Indian industry. “For the kind of per-capita income that we have, around $3,000, we have a much more capital and skill-intensive industrial structure, which will not grow without innovation. If we want this kind of industrial structure to thrive and grow at 15%-20% year-on-year, we need to invest more in R&D, starting with in-house R&D by firms. Indian industry invests 0.3% of GDP in in-house R&D. The world average is 1.5%. China's now getting close to 2%." Taking the example of India’s pharmaceutical industry, which is the world’s third largest by volume but outside of the top 10 in terms of value, Dr Forbes explained, “It's because we’re doing generics mostly. Hence, the price of Indian drugs is very low. It’s a good thing, but if we want to build firms that can take on the world’s pharma giants, we need a different approach, starting with incentivising firms to invest in R&D massively.”

Dr Forbes also talked about the importance of investing in human capital, starting from leveraging the private sector to solve for quality in education. “It (education) is our number one source of inclusiveness. Everyone agrees that there’s a serious problem with quality. Regulation that specifies so many acres of land and these kinds of facilities, those attempts at regulation have failed. We should instead rely on the market and simply make sure that the supply (of colleges) exceeds the demand. When that happens, the only way colleges will be able to fill seats is by improving quality. Let the old colleges that are doing a poor job vanish. The state should provide an assessment of quality that is made public.”

 Capping his policy prescriptions for India’s economic growth, Dr Forbes suggested that Indian industry must desist from lobbying the government for incentives and subsidies. “We should instead ask to be enabled so the government can step back, for less regulation, simpler regulation, like merging rates of GST. The government should always pick the simpler option, and if you’re in the private sector, don’t demand incentives.”