The make in India initiative by Prime Minister Narendra Modi has launched the country’s greatest economic reforms. Since gaining independence in 1947 India some what failed to industrialize its economy in the 1950s and 1960s the government made a series of poor decisions that establish the traditional planned economic model known as the License Raj. An indirect result of the economic policy most of the country’s population remained employed in the agricultural sector only. Then in the 1990s oil prices spiked through the Iran-Iraq war and suddenly New Delhi’s energy bills skyrocketed and its foreign exchange reserves plummeted.
As a result of the economic crisis, India sought a loan from the IMF. The loan related austerity measures forced India to open up its economy following this manufacturing sector as well as the services sector grew remarkably. Currently the agricultural sector employs 49 percent of the nation’s 502 million labour force. It’s the biggest source of jobs in the country but it only accounts for 14% of the economy whereas the services sector employs 31% of Indians and it’s responsible for 54 percent of the country’s GDP. This contradiction is the result of the License Raj policy. Now the decision to open up the economy is catching up with tremendous consequences. For instance, most Indians working in the agricultural sector lack a higher degree of education which is required for the services sector. Thus as employment in the agricultural sector will diminish many displaced semiskilled people will seek for work in the manufacturing sector and this will depend on Indian policymakers as they struggle to reform the labor legislation as well as the tax regimes with gst registration.
Necessity for legal reforms will only increase over time especially as new technologies develop. For example precision agriculture also known as satellite farming will have a profound impact on the Indian economy and its labour force. Basically precision agriculture entails the use of data to improve agricultural output. Think of automated soil monitoring by satellites and UAVs and more the real-time collected data such as soil moisture and nitrogen content allows for farmers to reduce operation costs and cultivate more products with fewer acres of land. The technology still needs to be developed and fine-tuned for agricultural operations.
However, the association of unmanned vehicle systems international forecasts that by 2035 the precision agricultural sector could be responsible for 80% of commercial drone use. Presently India is exploring her options of precision agriculture, however, given the fact that nearly half of India’s labor force is employed in the agricultural sector. Satellite farming will result in steadily increasing unemployment in the agricultural sector. Meaning in just two decades time, India will see millions of semi skilled people seeking for employment in the manufacturing sector, ultimately which means that the make and India initiative is not just an ambitious project it’s a necessary one. Besides new technologies, India must also formulate her energy security for the coming decades. Economies run on energy and as urbanization and industrialization increases so too will Indians appetite for energy grow.
At the present India consumes almost 3.7million barrels of oil per day yet it only produces about 760 thousand barrels per day and the rest is imported. However, as the manufacturing sector grows and more people move to the cities to work. New-Delhi must acquire new sources of energy. For instance, the UN estimates that between 2020 and 2025 about 400 million Indians will move to the cities. As a result by 2040, oil consumption will increase to 10 million barrels per day. Aside from new energy sources, the government must also formulate a security plan reliance on hydrocarbon energy carries risks.
For example if suddenly oil prices spike, a repeat of the 1990s economic crisis would hit India. In preparation for such a scenario, the state-owned oil and natural gas cooperation has been acquiring equity stakes in foreign oil fields. The idea is that if oil prices spike then India would compensate by collecting the energy revenues of its overseas assets. This is actually a sound plan and it provides India with some leverage concerning its energy security. Yet interestingly enough India has proven oil reserves of 5.7 billion barrels that is enough to meet the needs of the Indian people for the coming years. However, over half of the oil is located offshore. To extract the oil India needs the technology and expertise of foreign multinational oil companies.
Despite New Delhi’s best efforts most energy companies are not interested in Indian oil. This contradiction is linked to India’s energy subsidies which have helped the impoverished citizens but have also heard foreign energy companies. The thing is since New Delhi pays these companies only a partial reimbursement for the extracted oil, the oil companies barely make a profit. Essentially, the bureaucratic landscape undermines the domestic oil industry as for the energy subsidies these are linked to the internal politics. Considering these realities no change is expected in the foreseeable future. India will continue to fail to increase its domestic oil output but it’s not just about hydrocarbon energy that will need to be expanded, but as a result of the urbanization and industrialization consumption of electricity will rise as well.
Therefore Modi is seeking to expand all types of energy production especially the output of nuclear energy. Currently India operates 22 nuclear power reactors which generate 3.5% of the country’s total electric output as a result of its energy security. India wants to diversify the generation of energy. Nuclear energy will be a crucial component of that plan by 2050. New Delhi plans to increase the share of nuclear energy to at least 25%of the total electric output. As of this moment India is already constructing six new reactors which should commence operations by 2017.
Furthermore, to achieve its long-term goals, in 2014 Putin and Modi signed an agreement in which the state-owned nuclear energy company Rose Atom expressed willingness to construct more than 20 new nuclear power units in India. However to attract even more foreign investors in the nuclear sector, New Delhi must adjust the liability law. Currently India’s nuclear liability legislation holds the supplier rather than the operator directly responsible in the event of an accident in almost every other country the reverse is true. Due to the liability legislation many Western as well as Japanese and Korean investors are reluctant to do business in India. Since adjusting legislation is a complicated matter in India, Modi is seeking partners that are willing to work in the current parameters.
In this context, Moscow fits the bill and Russia will play an increasingly crucial role in the development of India’s nuclear energy sector. All in all, India’s growing energy appetite will have to be addressed through a combination of nuclear and hydrocarbon energy. The legal proceedings concerning the energy subsidies and nuclear liability acts will remain unchanged. As a matter of fact the bureaucratic situation is actually far more complicated when one considers that India has separate energy ministries for coal renewable energy power petroleum and natural gas. These energy ministries compete for influence and power.
What’s more is that every Indian state has a different energy policy just like its tax regimes, leading foreign companies often into confusion as to with whom they are to do business. However, with recent digital initiatives company registration has become way easier than before. Still India is a land of contradictions having tremendous potential and the Make In India initiative is exactly what the country needs to lift her people from poverty and modernize the country. Yet India’s main obstruction is its complicated bureaucratic landscape.