McKinsey’s survey sees India’s growth despite pandemic woes

V Nagarajan

In the context of both structural growth slowdown and the economic shock of the pandemic, recovering to a high-growth path will not be business as usual for India, according to a survey titled India’s Turning Point by McKinsey Global Institute.

Excerpts from the survey reveal that two sectors - manufacturing and construction - have the potential to give India the biggest lift to productivity and job growth, respectively.

In other emerging economies, sectors such as construction and trade typically absorb the greatest numbers of workers moving out of agriculture and increase average labour productivity at the same time.  

Indian businesses can create economic value of about $635 billion by 2030 if they tap into the shifting preferences of Indians aspiring to a higher standard of living.  

India has the opportunity to put in place a robust planning approach for its top cities, which have low capital investment per capita and are less productive than they should be. India would need 25 million affordable housing units by 2030, at a low cost of at most 2,000 rupees per square foot, depending on income segment.

For example, mass affordable housing that uses modern construction practices, including prefabricated and modular construction and lightweight aluminium formwork is five to six times more productive than the sector average and would reduce cost to home buyers. Other opportunities include a planning approach that increases the floor space index (FSI) systematically to make the right parts of cities more dense and productive.

India’s maximum FSI ranges from 1.8 to 5 across most cities, while averages are lower as the minimum FSI across cities ranges from 1.2 to 3.5. For a country of India’s urban scale, McKinsey estimates that these ideas could generate $195 billion in economic value in 2030 and support about 30 million jobs, for average yearly investments of $75 billion.

The construction sector has the potential to more than double its GDP to $550 billion, from $250 billion in 2020. Productive and resilient cities, will require significant changes in the real estate sector.

The ratio of home price to income is on average 4.3 in the eight largest cities in India, compared to less than 1.5 in a set of OECD countries.

The higher price of land in India is a large contributing factor and land market reforms would have a substantial impact; other sector-specific measures could also help boost the real estate sector.

Homeownership could be incentivised by rationalising stamp duties and registration fees to reduce costs to buyers and offering greater tax incentives. The high cost of land is a key reason. By enacting several key reforms, India has the potential to reduce land costs by 20 to 25 percent and increase the supply of land available for construction.

Finally, the process of land acquisition for industrial use could be significantly eased. Some states have implemented measures like land pooling, enhancing the state land bank for industrial use, and introducing legislative amendments to ease the acquisition of land by the private sector, subject to high level clearance. To ease conversion of land from agricultural to industrial use, Karnataka has implemented a simplified online, single-window system that requires fewer document submissions for land use conversion for industrial purposes. Approval is automatic after 30 days if no response has been received.

I am a Person of Indian Origin (PIO) and sold the apartment invested a decade ago in Mumbai recently.  Can I repatriate the sale proceeds for alternate investment in immovable property abroad?  Are there restrictions in this regard?  Please advise. Demello, Sharjah.

Yes. You can remit the sale proceeds of immovable property (other than agricultural land/farmhouse/plantation property) in India subject to the following conditions:

1. The immovable property was acquired in accordance with the provisions of the foreign exchange law in force at the time of acquisition or the applicable FEMA provisions;

2. The amount for acquisition of the property was paid in foreign exchange received trough banking channels or out of the funds held in foreign currency non-resident account or out of the funds held in NRE account; and

3. In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.

I have inherited agricultural land from a relative in India.  Can I sell to another NRI in the Gulf? Chandan, Dubai.

No.  You can sell agricultural land only to a resident Indian and not to NRIs/OCI.  This is because government regulations prohibit NRIs acquiring agricultural land, plantation property and farmhouse.