Shri Nand Kishore Singh, Senior Member of the Bharatiya Janata Party and Chairman of the Steering Committee for The Growth Net Summit 2017;

 

Shri Arvind Panagariya, Vice-Chairman, NITI Aayog, Government of India;

 

Distinguished guests;

 

Ladies and Gentlemen;

 

1.         Namaste and Good Morning. I am very glad to join you at the 5th Annual Growth Net Summit and would like to thank Mr N K Singh for inviting me to deliver the keynote address this morning.

2.         Economic growth is of perennial importance to governments. It creates opportunities for businesses and jobs for people; it raises incomes and living standards; and it generates resources for governments to undertake essential infrastructure and social undertakings which can help raise citizens’ quality of life.

3.         For these reasons and more, the focus on growth remains as relevant today.  However, the modalities for sustaining growth and reaping its benefits have to contend with current challenges in the global economic environment which are unprecedented in recent times. In particular, there are three global trends globally that have profound implications for the growth aspirations and strategies of all nations.

4.         The first is that global value chains are being reconfigured with countries insourcing more of their production.  This is partly the result of economic development and changing cost structures.  For example, China no longer competes as a low-cost manufacturing hub for the world; instead it is moving up the value chain, taking on higher value activities, and producing more innovative products.  China’s share in the value-added of its own manufacturing exports has gone up, from less than half in 2000 to about 60% in 2011, and this is likely even higher today. China also increasingly accounts for a higher share of the world market for high-technology products, such as computers and telecommunications equipment. 

5.         Secondly, new technologies are also enabling the more advanced economies to remain competitive by evolving their business models and processes.  Digitalisation is disintermediating traditional middlemen by connecting producers directly with other producers and also with consumers.  All of this has led to a fall in global trade elasticity to GDP growth as shown by data from the IMF.  If I can illustrate, one dollar of global GDP generated more than 2.5 dollars of global import growth between 1991 to 1995 but that has fallen to only 1.5 dollars of global import growth two decades later, between 2011 and 2015. This is a sign of diminishment in trade elasticity

6.         Increasingly, capabilities and innovation, rather than cost and the availability of abundant manpower, will have to be the basis for sustaining the competitiveness of businesses, sectors and economies.

7.         The second trend is the pace at which technological advances are affecting industries, disrupting business models, and changing the nature and availability of jobs.  We know about companies like Uber and we talk about Uberisation in the world. The World Economic Forum, in its Future of Jobs report, projected that more than 7.1million jobs could be lost globally from 2015 to 2020 due to disruptive labour market changes, while 2 million jobs would be created in fields such as IT which benefit from these changes.

8.         In Singapore, last year, our manufacturing sector grew by 3.6% in real terms, but employment in the sector actually decreased by more than 15,000 (about 3%). There is a net increase in productivity of about 7%.  While real value-add of the sector as a whole has grown by about 1.8% per annum from 2010 to 2016, the number of jobs within has declined even as new, knowledge-intensive jobs are being created driven by robotics, driven by and now the advent of 3-D printing and AI.  While jobs in manufacturing are becoming more attractive and wages have also been rising, we are seeing the phenomenon of job-light and even job-less growth, which is an issue of growing concern in many advanced economies.

9.         But I would like to emphasise that not all is gloom and doom.  The fact is that even as technology diminishes the need for certain types of jobs, it will create new opportunities requiring different skill sets. Therefore, helping our workers develop the deep skills that are essential to benefit from these new jobs must be a policy priority for all governments.

10.      The third trend is the retreat from globalisation that we see in several parts of the developed world.  Slower growth and middle class wage stagnation has sharpened the focus on the costs and dislocations arising from globalisation. This has led to a shift in the public mood as was evident from the Brexit vote, the themes and tone of the US presidential election, and growing anxiety in Europe about jobs and immigration.  While such nativist instincts, will come at the expense of mutually beneficial rules-based international order, the perception is that it may yield some benefits in the short-term, but the larger concern is that long-term repercussions for global growth can be quite adverse. 

11.      Globalisation has unfairly borne the brunt of the blame for these ills and we must resist isolationist instincts.   The reality is that globalisation can and does create significant opportunities for businesses.  In the context of a growing Asia, for example, economic integration and connectivity help ensure that our complementary capabilities can be applied to address the growing needs of our people for the benefit of all.

12.      However, it is also true that some will benefit more from globalisation while others may lose out.  That is why globalisation must be complemented by government’s domestic policies that enable its people and businesses to acquire new skills and capabilities so as to adapt to and benefit from globalisation trends at the same time. In other words, it is not just about building international linkages, but also helping companies and people to benefit from those linkages.    

13.      The confluence of these three trends – reconfiguring global value chains; technological disruption of industries, business models and jobs; and rising anti-globalisation sentiments – all of these compel countries, big or small, to evaluate afresh the robustness of their economic growth strategies against the backdrop of this new reality.  

14.      So that is why in Singapore, our Prime Minister established the Committee on the Future Economy (CFE) about a year ago, co-chaired by the Minster for Finance and myself to study the changing global environment, its implications for Singapore’s economy, and to chart a strategy for sustained growth over the next decade.  Nearly four-fifths of the committee’s members were from the private sector and academia in order to draw on  their diverse expertise, knowledge and perspectives in this dynamic environment.

15.      Last year when Prime Minister Lee visited India, Prime Minister Narendra Modi said very kindly “Whether it is manufacturing, environment, innovation, technology or delivery of public services, Singapore does today what the rest of the world would do tomorrow,” and I would say that it is something that is done out of sheer necessity,  that as a small open economy where  trade accounts for about three times our GDP, we are keenly tracking developments around the world, assessing the changes and also acknowledging that policies that have brought us this far may not necessarily be the policies that will bring us forward to the future and they may need to be modified and in some cases, even completely replaced with new strategies.

16.      Today, I would like to touch on three areas which this committee focused on innovation, internationalisation and skills, which I think might also have some relevance for India and for other nations around the world.

 

The three key thrusts of our policy response

Innovation

17.      On innovation first of all.  When we see value chains shifting and tech disruption becoming the norm, economies and enterprises must find new ways of creating value in order to stay competitive and relevant. This is why innovation is important because it catalyses such activities. Economies and companies that succeed in this new environment will be those that enable innovation and the creation of value.

18.      Silicon Valley is 23 percent more likely than the overall US private sector to form new businesses, and by extension, create new jobs according to the Kaufman foundation. Israel’s world class high-tech sector provides one out of every eight jobs, and it attracted a record US$4.4 billion of venture capital in 2015.  Startup India is another initiative that is noteworthy and is aimed to nurture innovation and enterprise, with its action plan to support startup ventures and build an ecosystem for innovation.

19.      In Singapore we have also invested significantly in the effort to nurture a vibrant innovation eco-system.  Investing in R&D and developing intellectual property is necessary but it is not sufficient; we need modalities that allow the creation of economic value through active commercialisation.  The nexus between innovation and enterprise therefore is key. 

20.      There are a few elements to this. First, innovation is inherently risky.  Testing and validating new ideas is unpredictable, and the speed to market becomes increasingly important with more competition and shorter product cycles.  So, policies must support the translation of R&D and intellectual property into economic value, and help enterprises mitigate the risk of innovation.  In Singapore, we aim to do this in three key ways:

a.    The first is the fostering of stronger public-private partnerships. Many of our research institutes in the public sector have developed strong capabilities over the years. But the question is how we can leverage the strengths we have built up in the public sector, by fostering long-term partnerships between public research institutes and industry.

b.    The second is to promote cross-industry collaborations by which I mean partnerships in particular between large enterprises, SMEs and start-ups. Such partnerships allow companies to play to their complementary strengths.  SMEs and start-ups are more nimble and have the ability to focus, to test and embrace new ideas while MNCs and large corporations have the advantage of greater resources, commercialisation experience, economies of scale and the ability to integrate new solutions into larger value chains.

c.    The final element is international exposure and collaboration.  In our budget this year in Singapore, we launched the Global Innovation Alliance (GIA), which is drawing on feedback from industry and start-ups on the benefit of having access to international innovation networks.  So it’s not just about fostering a domestic innovative environment but connecting with others around the world because innovation is ultimately a global endeavour.

21.      Finally, a word on regulations and licensing regimes which are important enablers and must not be impediments to innovation. One idea which we are working on is to create regulatory sandboxes, in other words, a controlled environment, whether within education, healthcare and infrastructure, where ideas can be tested without concern that it is going to affect the broader system. You can test-bed it, try it out and then based on the outcome, scale.

 

Connectivity and Internationalisation 

22.      The second area I want to talk about is on the need to stay connected and open to the global economy, and that takes on particular relevance in the environment that we are in today and is of specific relevant to Asia.  India has already experienced benefits from such connectivity – whether at the macroeconomic level, or in industries, automotives, pharmaceuticals and ICT.

23.      It is a fact that companies that internationalise are more likely to do better and grow faster, because it gives them access to larger markets, diverse resources and there is a greater competitive pressure on them. This is not only true of companies seeking to transcend the limits of a small domestic market, but is also true for companies of large countries. It is not coincidental that multinational – and now also meta-national companies – are major drivers of growth for their home economies in the US, UK, Netherlands, Germany, China, Japan and Korea, and of course India where many of your larger cooperations have built up strong international footprints.

24.      But I would like to stress that possibly the biggest beneficiaries of internationalisation are micro, small and medium enterprises (MSMEs), particularly in a digitalised economy.  In the digital economy, the smallest enterprise can access the farthest markets, and MSMEs gain a cost-effective means of reaching out to a significantly expanded consumer pool as well as to B2B networks.  If the focus is on how the private sector can be a driver of growth, then connectivity and digitalisation will empower not just the largest enterprise, but also the MSMEs.

25.      Asia’s strong growth prospects offers our enterprises significant opportunities. While IMF projections have advanced economies as growing by only 1.9% in 2017, emerging and developing Asia is projected to be the fastest growing region, at 6.4% with India, China and ASEAN leading the way.

26.      India’s Look East and Act East policies have been important in the development of India’s strong economic ties with the region, and have fostered a closer and more integrated Asia.  We know that for example trade and investment relations between India and Singapore have been strong.  But interestingly Indian investments in ASEAN are also growing significantly; rising from USD 819 million in 2014 to USD 1.3 billion in 2015.

27.      Asian economies have worked on the foundations of the more integrated regional architecture, and this has been achieved through the ASEAN-India Free Trade Agreement (AIFTA) and other Free Trade Agreements with ASEAN, as well as ongoing discussions on the Regional Comprehensive Economic Partnership (RCEP).  The key point is that we need to stay the course with these efforts, to enhance the collaboration between our economies, improve the ease of doing business, and build on the benefits of mutually open markets.

 

Skills

28.      Let me now turn to the third and final point I want to make on skills. An important precondition to benefit from growth especially in the new environment is on skills and a skilled workforce.  But going forward, the type of skills we develop and how we develop them will have to evolve.  With technologies developing fast, the obsolescence of workforce skills is a real risk and unless we make the effort to constantly update the skillset obsolesce is a reality.  This also means that learning is a lifelong journey and national education infrastructure must support continuing education in the workforce.  And we need a tighter nexus between education and industry so that the skills developed are responsive to new technologies and stay relevant to the needs of the economy. I know many of you from the private sector will agree, but this also needs to become a national ethos on education.

29.      As a result, Singapore has further evolved its strategy for skills development with that objective in mind.  In particular, we launched the national SkillsFuture movement in 2014 and made further recommendations to enhance it through the Committee on the Future Economy (CFE).  

30.      One objective is to support lifelong learning by our workers.  To that end, we have developed skills frameworks for different industries to help workers and employers better appreciate the need for continual skills development.  Our institutes of higher learning have developed courses, in consultation with industry, to support continuing education. And in the CFE one of our recommendations is that we make these courses more modular and technology-enabled, to ease access.   In other words, striking a balance between work and learning on a progressive basis. There are many good examples of this all around the world in Europe, Netherlands, and we all need to find our own pathways in making this a reality for the workforce.

31.      A second objective we have in the skills domain is to ensure that the skills developed are industry-relevant even as technology changes. The Survey of Adult Skills by the OECD showed a wide variation across countries not just in the level of competency of their adults, but also in how well their employers used the skills their workers have acquired. To make skills training more industry relevant, we have been involving employers in close collaborations with our vocational institutions and institutes of higher learning so they play a material role in the development of courses, curriculum and learning environment. We are redesigning entire courses to integrate work and study, developing an online portal to combine information about skills needs and jobs available so that workers will have the information they need to develop their skills and careers.

32.      With these strategies, we hope that our workforce can develop strong, industry-relevant and multi-dimensional skills to allow them to take advantage of the jobs of the future.

 

Building an inclusive society

33.      To pull this all together, tech advancements and the corresponding shift towards an economy founded on knowledge, deep skills, globalisation and connectivity create growth opportunities.  But the benefits of such growth may not always be evenly distributed across society. This is why it is incumbent on governments to respond, to provide support to those at risk because of these trends.   Many of the policies require long term government commitment and resources so that changes can be brought about. In some cases, the short-term impact can be somewhat difficult.

34.      The three policy areas I have talked about – innovation, internationalisation and skills are not exhaustive but are important areas to which governments can fulfil this important mission.  The final point I want to make is, this is an endeavour and if we get it right, it will allow for more inclusive growth because it will empower MSMEs, especially if we allow them to benefit from globalisation and connectivity, complemented by access to resources. When so empowered, MSMEs can be significant and dynamic contributors to the economy.

35.      The other element is that ultimately, this is about our people.  Making sure that while there are the risks of skills obsolescence and widening income inequality that comes from globalisation, our objective must be to endow people with the capability and skills to adapt constantly to these changes so that they are continue to be able to participate and benefit from the growth of the future. 

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