Whalesbook
India Inc Urged to Build Resilience
Principal Secretary Shaktikanta Das has urged Indian industry to adopt seven key strategies to navigate a global economy marked by constant change. He called for enhancing resilience, strengthening balance sheets, diversifying supply chains and markets, reskilling workers, making strategic investments, and increasing research and development (R&D). The aim is to position India for global prosperity and long-term economic strength.
Global Challenges and Market Watch
This push for adaptation comes as the Nifty 50 index trades with a Price-to-Earnings (P/E) ratio around 21.00. While the index shows some market attentiveness, it has seen modest declines year-to-date and over the past year. A key challenge was highlighted in 2025 when US tariffs, rising to 50%, caused export orders to drop 20-40% in some sectors. Despite this, Indian exports reached a record $825.25 billion in fiscal 2024-25 and are projected for solid growth into 2026. However, global uncertainties, like the war in West Asia, could slow India's GDP growth to an estimated 6.8% in FY27. Balance sheets have improved, with India's international assets-to-liabilities ratio at 82.1% by December 2025, but foreign investment cooled in 2025-2026, signaling caution.
The Innovation and Skills Gap
Government initiatives aim to improve business conditions, workforce skills, and technology access. However, R&D investment remains a significant concern. India's Gross Expenditure on R&D (GERD) is about 0.64% of GDP, far below global leaders like the US (around 3%) and China (about 2.4%). In 2021, India's top firms spent only 2% of profits on R&D, compared to 29-55% in similar firms abroad. This limits advanced manufacturing, keeping India focused on lower-tech production. A major hurdle is also the need to reskill the workforce for AI and automation. Projections suggest a shortage of over one million skilled AI professionals by 2027, despite reskilling efforts. China's move into high-tech sectors, fueled by R&D, shows the importance of this area for future growth. Moody's Ratings, however, views India as a resilient market due to strong domestic demand and stable policies.
Execution Hurdles for Indian Firms
The strategy faces significant execution challenges. A key issue is low private sector R&D spending. Despite government focus in the 2025-26 budget, public funding drives most R&D, with private commitment lagging. This contrasts with the global average R&D spending of 1.5% of GDP versus India's 0.3%, indicating a slow path to an innovation-led economy. The AI talent shortage adds another risk; demand for AI professionals is expected to nearly double by 2027, potentially leaving a shortfall of over one million workers needed for digital transformation. Past trade protectionism, like US tariffs in 2025, already hurt labor-intensive sectors and small businesses, causing drops in export orders and jobs. While government measures like the "National Manufacturing Mission" exist, their broad impact on resilience is uncertain. Rupee volatility in 2025, nearing 90 to the dollar by year-end, also adds complexity for businesses involved in trade.
Path Forward: Investment and Adaptation
The focus moving forward will be on turning these policy goals into actual business actions. India Inc.'s success in boosting resilience, strengthening finances, and investing in innovation and workforce skills is crucial. Government programs like the Production Linked Incentive (PLI) scheme and infrastructure projects under PM Gati Shakti aim to boost manufacturing and global integration. The World Bank notes that public support for skills and institutions offers more lasting benefits than tariffs or subsidies. As global growth remains uncertain, India's ability to encourage private R&D and train its workforce for an AI future will shape its long-term competitiveness and ability to seize new opportunities.