HYDERABAD: It’s easy to forecast forward in time. More so, when it comes to economic projections as few undertake a meticulous exercise to estimate potential growth rates.
But the Government of Telangana just did the opposite and more.
Breaking away from indulging in simple statistical extrapolations, it roped in economists from the Indian School of Business (ISB) to draft the state’s first flagship Vision 2047 document that lays out a blueprint with a grandiose vision for Telangana.
To be released during the forthcoming two-day Telangana Rising Global Summit, it envisions the youngest state’s economy to touch an enviable $1.2 trillion by 2034 from the current $200 billion, and $3 trillion by 2047.
But to reach there, we need a real growth rate of 11% for the next 25 years, which is much sharper than the 7.7%-7.8% registered in the last 10 years or so. Which begs the question if it’s doable?
“It’s not easy, but not impossible. To go to that 11% growth, we need high productivity and higher investments. Our savings are just about 29%, which means the only other source is to tap foreign direct investment from say, the Middle East, Japan, and from all countries that have sizable savings but limited growth potential.
But unlike the Chinese model of savings and investment-led growth, we need to focus on innovation, research and human capital,” Prasanna Tantri, Executive Director, Centre for Analytical Finance, ISB, told TNIE. Tantri headed the committee that drafted the Vision 2047 document.
Diminishing returns factor
According to him, the state, however, won’t keep growing at such high rates throughout the next two decades.
At some point, two things will happen. You will have diminishing returns once capital builds up. And depreciation catches up. Once you have more capital, you need more resources to maintain that capital. Which means, growth rates will gradually settle at say 6.5% and then to 5%. China, for instance, now grows at 4% and not at 8% or 10%.
What makes the projections and the Vision document itself unique is that it’s perhaps the first such attempt across the country to arrive at growth estimates using time-tested econometric models. In fact, neither the Centre nor states have ever undertaken such an exercise, according to Tantri.
Even the Centre’s chest-thumping $5 trillion target announced before Covid wasn’t derived based on any models. As Tantri emphasises, that’s precisely what sets Telangana’s Vision document apart.
‘Our model offers realistic assumptions of growth rates’
“It’s not a simple statistical exercise with linear plotting or some nonlinear method, where one simply multiplies 7.5% by 20 years to arrive at the numbers. We’ve done proper modelling, used the World Bank long-term growth model, which is based on Robert Solow’s findings. Based on this, we get $1.2 trillion, which will eventually be a growth rate of around 6%. One of the things that is different in our document is that we have used economic models, broke it into labour, capital, human capital, total factor productivity and so on,” he explained.
Why is it so important? As Tantri explains, economic models offer realistic assumptions of potential growth rates. For instance, if you have to score 100, you need a model which tells you the number of hours one has to study every day. Marks is an outcome based on the input, which is the number of hours.
“Now, the problem is, if you don’t have a model, what will you monitor? It’s like waiting for an exam and by the time results come in, it’ll be too late,” he explained, adding that the Vision document has a model and parameters to monitor, and has well-laid-out plans where things can be done.
Meanwhile, foreign investments must go up at least 8-9 times from the current $2-3 billion to $15-$20 billion, besides boosting services and manufacturing output. Currently, they account for 65% and 18%, respectively, while agriculture comprises the rest.
As for the per capita income, Telangana is the highest among large states at $5,000 and could go up 18-19 times to $100,000 by 2047.