The Institute for Competitiveness (IFC) has just (August 30) launched a report titled ‘Competitiveness Roadmap for India@100’. It was launched in collaboration with EAC-PM (Economic Advisory Council to the Prime Minister). It is not an EAC-PM report. The report is IFC’s, using Michael Porter’s framework for analysing competitiveness. I will not get into the report. It is there on both IFC and EAC-PM websites. India is in the midst of celebrating its 75th year of Independence and Amrit Kaal, which means setting a template for the next 25 years, leading up to the 100th year of Independence. Twenty five years ago, it was 1997. If we cast our minds back, in 1997, it would have been impossible for anyone to fully anticipate or predict changes and transformations that India has been through in the last twenty five years. It is no different in 2022. At best, there are some trends. Right now, there is a considerable amount of volatility and uncertainty in the global economy, especially in the USA, Europe and China. It is impossible for India to be isolated from this. Many years ago, in 1624, John Donne wrote, “No man is an island entire of itself; every man is a piece of the continent, a part of the main; if a clod be washed away by the sea, Europe is the less.” No economy, not even North Korea, is an island either. However, if the eye is cast towards a future that is twenty five years down the line, it is important not to get bogged down in the immediate and the transient.
ALSO WATCH:
In 2003, Goldman Sachs produced a report titled ‘Dreaming with BRICs: The Path to 2050’, authored by Dominic Wilson and Roopa Purushothaman. That helped popularise the BRICS (Brazil, Russia, India, China, South Africa) acronym, a group of five very disparate economies. Around 2047 (the report had a figure for 2045), it projected an Indian per capita income of just over 12,000 US dollars and an aggregate size of the Indian economy of just over 18 trillion US dollars. Expressions like “developed” economies have gone out of fashion now, though the “developing” country status still exists under WTO. Instead, the World Bank uses classifications like low income, lower middle income, upper middle income and high income. The threshold for moving from upper middle income to high income is 12,695 US dollars. Whenever one makes projections like this, there are real growth, inflation and exchange rate changes. Since inflation is a nuisance to project, projections are typically done in today’s dollars. Hence, the figure I have cited needs to be matched against a current Indian per capita income of around 2,000 US dollars. That jump, from 2,000 to something like 12,000, leads to transformations and socio-economic churn impossible to fathom today.
Compared to expectations today, Goldman Sachs assumed a rather modest real rate of growth for India, till 2050.The range was 5% to 6%, with an average of something like 5.5%. Expectations and aspirations change. If India grows at 5.5% now, gloom and doom will descend. The remaining contribution resulted from appreciation in the real exchange rate vis-a-vis the dollar (whenever a country does relatively well, its currency appreciates), productivity changes and the sheer nature of the exponential function. Often, we fail to appreciate the power of the exponential function, typified in the apocryphal story about the invention of chess by a minister. Pleased at this new game, the king requested the minister to ask for a boon. The minister asked for one grain of wheat for the first square, double for the second square, double that for the third square and so on, until all 64 squares were covered. No kingdom would have been able to provide those many grains of wheat. There is consensus that India’s real growth will be between 7% and 7.5% in 2023–24. Sure, the global economic environment is relatively more malign and uncertain, compared to earlier decades, when many countries used exports as an engine to drive growth. Of course, over time, international trade has become more complicated and trade is intricately linked to cross-border investments. Had the global environment been more benign, an aspirational real growth would probably have been 8.5% or 9%, not 7%.
The question can never be posed in a different way. Is there sufficient steam in the other three drivers of growth (consumption, investment and government expenditure) to ensure between 7% and 7.5%? That requires efficient labour, land and capital markets, largely a state government function. It requires states to increase their GSDP (gross state domestic product) growth rates, since all-India growth is almost entirely a function of how states grow. It requires higher labour force participation and better outcomes in health and education. It requires more efficient public expenditure and the right level of government at which that expenditure occurs. It requires transformations—rural to urban, self-employment to wage-based, informal to formal, and away from agriculture, at least away from food-grain-based farming. Having said this, any projection done must recognise that 7.5% growth will not sustain, irrespective of what happens globally. As one moves higher up the development ladder, even if that growth is driven by endogenous factors, growth slows. With those qualifications, depending on assumptions, any calculator will exhibit the power of the exponential function. Before Covid, the Economic Survey had some projections for the $5 trillion GDP target. The pandemic means two years have been knocked off the development trajectory. Nevertheless, a calculator will show that by 2047, we should reach a per capita income of around 10,000 US dollars (not 12,000) and an aggregate GDP of almost $20 trillion. GDP is not an end in itself. It is correlated with higher levels of human development, lower poverty, higher employment and so on.
(bibek.debroy@gov.in)
Bibek Debroy
Chairman, Economic Advisory Council to the PM