Editorial 1 : To $5 trillion, and beyond
Context
The Indian economy is on the threshold of crossing another milestone and becoming the fourth-largest in the world.
The journey so far
- It is a commendable achievement for a country that began its journey as an independent nation in 1947 with a meagre $33-billion economy.
- Decades of British exploitation left it significantly weakened and poor.
- The Jawaharlal Nehru government’s Soviet-style central planning, while promoting heavy industries and the public sector, led to low economic growth of 3-4 per cent, pejoratively described as the “Hindu rate of growth”.
- The first major leap came in 1991 when the Narasimha Rao government introduced economic liberalisation and unleashed the potential of Indian entrepreneurs.
- The Indian economy grew manifold in the next two decades on the strength of its services economy, which contributed 60 per cent of the nation’s GDP.
- The results are there to see. IMF data from May has projected that the Indian economy will overtake Japan this year, reaching the $4.19 trillion mark.
Per capita income
- As India demonstrated promising growth, naysayers rushed forward to raise the hollow bogey of per capita income.
- Per capita income is determined by factors like the size of the population. India is the world’s most populous country. As a result, whatever may be the size of GDP, its per capita figures are bound to remain low.
- No country’s growth can be measured on the criterion of per capita income alone. Although the US is the world’s largest economy with a $28 trillion GDP, it ranks seventh in per capita. China, the second-largest economy with $18 trillion, ranks 69.
- The per capita argument is worthless because even if India becomes the world’s largest economy with $30 trillion, it will still be ranked 55th in terms of per capita.
- The only merit of this argument is that the country should be able to provide better living standards to all its citizens.
Growth percolates
- In democracies, the fruits of economic growth percolate to all sections of society. This is reflected in the consumption patterns.
- Surveys indicate that the monthly per capita expenditure (MPCE) has increased in India by more than 2.5 times in the last 10 years. Interestingly, most of this expenditure was on travel, health and education, indicating healthy growth parameters.
- Tourism has seen remarkable growth in the last 10 years. China still occupies the first rank in the number of domestic and international travellers.
- India lagged in this sector for decades due to a lack of disposable income and tourism infrastructure.
- But today, with the incomes of the middle class growing substantially, Indians have started travelling more.
- All this indicates healthy economic growth, which has led to the near eradication of baseline poverty and the creation of a strong middle class with disposable income.
The path ahead
- But the path from here needs to be calibrated carefully. Economies grow on the strength not just of consumption but also trade and technology.
- Quality, quantity and speed are the main determining factors. India and China were leading economies until the middle of the 18th century.
- We are now in the post-manufacturing and post-digital era. Growth in frontier technologies will determine a country’s economic future.
- We missed the first two industrial revolutions as we were a slave nation at that time. We benefitted partially from the third, digital revolution of the 1980s and ’90s and became a leader in sectors like IT services.
- But the Fourth Industrial Revolution, led by Artificial Intelligence (AI), quantum technologies, robotics, space, defence, crypto and bio-engineering calls for new thinking and new priorities.
Conclusion
The trajectory from here should be more strategic, with greater emphasis on deep-tech R&D, an area in which we lag. It is important to create a climate of hassle-free access to investments in these areas. Only then can India aspire to achieve its goal of becoming a $10 trillion economy in the next 10 years.