Predicting the rise and fall of nations is a hazardous activity. Even the most objective criteria and careful analysis can turn into a “top of the charts” question. Good metrics of national power are not available and proxies—gross domestic product or its growth— do not capture the complexity of such comparisons.
Now, chief economic adviser Kaushik Basu and his colleagues have made an interesting attempt at creating an index that tracks these changes. In a new paper (Working Papers) they have launched a new index, the Index of Government Economic Power (IGEP), that measures the influence of countries among their peers. The IGEP is based on four components: revenue collected by the government; foreign exchange reserves; exports of goods and services; and a measure of aggregate human capital.
How did India fare during this time? From 2000 to 2009, the years the IGEP tracks, India rose from No. 8 to the fifth position, just behind Germany. China has remained consistently ahead at the No. 2 spot after the US —it trounced Japan in 2003, though its formal emergence as the second biggest economy had to wait for a couple of years.
So what has powered India’s march? Which of the four factors have been dominant? While the index is a unit-free measure, it has been constructed in a way that a break-up of these factors is not available. Conceptually, perhaps, this is not the right question to ask. This is one shortcoming, if it can be called that, of the IGEP. While it tracks all the major events of the past 11-odd years—relative eclipse of Western economies, the rise of China, the potential of BRICS etc.—there may be limitations to what it can predict. Then again, that is a different question.
The IGEP does, however, shed light in another—disquieting— direction. In these years— 2000-09—as the economic power of the government of India rose outside its shores so did its ability to intervene domestically. It was in the latter part of these years—2006-09 when it left the ruck of most advanced countries behind—that the government made its most ambitious and questionable interventions in the Indian economy. These are too well known to be reiterated here. Much of this has to do with the big gains the government has made in garnering revenue— one of the four components of the index—as the economy has grown.
It will be interesting to observe the index for 2011 and later years. These values are yet to be computed as data for these years is not available. Rising deficits and a growth slowdown have the potential to shake index values for India in the years ahead.
Can geopolitical changes be measured? Tell us at firstname.lastname@example.org