The Indian economy: A trillion dollar baby twice over

The Indian economy: A trillion dollar baby twice over

India will almost have a $2 trillion economy by the end of March 2012, falling a mere $6 million short of the mark, according to a new report by the Prime Minister’s Economic Advisory Council (PMEAC) released on Monday.

Data released by the PMEAC shows that India doubled both the size of its economy and its per capita income in five short years. The average income of an India is estimated to be $1664 a year. Though economies do not move in a straight line, a simple extrapolation suggests that we could have a $4 trillion economy and an average annual income of $3328 by FY17 in case the next five years are similar to the past five years, admittedly a brave assumption. As a point of comparison, it is sobering to note that China had that level of per capita income around two years ago, which already puts us ten years behind it.


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The real question then is whether India will indeed move along the same trajectory as it has done in the past five years. Or will its path out of poverty be even steeper? Or will growth flatten out?

What actually happens in the next five years has tremendous implications for everybody ranging from the richest to the poorest. The former may continue to prosper, but higher economic growth will give the latter avenues to move out of poverty as well as provide the government tax revenues to help those in danger of being left behind. This is why the thrust of policy should be to encourage fast economic growth, to ensure that India keeps on the current flight path and does not crash land as many Latin American countries did in the 1970s.

The signs do not seem good right now, with slowing growth and higher inflation clouding the prospects of the Indian economy in the next few quarters. Some of the current pain could be cyclical. The bigger danger is that the slowdown in growth and rise in prices could become structural, in which case the problem cannot be tackled by the Reserve Bank of India but needs urgent attention from a distracted government, especially getting economic reforms off the ground once again.

Manmohan Singh could go down in history as the man who helped energize the Indian economy after 1991 and the man who was at the helm when it lost speed after 2011.