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Business News/ Opinion / Columns/  Let’s reflect on what’ll make India a developed country

Let’s reflect on what’ll make India a developed country

India’s ambition to be a developed country can be a catalyst for national rejuvenation.

Usually, countries are considered developed based on the size of their GDP, and therefore the per capita income .Premium
Usually, countries are considered developed based on the size of their GDP, and therefore the per capita income .

During his recent United Nations General Assembly speech, external affairs minister S. Jaishankar told the world about India’s ambition to become a developed country by 2047, a century after the country’s independence. While this represents a worthy cause, what amounts to being a “developed country" is still nebulous.

There is no clear or exact definition of a developed country. The World Trade Organization (WTO) has no technical classification for a country’s stage of economic development. It expects countries to define themselves as developed or developing. Usually, countries are considered developed based on the size of their GDP, and therefore the per capita income of their citizens, along with the presence of high-quality infrastructure.

Multilateral agencies such as the IMF, World Bank and ADB, which categorize nations based on per capita income, loosely work with the nominal threshold of $12,165. Depending on the politics of convenience, this is sometimes elevated to even $20,000.

Nevertheless, membership of the Organization for Economic Co-operation and Development’s (OECD) development assistance committee grouping, which currently comprises 30 member states, is generally considered to be the marker of being among the world’s most developed. As per OECD mandates, these nations, by virtue of being wealthy, must make their resources available for the economic development of the rest of the world. Currently, these countries are required to make available an equivalent of 0.7% of their respective GDPs for global development assistance.

If we work with the general characteristics of these economies to define a developed country, the following points come to mind: First, most of these countries are home to the world’s largest multinational corporations, taking advantage of global movement of capital. In the era of international outsourcing, gross national income becomes more relevant for companies headquartered in these countries, as their global operations allow them to earn multiple income streams, irrespective of the actual location of production.

Second, they are net exporters of high technology, high value goods and services. This helps most of them run a current account surplus and invest in research, improving their factor productivity and profits.

Third, these countries have unusually large multinational banks. Commercial bank balance sheets are often as large or sometimes even larger than their home countries’ GDP. While these banks run hundreds of billions worth of treasury and investment banking operations, they are instrumental in reducing the overall cost of capital. This in turn leads to high standards of living, as households can enjoy credit-powered consumption. Governments and firms can also raise cheap debt for capital expenditure and fashionable restructuring exercises.

This makes one wonder whether rich banks play a pivotal role in making countries rich. An example that comes to mind is that of Switzerland, which has a GDP of $0.9 trillion. Two of its largest banks, UBS and Credit Suisse, have a combined balance sheet of over $1.8 trillion. Another example is of the Netherlands, whose GDP is about $1 trillion. Here too, the balance sheet of one of its banks, ABN Amro, is almost half that size.

Fourth, they have powerful currencies and therefore powerful central banks at the helm. Perhaps the presence of large banks and multinationals is what makes this work. Not without reason, their respective currencies contribute to a bulk of international currency trading and are used as ‘valuer currencies’ in international commodity trading. This feature makes their central banks influential money magnets, controlling global capital flows through interest rate modulations.

Therefore, irrespective of their economy’s core competence, whether they host high-tech industries or commodity trading, their currencies are primary drivers of global capital markets.

Fifth, these countries have active citizen groups that help organize their economies. This means that the ‘rights to responsibility’ ratio is stacked such that citizens take pride in giving precedence to ‘responsibility’ while building their nations. Apparently, citizens of these countries have understood that ‘entitlements’ and ‘rights’ are mere offshoots of a responsible citizenry and that they are equally responsible for their countries.

Lastly, these countries have successfully eradicated absolute poverty and provide some form of minimum living standard to their citizens. Safety nets in terms of basic healthcare, minimum state-sponsored education and unemployment benefits are universally available. The state is supplemented by active citizen groups in this endeavour and the direction of public policy is typically set through democratic processes at all levels.

Given India’s growth prospects and the zeal of its citizens and policymakers alike, it has a realistic chance of meeting these goals over 25 years. But before embarking on this journey, there is a need for sincere reflection and identification of the strategies needed to take us there. While policymakers are at it, citizen groups must come together and support the endeavour wholeheartedly through inputs and policy participation.

Usually, countries are considered developed based on the size of their GDP, and therefore the per capita income and change at every socio-economic level. However, this will not be possible until we realize that it must be a collective effort.

The writer is an economics commentator and author of ‘The India Collective: What India is Really All About’.

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Published: 08 Dec 2022, 10:47 PM IST
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