The bumpy road to developed India by 2047

While India’s goal of becoming a developed country by 2047 is desirable, achieving it will depend on whether we are able to sustain high growth rates and reach high per capita income levels (Photo: Mint)
While India’s goal of becoming a developed country by 2047 is desirable, achieving it will depend on whether we are able to sustain high growth rates and reach high per capita income levels (Photo: Mint)

Summary

The fast economic expansion we need will be sustainable only if its job generation eliminates poverty and reduces inequality

In his address to the nation from the ramparts of the Red Fort on 15 August, Prime Minister Narendra Modi pledged to transform India into a developed country by the centenary of India’s independence in 2047. This is obviously a desirable aspiration. Is it feasible?

The World Bank classifies countries into four groups, based on gross national income (GNI) per capita, for 2021, in US dollars at current prices and market exchange rates: low-income, less than $1,050; lower-middle-income, $1,050-$4,100; upper-middle-income, $4,100-$12,700; and high-income, more than $12,700. In 2021, India’s GNI per capita was $2,170, placing it in the lower-middle-income group. In comparison, GNI per capita in other large developing countries was much higher, at $11,890 in China, $9,380 in Mexico, $7,720 in Brazil, and $4,300 in Indonesia, all in the upper-middle-income group. By contrast, in the high-income group, GNI per capita in the US was $70,340 and even higher in a few small countries. The average GNI per capita was $47,900 in high-income countries and $12,070 in the world. Clearly, India has miles to go.

India could attain developed-country-status in 2047 if, by then, it is in the high-income-group. For this, its GNI per capita would have to grow from $2,170 to $12,700 at constant 2021 prices, which would require per capita income growth at 7% per annum, in real terms, for the next 25 years. India’s population will also grow for much of this period, as its size is projected to stabilize only in 2045. Thus, given population growth, national income growth over the period, in real terms, would have to be about 8% per annum. Adjusting for inflation is necessary but not sufficient because the rupee could depreciate vis-à-vis the US dollar. If the rupee depreciates by 25%, or 50%, during 2022-2047, the required growth in per capita income (and national income) per annum would be pushed up by one, or two, percentage points respectively.

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Yet, this does highlight the power of compound growth rates. If per capita income and national income grow at 7% per annum, both will double every 10 years. However, growth is not simply about arithmetic. Indeed, it is about more than economics.

The economic determinants of potential growth suggest that India may be able to sustain high rates of economic growth for the next 25 years, for four reasons. Our large population size is expected to increase further, which makes labour a source of growth, but only if it is absorbed in employment, and income levels are low, which means that the possibilities of growth are greater. The demographic characteristics, particularly the high proportion of young people in the population, which would mean an increase in the workforce and savings rates for some time to come, are conducive to growth, provided we can harness the demographic dividend through education that creates capabilities among people. Wages are significantly lower than in the world outside, which will be an important source of competitive advantage in times to come. Our social infrastructure for healthcare and education, as well as the physical infrastructure, remains underdeveloped despite modest progress, so further improvements are bound to reinforce the momentum of growth.

The opportunities are, however, juxtaposed with formidable challenges. The most important among these is India’s combination of persistent poverty, rising inequality and jobless growth. Of course, if growth sustains, absolute poverty in India might be minimal by 2035. But the problem of rising inequality and inadequate employment opportunities, unless addressed, will mount. The challenge is not simply economic. It is also social and political. And, ultimately, economic growth can be sustained if it eradicates poverty and reduces inequality. Such inclusive growth that creates employment is the only way forward in aspiring for developed-nation-status. It will mobilize our most abundant resource, people, to drive growth from the supply side, and reinforce growth through incomes created on the demand side.

In this quest, another challenge is averting the middle-income trap. As India makes the transition from lower-middle to upper-middle income status, it risks getting stuck there, unable to move from upper-middle-income to high-income status. Many countries are caught in this trap. The first stage in the process is driven by abundant cheap labour and high investment rates. Growth slows down as these factors wane in their impact. And industrialization stops at labour-intensive goods as wages rise. The second stage in the transition requires higher productivity levels and a capacity to innovate. This, in turn, requires nurturing technological capabilities, fostering vertical diversification in production processes, encouraging technological upgradation, inducing technological-learning, and creating R&D capacities.

My book Resurgent Asia (Oxford University Press, 2019) suggests that India’s share in world GDP will be about 16% in 2040, returning to its level in 1820, when it was 16%. Macro economic forecasts of GDP at market exchange rates suggest that, by 2050, China, the US and India will be the three largest economies in the world. These projections, based on specified assumptions and statistical extrapolations, are also attributable to India’s population size. However, reaching developed- nation-status by 2047 will depend on high growth rates that will be sustainable only if economic growth creates employment which eradicates poverty and reduces inequality. And, even if India becomes a high-income-country in 2047, its per capita income will still be one-sixth to one-fourth that of the US and Europe.

Deepak Nayyar is emeritus professor of economics, Jawaharlal Nehru University.

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