India's real GDP needs to grow at 7.6% a year over the next 25 years to achieve a per-capita income level of a developed economy — so concludes a piece of research from the Reserve Bank of India, published in its latest monthly bulletin. Corporate chieftains, too, have publicly declared their conviction that the Indian economy can grow to $25 trillion by 2047, when Independent India will turn 100.
It is easy to tally the numbers. The current size of the Indian economy is about $3.75 trillion, which means it needs to grow 6.66 times to hit $25 trillion. The annual growth rate that would compound to that number by 2047 is a shade over 8.2%. Is it realistic to expect the Indian economy to sustain that pace of growth for nearly two-and-a-half decades?
The ‘Asian miracle’, in which a number of East and Southeast Asian economies saw rapid economic growth, urbanisation and structural change for about three-and-a-half decades starting from the mid-1960s, helped them virtually eliminate extreme poverty, educate the masses, and extend life expectancy.
Now, in the third decade of the 21st century, it is not a miracle to wonder at but a model of growth to deconstruct, understand and replicate. China’s current GDP is $18 trillion at market-exchange rates, behind only the US in absolute size and already bigger than the US in purchasing-power-parity terms. In 2000 its GDP was $1.21 trillion. That means China registered a compound annual growth rate of a little over 13% in the 21st century.
No special divine power shines over China to sustain this kind of growth, so the questions are: what explains this kind of growth, and what does India need to do to achieve double-digit growth and sustain it for decades?
Whatever damage China's socialist experiments did, the period saw three major achievements – universal primary education and healthcare, and the inclusion of women as equal participants in the nation’s growth. Today, the work participation rate for Chinese women is 60%, about three times India’s figure. Some would add to the socialist achievements the restoration of dignity to manual labour and the building of rural physical infrastructure through communal labour of a kind that market-based cost-benefit calculus would not have justified.
Then, Deng Xiaoping broke the communal pot, declared that to get rich was glorious, and set up special economic zones for foreign ventures. China was admitted to the World Trade Organization in 2000 and soon emerged as a global export powerhouse.
The bulk of output came from industry and services, and land ceased to be the primary asset. A decentralised political system that incentivised local administrators to maximise output in their regions led to the growth of towns and cities as they competed for investments in manufacturing and the services that enable industry.
Thousands of towns and cities came up, driving up demand for steel, cement, power, glass, paint, construction equipment and workers. Highways and high-speed rail, as well as ultra-high voltage direct current transmission lines, connected towns and drew in ever-more investment. Well-planned logistics made for efficient, interconnected networks to produce and assembly parts. Neighbouring East and Southeast Asian economies joined in these supply chains.
Investment in research and development also grew massively. Since 2014, two years after Xi Jinping became China’s supreme leader, China has been spending more than 2% of GDP on R&D. It’s second only to the US in total R&D spending in absolute amounts. The figure for India meanwhile declined to less than 0.7% of GDP in 2022 from 0.8% of GDP in 2008. In contrast, South Korea and Israel spend more than 5% of GDP on R&D, and Japan and Germany about 3% of GDP each. China is also the second-largest publisher of serious research, including basic research.
India thus has several gaps to fill if it is to sustain fast growth for decades. Some of these are obvious. The quality of education, and the quality and quantity of healthcare have to improve massively. Female work-participation rates must also be raised. India needs to proactively identify zones for urbanisation, create arrangements for sharing prosperity with those who give up land to develop cities, roads and industrial clusters, and build new urban centres to accommodate the 200 million or so people who would move from villages to towns as urbanisation rose to 50% from the current level of some 35%.
That said, India has some strengths that China lacks. One is democracy, which will allow problems to bubble up all the time but prevent them from festering and blowing up. Another advantage is that India has some of the world’s most advanced digital public infrastructure, thanks to Aadhaar and the India Stack. The country has deep expertise in finance, dating back to Hundis, and home-grown products in the futures market. Its history gives it a cultural geography that spans the Arab lands, West and Central Asia and Southeast Asia, besides South Asia.
Modern migration has spread the diasporic influence to all corners of the world, including the land of emerging opportunity, Africa, which will see the fastest growth in population and economic activity in the coming decades. Early high achievement in higher education has created Indian-origin super-achievers in diverse fields of scientific research, albeit mostly in the rich world. They offer potential collaborations for local advancement when India is ready. And India is self-assuredly multi-aligned in this era of geopolitical flux, making it a potential ally for all sides.
It is not a lack of local professional skills that has held back global investor trust in India’s corporate governance and accounting standards. Reform of political funding and reliance on functional bond markets, rather than discretionary bank loans, for long-term debt capital could provide the foundation for improved governance and accounting. Credible governance and financial reporting, in turn, could turn the spigot for the ageing world’s accumulated savings to pour into India in search of higher returns, supplying the capital needed to build the country’s infrastructure.
India has more young people who can be trained in high-end science and engineering than any other country. People with advanced skills will be all the more critical when artificial intelligence subsumes swathes of low-end work. The challenge is to convert this potential into reality. It calls for some additional investment and, more importantly, far superior regulation and oversight.
Building a $25-trillion economy by 2047 is certainly not impossible. But it requires serious reform, not mere talk of destiny or recitation of past glory.