2024-07-09 15:58:11
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“I firmly believe that in 2047, when the country celebrates 100 years of independence, my country will be a developed India.”
Indian Prime Minister Narendra Modi addresses the nation Independence Day 2023Is his wish feasible? Yes. Is it feasible? No. But India could still become a superpower by then, with an economy that is, in some ways, as big as that of the United States. So how can India get there? What challenges will it face? And what does it mean for the world?
Last week, I discussed the topic of India’s economic future at a lecture. National Council for Applied Economic Research and Consumers’ Unity Trust Association In New Delhi, I illustrated the challenges of becoming a high-income country by comparing India to the poorest countries that the International Monetary Fund classifies as “developed”.,GreeceIn 2023, India’s GDP per capita (measured in purchasing power parity) will be just under a quarter of Greece’s. If Greece’s GDP per capita grows by just 0.6% (which is the trend from 1990 to 2029, according to IMF projections) and India’s GDP per capita grows by 4.8% (which is the trend from 1990 to 2029), then by 2047 India’s GDP per capita will be just 60% of Greece’s. For India’s GDP per capita to reach Greece’s level in 2047, GDP per capita growth will need to rise to 7.5% per year. That rate of growth would be no less than China’s from 1990 to 2012, when it grew at an astonishing 9% per year. (See chart.)
The overall scale of the situation is quite different. UN forecasts show By 2050, India’s population will be 1.67 billion, compared to China’s 1.32 billion and the U.S.’s 380 million. With more than four times the U.S. population, it won’t be hard for India to catch up to the U.S. economy. In fact, if India’s GDP grows just 5% per year through 2047 (well below its 1990-2029 trend annual growth rate of 6.3%), while U.S. GDP grows 2.3% (on a like-for-like basis, 1990-2029 trend growth), then India’s economy (in terms of purchasing power parity) will be comparable to that of the U.S.
The US will still have more advanced technology and far higher productivity. India is also unlikely to match China’s manufacturing prowess: its industrial sector as a share of GDP is not only far lower than China’s, but is already declining. Yet size matters: with its large population and large economy, India will be a superpower, not quite the equal of China or the US, but undoubtedly a large one.
What might prevent this from happening? One reason could be the slowdown in global economic growth noted in the IMF’s April 2024 report. World Economic OutlookThe impact and magnitude of this structural slowdown (including China’s economic slowdown and demographic factors) could be exacerbated by a sharp increase in protectionism triggered by a possible reelection of Donald Trump. In the longer term, the climate crisis could affect economic growth and broader human well-being, as I argued last week. A war between superpowers is not unthinkable. In contrast, some hope that artificial intelligence can reignite economic growth. But this is doubtful.
The key point is that India needs its economy to grow at least twice as fast as global output. This means that if the trade ratio is not to fall, its exports must also be at least twice as fast as global output: otherwise the economy will become more closed.
In a recent paper, Shoumitro Chatterjee and Arvind Subramanian Arguing against any new round of trade aversion, they point out that there is a common perception that “India is a big country with a large market”. But given widespread poverty, the true market size for tradable goods and services is around 15% to 45% of GDP.
Third, it is argued that “exports are not important for India’s growth”. But in fact, exports are crucial, not least because they pay for necessary imports, increase competition, and provide access to global knowledge. Finally, it is argued that “global opportunities are disappearing”. But India’s share of world merchandise exports (excluding intra-EU trade) is Only 2.2% in 2022China’s share is 17.6%. Even its commercial service exports only account for 4.4% of the global total, far lower than the United States’ 12.8% and China’s 6%.
Moreover, and crucially, India has advantages. In a world of “China plus one,” India is clearly the “plus one.” India has good relations with the West and is strategically important to the West. But India is also important enough for other countries to take notice. India can become what the International Monetary Fund calls a “connector” for the world economy. Indeed, India can and should play a leading role in liberalizing trade both domestically and globally. India also has the advantage of a diaspora whose influence is enormous, especially in the United States. Just as important, India’s human resources enable it to diversify and upgrade its economy over time. India must take advantage of this. In short, size gives India influence. India is not just limited by the world, but can and must shape it.
But what matters most is how India governs itself. Its biggest challenges are internal: maintaining stability, improving education, upholding the rule of law, upgrading infrastructure, providing a first-rate investment climate, encouraging foreign investment, and accelerating the transition to clean energy.
The recent elections have made me more optimistic. India should continue to have a stable government. But Modi’s BJP was defeated. I hope this convinces the government to focus on the economy and the welfare of its people, rather than India’s own culture wars. India can become an influential and vitally important stabilizing force in the world. We all want it to be.
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