Matching numbers is easy. The current size of the Indian economy is around $3.75 trillion, which means it needs to grow 6.66 times to reach $25 trillion. The annual growth rate that would equal that number by 2047 is a little over 8.2%. Is it realistic to expect that the Indian economy will maintain that pace of growth for nearly two and a half decades?
The ‘Asian Miracle’, in which many East and Southeast Asian economies saw nearly three and a half decades of rapid economic growth, urbanization, and structural change beginning in the mid-1960s, helped them eliminate extreme poverty, educate the masses, and increase life expectancy.
Now, in the third decade of the 21st century, it is not a miracle to marvel at, but a model of development to be deconstructed, understood and replicated. China’s current GDP at market-exchange rates is $18 trillion, second only to the US in absolute size and already larger than the US in purchasing-power-parity terms. Its GDP in 2000 was $1.21 trillion. This means that China has registered a compound annual growth rate of just over 13% in the 21st century.
Nothing shines on 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 the damage caused by China’s socialist experiments, the period saw three major achievements – Universal Primary education and health care, and to include women as equal partners in the development of the nation. Today, the work participation rate for Chinese women is 60%, almost three times the figure for India. Some would include the restoration of the dignity of manual labor and the creation of rural physical infrastructure through community labor as socialist achievements, which market-based cost-benefit calculations do not justify.
Then, Deng Xiaoping scrapped the communal potty, declared that it was glorious to be rich, and set up special economic zones for foreign enterprises. China was admitted to the World Trade Organization in 2000 and soon emerged as a global exporting power.
The bulk of output came from industry and services, and land ceased to be a primary asset. A decentralized political system that encouraged local administrators to maximize production within their regions led to the growth of towns and cities as they competed for investment in manufacturing and the services that enabled industry.
Thousands of towns and cities sprang up, increasing the demand for steel, cement, electricity, glass, paint, construction equipment and workers. Ultra-high voltage direct current transmission lines, along with highways and high-speed rail, connected cities and attracted more and more investment. Well-planned logistics have built in an efficient, interconnected network for parts production and assembly. Neighboring East and Southeast Asian economies joined these supply chains.
Investment in research and development also increased 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 is second only to the US in terms of total R&D expenditure. Meanwhile, India’s figure is projected to drop from 0.8% of GDP in 2008 to less than 0.7% of GDP in 2022. In contrast, South Korea and Israel spend more than 5% of GDP on R&D, and Japan and Germany each spend about 3% of GDP. China is also the second largest publisher of serious research, including basic research.
Thus, if India is to maintain rapid growth for decades, it has to fill several gaps. Some of these are obvious. The quality of education and the quality and quantity of health care have to be improved in a big way. Female work-participation rates should also be increased. India needs to actively identify areas for urbanisation, create arrangements for sharing prosperity with those who leave the land to develop cities, roads and industrial clusters, and create new urban centers to accommodate the 200 million or more people who will move from villages to towns by 50%, from the current level of urbanization of 35%.
He said, India has certain strengths which China lacks. One is democracy, which will allow problems to crop up all the time but will prevent them from growing and growing. Another advantage is that India has one of the most advanced digital public infrastructure in the world, thanks to Aadhaar and India Stack. The country has deep expertise in finance, hundis and domestic products in the futures market. Its history gives it a cultural geography that extends beyond South Asia to the Arab lands, West and Central Asia, and Southeast Asia.
Modern migration has spread the migratory effect to all corners of the globe, including the land of emerging opportunities, Africa, which will see the fastest growth in population and economic activity in the coming decades. Early high achievement in higher education has made people of Indian origin super-achievers in various fields of scientific research, though mostly in the affluent world. When India is ready, they offer possible collaborations for local advancement. And India is a confident multi-alliance in this era of geopolitical change, making it a potential ally for all sides.
It is not a lack of local professional skills that has withheld global investors’ confidence in India’s corporate governance and accounting standards. Reforms in political funding and reliance on functional bond markets rather than discretionary bank loans for long-term debt capital could provide the basis for better governance and accounting. Credible governance and financial reporting could, in turn, allow the accumulated savings of a growing world to flow into India in search of higher returns, thereby supplying the capital needed to build the country’s infrastructure.
India has more youth than any other country who can be trained in high-level science and engineering. People with advanced skills will become more important as low-level tasks are incorporated into artificial intelligence. The challenge is to convert this potential into reality. It requires some additional investment and, more importantly, far better regulation and oversight.
Creating a $25 trillion economy by 2047 is certainly not impossible. But this requires serious reform, not just talking about destiny or reciting past glories.