‘Between 2030 And 2035, India To Be The Third Largest Economy’
While The Aayog talks about 15-year agendas, Suman K. Jha engages him in a conversation on what India would look like in 2047 when it turns 100, and what are the challenges the nation must over-come if it must emerge as the second largest economy in the world
Photo Credit : Ritesh Sharma
The outgoing Niti Aayog vice-chairman Arvind Panagariya, an eminent economist, may be returning to academia, but has clearly left an imprint on the planning process in the country. While The Aayog talks about 15-year agendas, Suman K. Jha engages him in a conversation on what India would look like in 2047 when it turns 100, and what are the challenges the nation must over-come if it must emerge as the second largest economy in the world.
Q: You have spoken about it – that India has a great future and by 2030, probably the Indian economy could become a $7.25 trillion economy to a $10 trillion economy, at an average of 8 to 10 per cent per year. How do you see the evolution of the Indian economy in the next 15 years, and even by 2047?
So, let us take the 15-year period. This is our window of opportunity, China has already slowed down and we are now the only large economy, which is still at a relatively low per capita compared to countries in East Asia and Latin America. So, I think we are in a position to become what China was in the last 15 years. A very broad picture that I would paint is that we should see the acceleration in manufacturing and services and it should also need the acceleration of workforce with respect to the farmers who work on farms that are less than a hectare where you can barely make your living. So, several of those and landless labours as well, those who are migrating to paid jobs in industries and services. That would be the second aspect of the transformation.
So, first is industry and services will accelerate, and second is that the employment pattern will change, meaning we will see workers moving out of agriculture into industries and services and the third aspect of the transformation will be urbanisation.
Urbanisation will happen in two ways, one is through people migrating from rural areas to urban areas. I call it the Mumbai-Shanghai model, where large cities act as magnets for migration but also it will happen through what is currently the rural area turning urban. I call this the Shenzhen model, where originally rural areas turn into urban areas because of the industry growths. So, those are the three and of course, per capita income (PCI) will rise as the transformation happens, and as PCI rises, we will see a lot of expansion of consumer goods from two wheelers to four wheelers to air conditioning and general amenities..
Q: You say that manufacturing and services would expand and grow, what would happen to agriculture?
Agriculture will also grow but proportionately and it is already happening but in a fast-growing economy, agriculture lags behind industry and services. In a fast-growing economy, industry and services typically grow at 9 or 10 per cent and agriculture, if you are lucky will grow about 4 per cent. On a sustained basis, we don’t see agriculture growing at 4 per cent, there might be some exceptional situation where it might happen like our own experience in the 1980s when agriculture was growing at the fastest pace. So, proportionately, the share of agriculture will decline.
Q: Also, of late, there has been a lot of focus on manufacturing, but manufacturing has not taken off in a way it should have, but do you think there will be a course correction in that?
I think that if my story of transformation has to plan out, then, manufacturing has to be a part of it, particularly, of labour intensive manufacturing. Without that, how do you create jobs?
Right now, we have a lot of under-employment, which means people are not being really used to their full potential, their output could be twice or thrice of what it is currently. So, we need manufacturing, particularly the labour intensive manufacturing to grow much more actively.
Q: And you see that happening?
Well, we have to make it happen because now we have a very good window of opportunity because China is already leaving that space, especially if you look at Chinese exports, the shares of products like apparel and textiles have been declining now and somebody will have to come in and fill that space. Some place probably is getting filled right now, particularly in apparel by countries like Bangladesh, Vietnam and Cambodia. But I think that they are too small and China takes much more space, which we should be filling.
Q: You said that manufacturing will give a fillip to jobs. So, do you think that the job has been a problem area so far, and do you see the job prospects growing in the days and years to come?
Again jobs per se have not been such a serious problem. Without jobs actually growing, we couldn’t have grown at 7.5 per cent in the last three years and productivity alone cannot get you that kind of growth. So, jobs have grown. The more substantive problem is of having good jobs, jobs with high productivity and jobs that pay relatively decent wages. Those have been in shorter supply in India and this is the whole issue of the formalisation of the economy; formal sector jobs, which generally will exhibit greater productivity.
We have to bring in global players here also who would then provide better-paid jobs, which would also change the ecosystem of the country such that more dynamic forums become the norm. Right now, I think very tiny enterprises employ disproportionately large part of the workforce but they are working with very low productivity.
Q: There are some studies that, by 2050, India could be one of the top 2 economies. Do you buy this argument?
I connect this issue to the past history. If you come up to about 1820, India and China would probably be half of the global economy. So, in the past, we have been there. I think this is going to happen again. In the global context, China and India will become significantly larger and go towards the older shares, but maybe we will not go as far because, at that time, Europe and the US were really tiny and did not exist in the 16th or 17th century, as we know it today. You got two large portions, Europe and the US; they manage to grow at the rate at which the global economy is growing, then their share will not change. So, we might not get as far as we were but we will substantially get towards those shares.
Q: Do you think US, India and China would be the top 3 economies of the world?
Well, I think Europe will also remain large, but it’s not a country. So, if you think only of countries, then, yes. It’s US, India and China or China, India and US. If I count Europe as a collection of countries and not as an individual country, then US, India and China will be the top 3 economies and this will happen soon. Between 2030 and 2035, India will become the third largest economy.
Q: And the trend will continue for a few years?
I am inclined to think that.
Q: Today, we are talking about a new India, vision for the next five years but probably we have not factored in that the advantages of demographic dividend that we have now may not be there with us 15-20 years down the line. By that time, African countries might be having that demographic dividend and we might not be having that. So, are we prepared for that stage?
See, demographic dividend is only one part of our story. That’s not the only part. Look at China today. China’s demographic dividend is over but it is about $11 trillion economy. So, even if its growth rate is dot to 6 per cent, this 6 per cent on $11 trillion is a lot of growth, which will give you $660 billion or so. So, by the time our demographic dividend is behind us, we are already an $8/9/10-trillion economy. Even if we come down to 5 or 6 per cent then, we will have a very large base. So, we will continue to edge in absolute terms.
Q: What are the areas we need to work on if we are to become the top 2 or top 3 economies in the next few years?
We have to continue becoming a friendlier place to do business and that, of course, means, that any obstacle that exists, we need to keep removing those, we need to do things that bring global firms on our shores, particularly in labour intensive sectors and, for that, we need to improve the infrastructure and more importantly we need to improve the trade facilitation because large global firms sell everywhere in the market. So, the goods have to go in and out fast, that also means our ports have to be more efficient. We can’t live with ports opening for just 8-9 hours a day. They remain open for 24 hours a day in places like Hong Kong and Singapore. Too many clearances are required today for our exports to get out of the door. We need to check what clearances are actually necessary and what is continuing because they have been put in place by the choice of policy.
Q: Do you also, see the need for overhauling the labour laws?
Well, that has to a part of reform also. We need employment friendly labour laws. There has to be a balance between rights and incomes of those who already have the jobs. The balance is a bit unfavourable to the prospects of new jobs, for those who don’t have jobs.
Q: Also, if India is to become top 2 or top 3 economy, what and how important a role will governance play?
Governance is very important. Everything that you talked about just now is governance. Labour laws and the trade facilitation are a part of governance. Movement of goods using roads, ports and airports, is all governance.
Q: And you had the experience with the Modi government; you have interacted with the Prime Minister in other capacities as well. So, how important and what role do you think Modi has played in taking India’s journey to pinnacle heights?
Very important because as you know, when the government came, the economy was in a very tough spot, the growth rate had fallen to 6 per cent or so, inflation was very high even in the first four months of 2014, which were the last four months of the UPA government. Even the current account deficit was large. Many reforms have been done: GST, Insolvency and Bankruptcy and clearance of NPAs is under progress, closure of sick units, privatisation of Air India is on the blocks.
On the education front, we are moving ahead with reform of medical education, we are also moving ahead with the reforms in higher education. So, on multiple fronts, we are doing well.
Q: You mentioned, on the privatisation front, Modi government is doing well. So, as we move forward, how important a role will privatisation play?
Well, our view, from Niti Aayog, has been that we should privatise enterprises that are basically not serving any public purpose. So, it depends on enterprises that play a public role or don’t play a public role. Then, I think it will be determined by this principle.