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Catching Up Won’t Be Easy

In 2015, the US had a per capita income of $56,000. India’s is now at $1,600. It’s a huge gap

Photo Credit : Tarun Gupta

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In 2016, the us was at the top with a GDP of $18.5 trillion and India ranked 7th with $2.2 trillion. Assuming the US economy does not expand at all for the next 30 years, Indian economy would have to grow by a factor of 8.5. But if the former grows at even 2 per cent per annum during this period, it would turn into a $33.5-trillion economy. And the Indian economy would have to expand by 15 times or grow at 9.5 per cent per annum to reach that size.

However, it is not enough to be number one or two in absolute size. The crucial thing is to become one of the top economies in per capita terms. India ranks 150 out of 195 countries in per capita income.

According to the World Bank, high-income countries are defined as those with per capita income above $12,500. India, currently at $1,600 per capita, has to expand by 7.8 times just to reach the bottom of the group of the high-income countries.

In 2015, the US economy had a per capita income of $56,000. There are other smaller countries with much higher levels of income such as Monaco at $1,86,000 or Norway at $93,500. Let us leave these smaller economies out and compare India only with the US.

To reach the US per capita income, the Indian economy would have to grow by 35 times. Or become a $75-trillion economy. Roughly, the size of the world economy today. To achieve this by 2047, the Indian economy would have to expand by 12.6 per cent per annum in real terms. This is based on the assumption that the Indian population remains static and the US economy grow no more.

But if the US economy continues to expand at an average of 2 per cent per annum, the Indian economy’s rate of growth would have to be higher at 14.8 per cent per annum. At this rate, the Indian economy would have to expand by a whopping 63 times in the next 30 years, that is, reach $139 trillion or 185 per cent of the present world economy. The Indian economy’s per capita income would then be about $1,00,000 assuming the population does not grow. India would then become one of the top economies.

Depending on the yardstick we choose for India becoming a top economy, the economy would have to expand by 15 times or 63 times. Given the present consumption and investment levels, the resource requirement would be beyond the capacity of Earth even for the lower number. The world would have to think differently about growth and not make that an end in itself.

Can Indian GDP expand in isolation while all other economies in the world stagnate? Not likely. But if  the Indian economy has to catch up with the current US levels of per capita income, it would require massive investment, improvements in technology, and much higher efficiency in the use of capital. It would require curtailing black economy, which is at the root of a lot of inefficiency. Productivity of labour would have to increase via massive investment in education and health. Huge investments would be needed in physical infrastructure, especially in rural areas, in clean technologies and in small and medium scale sectors.

Agriculture can at best grow at around 4 per cent, so the non-agriculture sector would have to grow even faster. The large section of the workforce would have to shift to the non-agricultural sector in rural areas. The cities would break down if large parts of the population keep moving to urban centres; it would lead to jobless growth and create huge social upsurge. So, it is not just a question of growth, but the kind of growth that is equitable, balanced and decentralised for it to be sustainable and for India to survive the strain of rapid growth.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


Arun Kumar

The author is an economist and former professor at JNU

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