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Minhaz Merchant

Minhaz Merchant is the biographer of Rajiv Gandhi and Aditya Birla and author of The New Clash of Civilizations (Rupa, 2014). He is founder of Sterling Newspapers Pvt. Ltd. which was acquired by the Indian Express group

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The Next 30 Years

Under Prime Minister Narendra Modi, the fifth phase of India’s economic growth is still incipient

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In the lives of nations, as in the lives of men, come points of inflection.

At 70, India is on the cusp of one such transformation. The first seventy years of Independence have been tumultuous. The British left India with a literacy rate of 12 per cent. Today it is 75 per cent. In 1947, India had few industries, rudimentary infrastructure and snail-like GDP growth. Today India is the world’s fastest growing major economy.

To realise how slow India’s economic growth was before Independence, consider economist-historian Angus Maddison’s data based on a hypothetical Geary-Khamis (GK) dollar. The GK dollar has the equivalent purchasing power the US dollar had in the US in 1990. It is a useful device to compare GDP growth rates across historically long time spans and different geographies.

In 1884, colonial India’s effective per capita income was GK $551. By 1947, it had crawled to GK $618 — an overall growth of 12 per cent in 63 years at a miserly rate of 0.2 per cent a year. That is what British “rule” wrought on India.

Since 1947, India’s economy has undergone four distinct phases of growth. The first was during Jawaharlal Nehru’s prime ministership from 1947 to 1964 when public sector institutions — the temples of industry as Nehru called them — took on the burden of building post-colonial India. It was during Nehru’s premiership that large public sector units (PSUs) as well as the IITs and IIMs, and AIIMS, BARC and ISRO’s predecessor INCOSPAR were set up. Nehru laid the foundation of modern India. His foreign policy decisions on China and Pakistan were questionable but Nehru’s contribution in building institutions of governance was exemplary.

The second phase of growth was under Indira Gandhi’s socialist leadership from 1966-1977 and then again briefly from 1980-1984. Annual GDP growth in East Asia’s “tiger economies” during this crucial period spurted to seven per cent while India’s economy dawdled at three per cent. India suffered nearly a generation of low growth between the mid-1960s and mid-1980s till the third phase kicked in — ironically by Indira’s son Rajiv.

Prime Minister at 40 (by comparision son Rahul is already 47), Rajiv Gandhi ushered in the computer and telecom revolution but didn’t live long enough to see the fourth phase of economic reforms – the most dramatic and far-reaching so far. Prime Minister Narasimha Rao and Finance Minister Manmohan Singh did between 1991 and 1996 what much of East Asia had done 25 years ago. China too had liberalised its economy under Deng Xiaoping in 1979. India was the laggard and is still paying the price for being a late starter. For example, while foodgrain production in India in 2016-17 has hit a record 276 million tonnes, a sharp rise of 8.8 per cent over the previous year, it is still less than half of China’s foodgrain production of over 620 million tonnes. Under Prime Minister Narendra Modi, the fifth phase of economic growth is still incipient.

Nehru was a conscientious parliamentarian, encouraged robust debate in the Lok Sabha (even with his estranged son-in-law Feroze Gandhi) and was widely respected in India and abroad. His daughter Indira was the opposite. During the 1975-77 Emergency, she subverted the judiciary, the Press and the Constitution.

As India turns 70, building trust in our institutions of governance is critical. Prime Minister Modi has spent much of his first three years in office on incremental reforms in the bureaucracy, state-Centre relations and delivering on the Goods and Services Tax (GST). But he has been tardy in setting up a Lokpal and bringing lateral talent into the Union Cabinet. Nearly a dozen of Modi’s schemes, ranging from the ‘Make in India’ initiative to the Mudra Bank for rural finance, have gained traction. With job creation slowing, Modi’s focus has shifted to financing small self-employed entrepreneurs, creating job-givers rather than just job-seekers.

Recognising that at 70 India is at an inflection point in its history, Modi has set 2022 as a target for bringing to fruition several of the schemes launched over the past three years. The ‘New India’ project has become the prime minister’s key initiative, coalescing all the incremental reforms begun in 2014 into a big bang outcome in 2022 — the 75th anniversary of India’s independence.

There’s a clever political strategy at play here too. To get to 2022, Modi has to get past 2019. Given the state of the Opposition, that seems a fair bet. But it can’t hurt psychologically if you aim at 2022 assuming 2019 is a given. It demoralises the Opposition and energises the BJP voter base.

Onwards to 100
In the following pages, some of India’s most distinguished experts examine various facets of India on the 70th anniversary of its Independence and what we might expect not just by 2022 but by 2047 — the year Independent India turns 100.

Let’s do the math. The computations that follow are taken from International Monetary Fund (IMF), World Bank and Citibank projections. They have been extrapolated by taking into account a basket of variables. We will use purchasing power parity (PPP) norms, now routinely employed by the World Bank and the IMF. The PPP computations adjust for labour and other costs that vary between countries. A basket of goods and services in the United States, for example, costs approximately 2.7 times the same basket in India. Purchasing Power Parity is especially useful for per capita income comparisions but also captures GDP numbers more accurately than nominal GDP measurements at current exchange rates.  

According to the World Bank’s latest data, India’s GDP (PPP) in 2016 was $8.7 trillion. The IMF projects Indian GDP will grow at an average of 7.7 per cent a year between 2017 and 2025. This would lift Indian GDP to $13.5 trillion in 2025. We need to look further than that — to 2047.

As India’s economic base grows, GDP growth will inevitably slow as it has in China. However, India’s youthful demographics will spur a major consumption boom, boosting GDP over the next 30 years at an accelerated rate. This assumes two caveats: first, an emphasis on skill development for India’s burgeoning youth so that they can get productive jobs; and second, far greater investment in education and healthcare without which India’s demographic advantage will be frittered away.
Taking these factors into consideration, an average GDP growth rate of 6.5 per cent from 2025-2047 appears feasible. If Indian GDP has reached $13.5 trillion by 2025 as per the IMF’s projections, Indian GDP over the next 22 years, growing at an average annual rate of 6.5 per cent, will rise to roughly $52 trillion in 2047. China’s GDP (PPP) is currently $21.4 trillion. At the IMF’s projected growth rate of 4.4 per cent, China’s GDP would rise to around $80 trillion in 2047, larger than India’s by just 1.5 times compared to today’s gap of five times.

The United States’ GDP, currently $18.6 trillion, is estimated to grow at an average annual rate of three per cent. By 2047, it would increase to $44 trillion — lower than India’s. However, in per capita terms, with an estimated population of 400 million in 2047 compared to India’s 1.60 billion, every American would still be over three times wealthier than every average Indian. Today the PPP-based per capita gap between India and the US is 1:10. In 2047, it could drop to 1:3. So here are the probable GDP numbers of the world’s three largest economies when India celebrates the 100th anniversary of its Independence: China: $80 trillion; India: $52 trillion; US: $44 trillion.

New World Order
The geopolitical and social consequences of the new global economic pecking order will be tectonic. India, the US and Japan will form one alliance comprising three of the world’s four largest economies. China, Russia and Pakistan will form a second alliance. The differences between them would be glaring. The first alliance is made up of democracies, the second of totalitarian regimes.

To strengthen India’s plural social texture, Modi must now urgently help build institutions of good governance at every level — from panchayat to parliament. For Modi 2019 is a pit stop. He is looking at 2022 — the third year of his putative second term — to meet ambitious social, economic and foreign policy targets. Then will come 2024. If the 2022 project of New India is successfully accomplished, a third term could beckon. But we must exercise caution here. After ten years, anti-incumbency can be strong. A new leader can emerge, as Modi himself did in 2012, from relative obscurity. Few in 2012 thought Modi had a ghost of a chance to be Prime Minister.

The moral of the story: never be complacent, remain ever-vigilant. The BJP needs to build a second line of leadership. Behind Modi and party president Amit Shah lies a wide gulf. Mentoring new leaders must start now. Modi’s Union Cabinet has hard-working ministers but more domain experts need to be inducted as ministers. There are precedents: Nehru’s first Cabinet had several technocrats, including the economist, John Mathai, who served as India’s first Railway Minister and later as Finance Minister.

In 2047, many of us will be gone. Modi himself would be 97 years old and in quiet retirement in Gandhinagar, looking back at these 30 eventful years. By digitising the economy and using technology to deliver its benefits to the poor, Modi has begun a socio-economic transformation. On these pages we analyse the state of the nation at 70 and what it might be when India makes its tryst with the centenary of its Independence.  

The writer is the biographer of Rajiv Gandhi and Aditya Birla and author of The New Clash of Civilizations

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