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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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India’s $20-trillion Economy

Indian literacy remains abysmal — technically just over 75 per cent but in effect considerably lower. It is the single biggest impediment to social and economic progress

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Prime Minister Narendra Modi was roundly criticised for claiming during an overseas trip that India’s current GDP was $7.50 trillion and could reach $20 trillion by 2030. He was right on both counts. His critics got their math wrong.

The Prime Minister was obviously referring to India’s GDP in 2015 by purchasing power parity (PPP), a measure routinely used by both the International Monetary Fund (IMF) and the World Bank (India’s nominal GDP, at current exchange rates, is $2.20 trillion).

The world’s ten largest economies in PPP terms, updated as per the IMF’s latest figures for 2016, are:

Indian GDP growth in the April-June 2016 quarter dipped to 7.1 per cent but the year is likely to end with overall growth of 7.5 per cent, retaining India’s position as the world’s fastest growing large economy, ahead of China. If India sustains an average annual GDP growth rate of 7 per cent for the next 10 years, the economy will double to $15 trillion in 2026. Assuming a slightly lower growth rate of 6.5 per cent over the next four years between 2026 and 2030, Indian GDP will rise further to just under $20 trillion.

Keeping in mind that these projections are based on PPP, India’s per capita income, assuming a population of 1.40 billion in 2030, would be around $14,000. (In nominal terms, at the prevailing exchange rate, that figure would be closer to $5,000.)

Around 21 per cent (265 million) Indians currently live below the poverty line, according to the Suresh Tendulkar BPL methodology. To ensure that India’s economic growth between 2016 and 2030 lifts as many of these Indians out of dehumanising poverty as possible, economic growth must be inclusive. To achieve that the government must fully implement the various schemes it has innovated: Make in India, Digital India, Jan Dhan Yojana, Swachh Bharat, Skill India and many others.

Four areas are critical. First, modernising the agricultural sector where 60 per cent of Indians earn a living. Second, using technology to improve productivity across sectors. Third, invigorating governance to reduce institutionalised corruption and the lethargy of India’s vast central and state bureaucracy. Fourth, ensuring universal adult literacy. Each of these four key tasks needs careful attention.

Agriculture accounts for just 14 per cent of India’s GDP but over half of India’s population lives off agriculture. With a good monsoon, agriculture growth in 2016-17 should top 4 per cent. India’s total foodgrain output is still only 265 million tonnes. In contrast China’s food-grain production is over 600 million tonnes. On a per capita basis, China’s agricultural economy is therefore twice as productive as India’s.

Despite the government’s efforts to cut out middlemen, the farm-to-fork scheme hasn’t worked. The gap between the price at which a farmer sells his produce and the price a retail consumer pays is wide. To modernise India’s agricultural economy, the price differential between farmers and consumers must narrow. This can only be done if political patronage is withdrawn to the cartel of middlemen who control prices between the farmer and the fork.

As Mint reported recently: “On 14 April, Prime Minister Narendra Modi launched the electronic national agriculture market, or e-NAM, as a key initiative to improve farm incomes, but till 20 August the platform had managed trading turnover of just Rs 166 crore. “More importantly, electronic trading has been limited to respective mandis (registered markets) within a state — meaning farmers cannot yet access sellers outside the mandi, be it within the state or across the country. This is in stark contrast to what was promised to small farmers, who currently have a limited choice of selling their produce.”

The use of better technology is crucial to raise yields per acre which remain well below Chinese levels. If the current experiment in genetically modified (GM) crops is successful, it must be deployed across crops in a graded manner.

An article in the website Problems in India emphasises the need for innovation to boost agricultural productivity: “Attention should be given to climate-flexible agriculture. In low rain and dry type farming areas, innovations such as rainwater harvesting and storage, watershed management, improvement of soil physics and microbiology need to be promoted widely. The use of fertiliser trees can enrich soil fertility and help to improve soil carbon sequestration and storage and can be promoted under the Green India Mission and also MGNREGA. A minimal number of fertiliser trees and a biogas plant in every field will help to improve enormously the productivity and profitability of farming of lands which are dry.”

The second factor to achieve sustainable GDP growth of 8 per cent is deploying technological innovation across both manufacturing and services sectors. India is developing one of the world’s most exciting startup ecosystems using technology as an enabler — from account-free mobile banking to artificial intelligence. Encouraging innovation in manufacturing can make India an export hub and kickstart a still-sluggish industrial sector

The third key factor in establishing a high-growth economy is good governance. Corruption and sloth erode productivity. Bad politics leads to bad economics. Building independent institutions of governance is vital to protect a growing economy.

One of the most crucial elements in China’s rapid economic growth from the 1980s onwards was not just Deng Xiaoping’s reforms but Mao Tse-tung’s campaign two decades earlier to achieve universal literacy. It is education that has underpinned China’s transformation from an agricultural to an urbanised society. Deng gets the credit for economic reforms in the 1980s and Mao the brickbats for his brutal methods in the Cultural Revolution in the 1960s. But it was Mao’s campaign for universal literacy that enabled Deng’s economic reforms to bear fruit.

Indian literacy remains abysmal — technically just over 75 per cent but in effect considerably lower. It is the single biggest impediment to social and economic progress.

India needs to fix these four key areas — modernising agriculture, deploying innovative technology, institutionalising good governance, and achieving universal literacy — in order to transform itself into a $20-trillion (PPP) economy by 2030

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