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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 Next 25 Years

India is today ranked as a low-middle-income country. China’s per capita income (PPP) is $18,500, roughly 2.5x India’s per capita income. It is ranked as a high-middle-income country

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Several commentators and Opposition leaders have poured scorn over Prime Minister Narendra Modi’s Independence Day speech in which he pledged that India would be a “developed” nation by 2047, the 100th anniversary of independence. Is the prime minister being optimistic? Consider the empirical evidence.

According to the International Monetary Fund (IMF), India’s current per capita income in purchasing power parity (PPP) is estimated to be over $7,000 in 2022-23. In comparison, average European per capita incomes (PPP) are around $38,000. How will these figures change over the next 25 years? 

India is today ranked as a low-middle-income country. China’s per capita income (PPP) is $18,500, roughly 2.5x India’s per capita income. It is ranked as a high-middle-income country. 

The pragmatic way forward for India is to target an increase in per capita income in three phases leading up to 2047. In the first phase, the target should be to raise per capita income over the next 10 years to $15,000. With population growth plateauing in the early 2030s at 1.5 billion, this means increasing GDP (PPP) to $22.50 trillion by 2032.

Is that even possible? India’s nominal GDP in 2022 is just below $3.5 trillion. But measured in PPP, as the IMF and World Bank compute for all nations, India’s GDP is estimated to be around $9 trillion in 2022-23. The path from $9 trillion to $22.5 trillion will require an average real GDP growth rate of 8.5 per cent over the next 10 years. Tough but not impossible.

At a per capita income of $15,000, India will in 2032, be a high-middle-income country like China is today. Obviously, China, despite its current slowdown of GDP to a long-term trajectory of three per cent a year, will have boosted its per capita income by 2032 to over $30,000 – in the range of several west European countries today like Portugal.

For India the real challenge lies after 2032. It has to ensure inequality decreases even as per capita income increases. It will have to significantly raise public expenditure on healthcare and education. The human development index (HDI) where India scores abysmally, is a key measure of a “developed” nation. Malnutrition, infant mortality and other indicators in India’s HDI are, however, gradually improving. But due to rising inequality, they are not improving fast enough.

This could place India in a classic two-speed nation trap: the top half of the pyramid is relatively prosperous, healthy and educated while the bottom half is still poor, under-nourished and lacks access to quality education.

In the second phase, between 2032 and 2042 of India’s rise to a developed nation, the focus must therefore be on both quantitative factors (per capita GDP) and qualitative factors (HDI, education and healthcare).

On a GDP (PPP) base of $22.5 trillion in 2032, the target over the next decade should be consolidating the economic growth momentum. Per capita growth will inevitably slow for a high middle-income country between 2032 and 2042 as the working-age population grows older and less productive – the precise problem China is facing today.

However, at even a lower per capita income growth rate of five per cent a year in the second phase, the number of India’s absolute poor will fall to nearly zero. A paper published by the IMF’s India executive director Dr Surjit Bhalla, Karan Bhasin and Dr Arvind Virmani argues that the number of those living below the poverty line is already near zero. However, this assumes a very low bar to measure poverty. More realistically, absolute poverty in India, as measured by global standards, will reduce significantly, perhaps close to low single digits by 2042 when per capita income (PPP) crosses $35,000 – the current benchmark for a developed country.

By then obviously per capita incomes of other nations, including China, would have risen as well, though not as quickly as India’s. 

Even at an average real GDP growth rate of three per cent for the next 20 years, China’s current per capita income of $18,500 (PPP) would by 2042 rise in the range of $50,000-$60,000, roughly similar to the per capita income in the United States today.

For India the third and final phase is the shortest – the five crucial years from 2042 to 2047. From a per capita income base of $35,000, growth will slow to an annual average of four per cent as in any other high income country. But by 2047, a per capita income (PPP) of around $40,000 is feasible.

Now stand back and take a big-picture look at these next 25 years. We began with India’s per capita income (PPP) in 2022-23 estimated at just over $7,000. In 2047, as our computation shows, it would have grown to around $40,000.This signifies an annual per capita income growth of seven per cent averaged out over a 25-year period.

To project so far ahead into the future is hazardous. But setting a target that can be met in three pragmatic phases over the next 25 years provides a blueprint. That blueprint will change every year as new data, quantitative and qualitative, arrives. Strategies will need to be adapted.

India inherited a broken country from the British in 1947 with a GDP a fraction of Britain’s. India’s GDP today, despite the lost socialist years from the 1960s to the 1980s, has overtaken Britain’s.

Writing inMinton the occasion of India’s 75th anniversary of independence, Deepak Nayar, the emeritus professor of economics at Jawaharlal Nehru University (JNU), noted: “During the period 1950-51 to 2019-20, for which evidence is available in real terms, growth in GDP was 4.9% per annum. This provides a sharp contrast with the period 1900-01 to 1946-47 during the colonial era, when national income growth was 1% per annum and per capita income growth was 0.2% per annum. At these growth rates, national income would have doubled in 70 years, while per capita income would have doubled in 350 years!”

If India had remained a British colony, poverty would have been near-permanent. With fortitude and sensible economic policies, India today stands on the cusp of something extraordinary: the first major country, rendered destitute in 1947, to emerge as a high income nation in less than a century while preserving its democracy and plurality.

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economy narendra modi Magazine 10 Sep 2022