Optimism about India’s growth story tends to spike now and then. Over the past year or so, the Narendra Modi government’s narrative on economy has been that India has “arrived”. It wants us to believe that India’s economic prospects are quite bright and the country is on the cusp of achieving high growth rate on a sustainable basis over the next two decades to make India a “developed” country by 2047. Such a claim about India’s march towards economic prosperity was a good narrative to impress voters during the general election and the BJP’s focus on 2047 was precisely aimed at burnishing Modi’s image as a leader with great nation ambition. But it didn’t work as the BJP expected. Nonetheless is this hype real?
Since the late 1990s, India has been through two cycles of economic upswing, leading many to speculate that the country’s GDP growth may hit double digits. But each of the upswing did not last beyond a few years. Today, India once again appears to be at the start of an upswing, which has made many people in the government paint a rosy picture of stunning economic growth in coming decades. Does existing data suggest a boom? There is no unanimity among economists inside and outside of the government and the debate about just how the economy is growing is argumentative. As the data is noisy and contradictory, the picture is mixed.
In the third quarter of FY 2023-24, GDP growth roared at 8.4%. But many questioned the aggregate numbers on a few counts, including the low consumption levels. In the fourth quarter, economy expanded at 7.8%, lifting the FY24 growth to 8.2%. The problem with India’s growth story is that the government is too focused on aggregate numbers and not on granular details. The fixation with headline numbers and projection of high growth rate is more hype than reality because it ignores many structural problems that need to be fixed to meet the actual potential. “Believing the hype,” as former RBI governor Raghuram Rajan recently said, “is something politicians want us to believe because they want us to believe that we have arrived. But it would be a serious mistake for India to succumb to that belief. We have got many more years of hard work to do to ensure the hype is real.”
Currently the world’s fifth largest economy, India will obviously climb to the third position by the end of the decade. But the climb from the third position to the second is going to be a tall order because China with comparable population is miles ahead of India in terms of aggregate as well as per capita GDP. Both Japan and Germany are small nations in terms of population and even after leaving them behind in terms of overall size of the economy, India will still be far behind both nations in terms of per capita GDP. The problem with too much hype about aggregate GDP growth is that far less attention is being paid to per capita income, state of education, skills of the workforce, healthcare, and infrastructure to achieve the developed country status. The lack of human capital is a big concern for India.
For India to become a developed country, its Human Development Index (HDI) status will have to climb from medium, past high to very high. Similarly, per capita incomes would have to increase sevenfold from lower-middle income status to reach the high-income bracket. This is a far, far harder task than increasing the overall size of the economy. Over the past three decades, the size of India’s economy, both in absolute terms and relative to other countries, has increased but the country’s current ranking for inequality-adjusted HDI is 108 out of 156, and 132 out of 190 in terms of per capita income. This means, while most Indians have come out of extreme poverty, their income, education levels and life expectancies remain modest compared to the average person born into a developed country.
India’s progress into broad-based prosperity is inevitable but cannot be taken for granted. To ensure broad-based prosperity, various underlying problems are needed to be addressed: education, skill development, healthcare, and financial inclusion for those at the bottom of society to benefit from expanding welfare schemes. In a poor country like India, it is important for the government to provide some safety net to the most vulnerable sections within fiscal constraints. To be a developed nation India will also have to nurture and develop democratic accountability, rule of law and institutional independence. Economic development in India is also complicated by the fact that the country has some of the largest internal regional disparities.
For example, Goa has the highest per capita income in India, which is ten times that of Bihar. This disparity also corresponds with life expectancies in these two states – 73.3 years in Goa against almost a decade shorter in the case of Bihar. Another major problem is that India’s most developed and high-income states are among its smallest. India has 36 states and union territories but the 12 largest states account for 80% of the 1.4 billion population. None of these states, including the best performing ones like Gujarat, Maharashtra, Karnataka, and Tamil Nadu have climbed above lower-middle income level and medium level of HDI.
Uttar Pradesh, the most populous state, with close to a quarter of a billion people has low levels of income, education, healthcare facilities and life expectancy. So do neighbouring Bihar and Madhya Predesh. These three adjoining states, with a population of 450 million, represent the largest cluster of poverty, illiteracy, malnutrition, and lower life expectancy. This means even big gains by smaller states like Goa do very little to lift India from economic backwardness. This implies that the government will have to focus on the states and regions where bulk of the population lives to make dramatic overall improvements. Even after becoming the third largest economy by 2029, India may still be called a poor country.
One of the important elements of escape from poverty and social and economic backwardness is access to healthcare, education, regular income, and financial security. Without improving the education and skills of the workforce, India will struggle to reap the benefits of its young population. More than half of the 1.4 billion population is below the age of 30. To reap the demographic dividend, India needs to firstly make the workforce employable and secondly create jobs for the workforce it has. According to the IMF, India needs to grow at the rate of 7.6% per annum over 25 years for it to become a developed nation by 2047. Whether India can do it with all the challenges is difficult to say.
The writer is a senior independent Mumbai-based journalist. He tweets at @ali_chougule
