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India’s economy can scale new highs. Here’s a plan

Jul 29, 2023 08:54 PM IST

India must keep its GDP growth high, generate mass employment, overhaul education, focus on environmental sustainability, and safeguard its social fabric

At an event in the Capital this week, Prime Minister (PM) Narendra Modi promised that India will become the world’s third largest economy if he gets a third term (2024-2029). Chanakya believes that this goal is eminently achievable. The International Monetary Fund’s World Economic Outlook database shows that India will overtake both Japan and Germany, currently the third and fourth largest economies respectively, in 2026-27 to become the third largest economy in the world, behind only the United States and China.

India will need to generate mass employment that guarantees a base minimum income.(HT Archive) PREMIUM
India will need to generate mass employment that guarantees a base minimum income.(HT Archive)

But two larger questions linger. Is the PM’s statement just a political reiteration of the inevitable? And, should becoming the third largest economy make us complacent on the economic front? The short answer to both these questions is an unqualified no. But it is worth engaging with them in detail.

When India became independent 75 years ago, it was ravaged by the scars of Partition, with a very small industrial base of its own. When rains played truant, even food security became a challenge, and the nation had to resort to what is infamously remembered as the ship-to-mouth existence, a reference to the excessive dependence on overseas grain exports.

The journey from economic precarity to becoming a global economic power while keeping its democratic core intact — the two years of Emergency notwithstanding — is a unique achievement, and the result of the collective endeavours of the Indian people. Of course, there have been ups and downs, and course corrections in this economic march. The biggest milestone in this path came in 1991, when the government formally launched a raft of economic reforms that unleashed animal spirits in the economy. The growth surge we see today would not have been possible without that leap of faith.

Has this journey been smooth? Far from it. The fruits of economic growth, especially after 1991, have increasingly accrued to a small share of the population. The biggest reason for this is the absence of a manufacturing revolution in India. Its share in the Gross Domestic Product (GDP) is, by and large, still at the pre-reform level, hovering around 15%-16%.

Lest there be confusion, it needs to be said upfront that even this small island of opulence is much bigger than the entire populations of some developed countries, and there is no evidence to suggest that even people at the bottom of the pyramid are worse off than they were before the reforms. The mismatch between rightful aspirations, and the distribution of the fruits of growth, has manifested itself in increasing political pressure to use our fiscal resources to provide relief to people. The swirling controversy around the so-called culture of freebies – which its backers' term as legitimate welfare measures — is nothing but a reflection of this tension.

But to stay on this course of growth and prosperity will need more work and determination. Here are five things that India must do to make sure that our economic future remains perceptibly better than our present.

First, maintain a high GDP growth rate, especially in the next two to three decades. While a GDP growth rate in the ballpark of 6% is enough to keep India the fastest-growing economy in the world, it is not enough to give a boost to our per-capita GDP, a statistic that matters the most in improving living standards.

This is where Modi’s statement about India becoming the third largest economy matters. It is important that the political class also invests in the political optics of growth, and not just banks on welfare. This is a crucial and onerous task. There are many democracies, including in our neighbourhood, that have slipped in balancing economy and politics.

Second, generate mass employment that guarantees a base minimum income. There is more than enough data to show that income levels for most Indians are far from adequate to guarantee a decent living. While the biggest challenge on this front is in agriculture, which still employs 40% of the workforce, even new-age sectors such as the gig economy have their own pitfalls in terms of security of income and labour conditions. This will need a hands-on policy approach.

Third, effect an overhaul of the education system to ensure that it directly feeds into employability. While the country has done an impressive job in terms of increasing school and higher-education enrolment, an overwhelming share of our educated young labour force is still fixated on securing even low-paying government jobs. The demand-supply mismatch is only going to become worse in the future. While the New Education Policy has recognised the problem, things need to move at a faster pace. Unless this is done, our demographic dividend might mutate into a demographic liability within the next couple of decades.

Fourth, make sure that our pursuit of economic prosperity does not breach the non-negotiable boundaries of environmental sustainability. There are two aspects to this problem. The first is the question of the climate crisis and reducing emissions, which will require a global consensus in terms of committing resources and finances.

New Delhi must continue its efforts to push the global agenda towards a just but adequate path for reducing carbon emissions. To be sure, this is not a given at the moment. The second issue is about resisting the temptation to sideline concerns around environmental protection — biodiversity and fragile ecosystems — to maximise economic gains from building infrastructure or industries.

Not only will such an approach inflict irreversible ecological damage, thereby depriving our future generations of these ecosystems, but there is also a trove of evidence to suggest that climate extremes will exact large economic costs. More sustainable attitudes will need to be engendered across the board, from governments and private firms to individuals and relatively poor economic actors such as farmers, so that environmentally damaging practices can be eschewed.

And, finally, be careful that economic prowess doesn’t inure the country to the importance of protecting our social cohesion.

India is a country of great religious, linguistic, regional and demographic diversity. Political competition might sometimes generate a strong reason to pit an identity against another for short-term gain. But politicians and the people must remember that social conflict beyond a threshold can derail an economy and investor confidence.

For a country such as India, becoming an economic giant and a model of democratic prosperity is within grasp. Our policymakers and people must do all they can to fulfil this new tryst with destiny.

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