Credit: DH Illustration: Deepak Harichandan
Prime Minister Narendra Modi recently asserted that India would become the third-largest economy in the world in his third term. The point was to not only take credit for India’s growth but more to assert that he would win a third term. He may or may not. But India will grow to become the third-largest economy in the next few years almost regardless of who is in the prime minister’s seat, because India’s growth trajectory was set long before Modi became PM, and it has been on course despite the shocks he has himself administered to it.
In 2003, Goldman Sachs forecast (in Global Economics Paper 99 — Dreaming with BRICS: The Path to 2050) that India would beat Japan to become the third-largest economy in real terms by 2032 (in terms of purchasing power parity, India ranked third in the world in 2011). That forecast was made assuming an average 6 per cent annual GDP growth for India between then and 2050.
We have maintained over 7 per cent growth on average since, with that average being slightly higher during the Manmohan Singh years (2004-05 to 2013-14) than during the Modi years (2014-15 to 2022-23), ignoring the two large dip years of 2008-09 (global financial crisis) and 2020-21 (Covid lockdown). Therefore, we must expect to overtake Japan sooner than 2032.
Indeed, in 2011, Goldman Sachs updated its forecast. And because India had done better than expected in 2004-11, it moved the date by which India would overtake Japan to 2028. Goldman Sachs’ 2022 update shows that India remains on track for that. It may be helped by the fact that Germany is in recession and Japan’s economy is crawling post-Covid. India is now expected to overtake Germany to become number four by the end of this fiscal or sometime next fiscal, and it could beat Japan to become number three by 2027 itself.
The Goldman Sachs’ 2022 update projects the global economy out to 2075. China is expected to overtake the US to become the top economy by 2035 (with a GDP of over $30 trillion). India is expected to catch up with the US economy only 40 years later, by 2075 (with a GDP of over $52.5 trillion, the real acceleration taking place from around 2040 onwards). But guess who else will be in the top five economies in 2050? Indonesia; and then by 2075, it will be number four, and Nigeria will be number six. And if Pakistan gets its act together, it will be at number six, though they will all be way behind the top three – China, India and the US.
None of this is due to anything special that the Modi government has achieved in the last nine years. Indeed, his track record on economic promises has been somewhat dubious. What happened to the hope held out of creating millions of jobs every year? What happened to the promise of doubling farmers’ income by 2022? Modi and the BJP have simply stopped talking about it.
The $5 trillion GDP by 2024 claim had to be pushed back to 2027/2028 (partly due to Covid, but remember that India’s growth rate had fallen for two years even before the pandemic – to a low of 4.1 per cent in 2018-19, thanks to demonetisation and the introduction of a flawed GST).
The contributions of Make in India, Atmanirbhar Bharat and Startup India to GDP growth have not been quantified so far. Suffice it to say that they have been insignificant, to put it mildly. Rather, in the Modi years, the economy has grown mostly on only one pillar — public spending — while the other two pillars (consumption and private investment) have fallen.
Note that this public spending — mostly on physical infrastructure — has been funded by higher taxation in the form of excise duty and cess collections, most notably on petrol, diesel and LPG prices.
In other words, we are being taxed indirectly at higher rates to keep the GDP number growing. This path to GDP growth has meant a massive wealth transfer from the poor and middle classes (through this higher taxation) to the rich and ultra-rich (through infrastructure contracts and rentier agreements which are won by large conglomerates, usually cronies of the government of the day).
India’s growth out to 2050 and beyond is premised on its demographic trends — we are in a period when we have a very large working-age population, with the added benefits of a young population pipeline and a low dependency ratio. We may safely say that Prime Minister Narendra Modi has had no hand in bringing about this happy situation. But he has the responsibility to ensure that India’s ‘demographic dividend’ does not turn into a ‘demographic disaster’.
Challenge of governance
The question, therefore, is not about becoming the third-largest economy, but about how healthy the economy will be as it grows. As Goldman Sachs’ 2022 projections note, the new worry is that while global inequality — between countries — is declining, local inequalities — inside countries — are rising. This is a phenomenon all too familiar in India, where, as Oxfam reported, the top 1 per cent own more than 40 per cent of the country’s wealth (and the top 10 per cent own 77 per cent) and garnered over 40 per cent of all the wealth created between 2012 and 2021, while only 3 per cent went to the bottom 50 per cent of the population (the pandemic years skewed this even further in favour of billionaires).
The real question is whether a few business houses and rich individuals will corner all growth and wealth or the incomes of a larger section of Indians will rise in the race to world number three. Let’s say 37 per cent of Indians voted for Modi. Have their incomes gone up? Are they better off today as India’s economy has overtaken that of Brazil, Britain and France? Will they be better off even if India becomes world number three?
India can continue to keep growing this way, or it can grow through private investment that creates jobs, private consumption and the building of human capital — for which a different set of short-term and medium-term policies will be required from what the government has offered so far.
The question is, does Modi have policies by which by 2027-28, when we will be world number three, the 810 million people to whom his government is giving free grains now would no longer need that handout? Or while he presides over the third-largest economy, will he still be giving free grains to a billion people and proclaiming himself to be pro-poor? In other words, will it continue to be “billions more for the billionaires, and 5 kg rice for the poor?”
Will Modi, if he wins a third term, still be running the Mahatma Gandhi National Rural Employment Guarantee Scheme, which he ridiculed in Parliament as a symbol of Congress’ failure to create jobs, or will there be jobs for all in the world number three economy? What is Modi’s plan for growth with jobs in the age of AI and robots as they begin to impact even existing jobs? What’s Modi’s plan for increasing female participation in the workforce, which has fallen to levels below even that of Saudi Arabia? What’s his plan for growth with sustainability in the age of climate change? What’s his plan for growth with peace and harmony in the age of hate and anger? What’s Modi’s plan for growth with political and economic justice for the relatively high-productivity southern states? India’s HDI ranking has been languishing in the 130s (out of 192 countries) through these years of high growth. Will it get any better? India is trailing on more than 50 per cent of the Sustainable Development Goals. Will we catch up on those as we race to world number three?
Needless to say, all these questions are also for the Opposition to answer.
Dealing with inconvenient data
There is another area of concern in governance, and that’s about how the government deals with inconvenient data and those who produce it — data that does not gel with the government’s narrative.
In 2018-19, the nation’s chief statistician and his team members resigned when unemployment data — which was inconvenient to the government because unemployment had risen to the highest level in 40 years (again, thanks to demonetisation) — was not allowed to be published until after the 2019 Lok Sabha elections.
More recently, the suspension of K S James, director of the International Institute of Population Studies, which came in the aftermath of the publication of the NFHS-5 survey results which did not gel with the government’s preferred narrative on the incidence of anaemia, the lack of access to toilets even post-Swachh Bharat, has caused much disquiet. Not to speak of the fact that there is no sign of the government’s readiness to conduct Census 2021. The question is, if the government does not feel confident enough to let the people of India know where we stand on critical parameters of the health of our economy and society, would getting to world number three economy in dollar terms matter to 99 per cent of the people of India?