A leading investment bank estimates that India ($ 4 trillion GDP at present, PPP basis) will continue to grow at eight percent to emerge as an $ 86 trillion economy, the world’s largest, by 2050. At that point, the country would represent 23 percent of world GDP; the US contributes 19 percent to world GDP at present. The Indian economy in 2050 would be larger than China’s; over twice the size of the US and 11 times that of Japan. Per capita GDP would exceed $ 50,000, 10 percent higher than the prevailing level of prosperity in the US. Phew!
Since the beginning of the economic liberalization process in the early 90’s, the Indian economy has tripled in size. Per capita income has doubled to over $ 3,000. However, the fruits of growth have largely evaded India’s agricultural economy that supports 60 percent of its people but contributes just 15 percent of the country’s output. Maintaining archaic practices on increasingly fragmented land holdings, the per capita GDP of the country’s 700 million still dependent on agriculture has inched up from $ 600 to $ 800 in almost 20 years. During this time, the farmer’s city cousin, participating in India’s services revolution, is significantly better off, his income growing from $ 2,800 to $ 7,000. In economic terms, while the Indian farmer lives in the jungles of Central Africa, all others are in rapidly prospering China. So much for inclusive growth!
This disparity is increasing further, a potential time bomb unless we bridge the chasm between the two dozen on Forbes’ annual billionaires’ list and the half billion living at less than one dollar a day. Here it is interesting to note that while the global poverty standard has since been revised to $ 1.25 daily, the Indian Government believes that a fourth of that number is sufficient to deliver the recommended 2,400 calories to the country’s rural poor.
What we need now is a soft landing of the agricultural economy as its contribution to both employment and output reduces to under five percent over the next few decades, the way it’s happened in every developed country worldwide.
UP, Bihar, MP, Rajasthan along with their offshoots, termed BIMARU states, account for 42 percent of India’s population and represent a sizeable portion of the demographic dividend we are likely to be blessed with. Jobs are needed in these states if we want to avoid a disastrous cross-country exodus.
India’s growth achievements have come on the back of seven million new jobs created annually as the restrictive policy environment encouraged capital rather than labor intensive growth. More recently, new job creation, obstinately steadfast over many years, is up to 10 million annually. But this meets just half the requirement as over 20 million will join the employment bandwagon every year in the near future.
Waking up to this reality, the Government now wants to increase economic contribution from manufacturing to 25 percent by 2025 from 16 percent at present, implying 11.5 percent annual growth. World class manufacturing zones planned across the country will seek to deliver 100 million jobs over 15 years. However, the National Manufacturing Policy that will achieve all this has been cutting through the jungle of red tape for over a year now and will be with us soon, hopefully. Indian manufacturing has delivered less than seven percent growth over the last decade so there’s a lot of ground to cover.
India’s services sector has grown at 10 percent for almost a decade and now represents 57 percent of the country’s economic output, delivered by just 29 percent of the labor force. Sustained growth momentum in services requires the bandwidth of urban infrastructure. While India is now 30 percent urban, it is already the global slum capital with over 90 million living in derelict structures and gross penury. It is estimated that only 15 percent of Mumbai does not live in slums, chawls or footpaths. Other Indian cities are headed in the same direction.
The list of constraints to growth seems never ending. There’s a growing deficit of infrastructure, policy and governance as well as of thinking, inclination and propriety. Despite these issues, we have hurtled along just fine for many years but the strain is beginning to show in recent months. But no worries… India will grow just to catch up. Look deep within and there’s realization that maybe six percent growth is sustainable, anything more an aberration that is likely to even out over time. And we can happily chug ahead once again, undaunted by basis points and fine print of economic forecasts originating out of New York or Singapore.