Powering Up to Get to the $30-trillion Economy Point

Commentary on the India growth story often betrays a hint of premature triumphalism. 

Powering Up to Get to the $30-trillion Economy Point

• Facts such as our 7%-plus GDP growth rate and India being the fastest-growing large economy in the world today, are repeated to buttress prophecies such as the 21st century being ‘India’s century’. 
• There is a belief that in India’s case, economic growth is inevitable. 
• We must remember that several countries have been here before, at the very juncture where India stands today. 
• However, most have failed to go the last mile and emerge as developed nations.
• For India to avoid such a fate and become a $30-trillion economy by 2047, as envisaged by the government, we must relentlessly pursue rapid economic growth built on liberal economic policies that harness the private sector. 
• In this pursuit, many would continue to decry India’s income inequality. 
• We must not get swayed or overly affected by such criticism.

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Potential of India’s Working-Age Population

• The fact is: economic growth is the most effective tool for poverty alleviation and improving living standards. 
• From Independence till 1991, India’s poverty rate stayed at approximately 50% despite socialist policies emphasising poverty reduction. 
• However, between 1991, the year of liberalisation, and 2011, the poverty rate fell to approximately 20%. 
• India’s growth pulled 35 crore people out of abject poverty during this period.
• Now that we have somewhat placated the inequality doomsayers, let us look at a few more numbers — less triumphal and more sobering.
• The easier gains from the economic reforms of the 1990s have been realised. India’s high-growth years of 2000-10 were led by an IT services boom that spawned an affluent middle-class. 
• However, 46% of our labour force remains in agriculture, characterised by low productivity and under-employment, contributing just 18% of our GDP. 
• Another inconsistency with the trend observed in countries that grew rapidly is India’s female labour force participation rate (FLFPR) — just 37%.
• Even this is a figure that masks more than it reveals, as it was 26% in 2019, and post-COVID-19, several women have gone back to work as agricultural labour. 
• Compare this with the FLFPR in China, Vietnam, and Japan, all between 60%-70%, and we know exactly where we need to be.
• So, how do we unlock the immense potential of India’s working-age population – sized 950 million, only half of whom are employed — and ensure employment equity?
• Low-skilled, employment-intensive manufacturing with a strong focus on exports is how South Korea, Taiwan, Japan, and Vietnam came to be called the ‘Asian Tigers’, regularly achieving double-digit growth between 1960-90. 
• Their particular brand of economic policy, focused on rapid export-oriented industrialisation, was premised on the understanding that growing exports require focusing on your advantages while being receptive to imports in other areas. 
• Openness is needed for growth, as it was for India — between 1990 and 2013, exports as a percentage of India’s GDP grew from 7% in 1990 to 25% in 2013.
• Today, as India tries to capitalise on the China+1 moment to attract global manufacturers and their supply chains, and further augment its exports, we must resist the temptation of putting up huge tariff walls for imports.

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The Middle-Income Trap

• Of 101 middle-income economies in 1960, only 23 had attained high-income status by 2018, a stern reminder of the challenge that awaits India, still a lower-middle-income economy that must graduate to middle-income status by the early part of the next decade, and then go further. 
• There are many reasons countries get ensnared in the middle-income trap — these can be broadly summed up as economies losing their edge in lower-end sectors and not being competitive enough with more prosperous countries in hightech sectors.
• India’s problem is peculiar: We have been unable to leverage our surplus labour to grow in lowend sectors. 
• The IT boom gave us an alternative pathway to growth, but the headroom there is limited. 
• This is damaging as moving up the value chain in manufacturing is built on a foundation of low tech manufacturing — ecosystems of managers and workers who get things done while ensuring scale and quality, form the backbone of any industrial sector. 
• Even government functionaries who have helped develop simple, low-tech manufacturing at scale will find it easier to graduate to more complex challenges later.
• Avoiding the middle-income trap requires a market-led economy that lets private enterprise thrive, without the government, or perceptions of factory jobs, getting in the way — Minimum Government, Maximum Governance. 
• The Indian state must continue delivering on this decade-long promise in earnest, which means that reforms to enhance ‘ease of doing business’ must not stall.

A Cluster-Led Industrial Model

• The government must also double down on its impressive achievements in revamping India’s hitherto creaky infrastructure by building industrial clusters that are on a par with those in China and Vietnam, replete with plug-and-play infrastructure and ancillary ecosystems, for education, health care and entertainment, which would attract both employers and workers. 
• Today, Indian States face cost disabilities for power, logistics and financing, coupled with low labour productivity when compared to countries such as Bangladesh, China and Vietnam, and a compliance burden that deters new players from entering and the existing ones from expanding.
• There is a phrase often repeated in policy circles about India — “It’s a country with mouth-watering opportunities and eyewatering challenges.” 
• We think the challenges here are the most exciting opportunities. 
• The reward for breaking down these barriers to growth would be an unfettered path to prosperity till we fulfil our tryst with destiny. 
• It is time to be as forward-thinking and ambitious as befits a Vishwaguru.

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Conclusion

To realize India’s $30-trillion economy goal, embracing liberal economic policies, enhancing infrastructure, and focusing on export-led growth are crucial. Challenges must be met with innovative solutions.