Can India truly sustain such high growth rates, or do these figures oversimplify the complex realities of its socio-political landscape?
In any discussion involving economists, a common saying goes, "When six economists gather and deliberate, there will be seven views." This adage humorously reflects the diversity of opinions that often arises in economic discourse. While economists are inclined to project growth through metrics like GDP, inflation, and depreciation rates, these projections sometimes oversimplify the complexities of real-world politics and societal dynamics. Indeed, even the most well-reasoned economic forecasts can falter when confronted with the unpredictable nature of political realities and the broader socio-economic context. Economists from the Reserve Bank of India, World Bank, International Monetary Fund, other big financial institutions, and even our government-serving prominent experts arrive at different projections of India’s growth story. Going by the latest two projections, Krishnamurthy Venkata Subramanian, the former Chief Economic Adviser to the Narendra Modi government and current Executive Director for India at the International Monetary Fund (IMF) says India will be reaching a $55 trillion economy by 2047.
Subramanian's projection of a $55 trillion economy appears optimistic, especially when juxtaposed with Ernst & Young's prediction of $26 trillion by 2047. At this point, it is difficult to say whose projection is realistic given the very dynamic nature of the Indian economy where several socio-economic and political forces are at work simultaneously. Subramanian has made a bold claim in his new book, India @100: Envisioning Tomorrow's Economic Powerhouse. Released recently by Union Commerce and Industry Minister Piyush Goyal at a Special Session organized by ASSOCHAM in New Delhi, the book envisions India reaching a $55 trillion economy by 2047. Subramanian's proposition, while ambitious, is grounded in a comprehensive analysis of India's economic trajectory and the policies required to sustain high growth rates. It is not difficult to find the economic rationale behind such an ambitious projection, considering India's historical inflation rates, currency depreciation, and recent economic policies. He rightly emphasizes that achieving this target hinges on maintaining a real growth rate of 8% and an inflation rate of around 5%.
Historically, the depreciation of the Indian rupee against the dollar has averaged between 3% and 3.5%, primarily due to India's higher inflation rates. Subramanian notes that before the adoption of inflation targeting in 2016, India's inflation averaged above 7%, necessitating higher depreciation rates. However, with inflation targeting and subsequent economic stability, India's inflation rate has moderated to around 5%, even amid global economic shocks like COVID-19 and the Ukraine war.The rule of 72—a simple formula to estimate the doubling time of an investment—to project India's economic growth may have some limitations. Subramanian posits that if India's real growth rate remains at 7% and inflation at 5%, the nominal growth rate in rupee terms would be 12%. Accounting for a historical depreciation rate of 3%, the dollar-denominated growth rate would be around 9%, doubling the economy every eight years. This would place India's GDP at $26 trillion by 2047.However, Subramanian argues that with improved inflation targeting, resulting in lower inflation and depreciation rates, India could achieve a nominal growth rate of 13% in rupee terms and 12% in dollar terms. This would lead to the economy doubling every six years, reaching the $55 trillion mark by 2047.
To many economists and experts, these projections seem unreasonable as it is very difficult to predict 20 years of macroeconomic environment and political realities. Political stability would be a growth driver certainly but if India’s current stable coalition government loses its strength the entire economic journey would face a difficult path. Union Commerce and Industry Minister Piyush Goyal may disagree as while releasing the book launch, he also emphasized that the target appears realistic due to the current political stability in India. He noted that even in a coalition government, the ability to make bold decisions has been a key factor in driving economic reforms. Goyal highlighted that political stability, particularly with the Bharatiya Janata Party (BJP) maintaining a dominant position, provides a conducive environment for long-term economic planning. He pointed out that most seats the BJP lost in the last general elections were by margins of less than 30,000 votes, suggesting a strong underlying support base. This political backdrop, according to Goyal, is essential for sustaining bold economic reforms over the next two decades and beyond.It is widely admitted that achieving these ambitious targets requires sound economic policies, particularly those that promote formalization, innovation, and entrepreneurship. India's informal sector, which constitutes a significant portion of the economy, is far less productive than the formal sector. Enhancing formalization through digital infrastructure and regulatory reforms could substantially boost productivity.
Additionally, the importance of entrepreneurship and innovation. Since 2014, new firm creation in India has surged, establishing the country as the third-largest entrepreneurial ecosystem globally. Entrepreneurship not only drives productivity in new firms but also compels incumbent firms to innovate, leading to overall economic growth. A key pillar of Subramanian's vision is ethical wealth creation, which he believes is essential for fostering a large, prosperous middle class. He refutes the notion that wealth creation and employment are opposing forces, citing examples from his personal experiences and the broader economy. Wealth creators, he argues, generate significant employment and pay higher wages, contributing to overall economic welfare. Emphasis on ethical wealth creation stems from past instances of crony capitalism, which stifled economic growth and led to systemic inefficiencies. By promoting a transparent and fair business environment, India can ensure that wealth creation benefits a broader spectrum of society, thereby enhancing social and economic inclusion.The claim of a $55 trillion economy may be viewed by some economists as hypothetical, given the complexities of global and domestic economic landscapes.
Nevertheless, India's inherent economic strengths and resilience could indeed support the realization of the India@100 vision. Despite the slowing pace of globalization, geo-political tensions, and other unseen negative forces could pose significant threats to India's growth trajectory.
Nonetheless, with the right policies, particularly those that encourage domestic investment and exports, India can navigate these challenges and sustain high growth rates, controlled inflation, prudent currency management, and robust economic policies that foster innovation, formalization, and ethical wealth creation. As India stands on the cusp of a new economic era, these pillars will be crucial in shaping its journey toward becoming a global economic powerhouse.
(The author is a senior journalist. Views expressed are personal)
