Ashok Gulati, Purvi Thangaraj write: Growth with Indian characteristics

While inaugurating the newly constructed Bharat Mandapam (the international exhibition-cum-convention centre, venue for the forthcoming G20 summit) on July 26, 5/" class="">Prime Minister Narendra Modi expressed immense pride in India’s growth since his government took office in 2014. India has ascended, he said, from being the 10th largest economy in the world in 2014 to the 5th largest in 2023. He also asserted, “I want to assure that during the third tenure of our government, India will be among the top three economies of the world.” This is akin to declaring India getting the bronze medal, while gold will still be with USA and silver with China in this development race.

The International Monetary Fund (IMF) also projects that India will be the third-largest economy by 2027. India has registered the highest growth rate amongst G20 countries, surpassing China’s for two successive years. That’s commendable, given the global headwinds. The Modi government needs to remain focused on growth — like Arjuna’s eye — while keeping inflation under control.

As per the IMF, India is currently the fifth largest economy with a GDP of $3.7 trillion — the US tops with $26.9 trillion, followed by China at $19.4 trillion, Japan ($4.4 trillion) and Germany ($4.3 trillion). By 2027, India’s GDP is likely to be $5.2 trillion, while the US will be at $31.1 trillion and China at $25.7 trillion.

It is interesting to note that IMF’s historical data shows that India took six decades (1947 to 2007) to cross the one trillion-dollar GDP mark in 2007 ($1.2 trillion). But thereafter, it took India just seven years to become a $2 trillion economy in 2014. It added another $1.2 trillion by 2021. If India hits the IMF’s projected figure of $5.2 trillion by 2027, it would be adding a whopping $2 trillion in just six years. That would be unprecedented, putting India firmly on the global stage.

However, if one has to assess the real purchasing power of an economy and the welfare of the country’s people, one should look at GDP and per capita GDP in purchasing power parity (PPP) — what a US dollar can buy in that country. Measuring GDP on a PPP basis shows that India already has the third highest with a GDP of $13 trillion (PPP), with China at the top ($33 trillion, PPP) and the US is second ($26.9 trillion).

However, when it comes to evaluating people’s welfare and their quality of life, one needs to look at per capita GDP in PPP terms. PPP conversion ratios can vary widely across countries, as price levels of goods and services could differ significantly. India’s conversion ratio from dollar to PPP is 3.5, which is almost twice that of China at 1.7. Let’s illustrate this with an example. If a US dollar can buy a burger in its home country, the currency can buy 3.5 burgers in India and 1.7 burgers in China. Unfortunately, however, India’s per capita income is the lowest in G20 countries in both dollar ($2,601) and PPP terms ($9,073), as shown in the infographic. China’s one-child family policy from 1981 to 2016 has given our neighbour the dividend of raising per capita GDP to $23,382 PPP, while the US sits at the top with a per capita GDP of $80,035. It is here that India may not get even a consolation prize amongst the G20 countries.

So, the real challenge for India and the Modi government is to raise the per capita incomes of the people. For this to happen, people have to move from low-productivity jobs to high-productivity jobs. The largest segment of India’s working population (45.5 per cent) is still engaged in agriculture. We need to raise agri-productivity and give farmers access to the best agri-markets. This would help raise their incomes and help PM Modi fulfil his dream of doubling farmers’ incomes. This would require doubling investments in agri-R&D, irrigation, rural infrastructure, and liberalising agri-markets — both domestic and foreign. The resources to do all this can be generated by rationalising various subsidies, especially food and fertiliser subsidies at the central level, and power subsidy at the state level. This requires political will and smart policymaking that can reward farmers for aligning farm practices with environmental sustainability.

We need to invest heavily in the education and skill development of rural people to build new cities and undertake massive construction activities — homes, hotels, hospitals and schools. Urbanisation experts remind us that almost 75 per cent of New India is yet to be built. Bharat Mandapam and the new Parliament House are just the beginning of an India story. It will require new skills and millions of people will have to move from rural areas to build New India. It will be accompanied by high-productivity jobs in manufacturing and services. China followed this developmental pathway. If India has to grow on a sustainable basis, it may have to follow a similar path with Indian characteristics. If the Modi government can expedite that process, it could help abolish poverty soon — as per Niti Aayog’s report, it stands at 14.96 per cent in 2019-21, down from 24.85 per cent in 2015-16. Only then India can set a real example for the Global South, even if it will still be way behind other G20 countries.

The only visible challenge to this seems to be our competitive populism in politics (the revdi culture) in the run-up to elections. The promised freebies are nothing short of a “bribe for votes” — they can derail India’s growth story. The Supreme Court and/or Election Commission need to check these freebie promises to ensure meaningful democracy.

Gulati is Distinguished Professor and Thangaraj a Research Associate at ICRIER. Views are personal