Growth Engine of World Economy

"India is now wide awake. We shall prevail. We shall overcome."

Well-entrenched to stay on course for the next 25 years as the world’s fastest-growing large economy, India is expected to surpass the US economy to become the world’s second-largest when the nation will be marking the centenary of independence in 2047.

Currently ranked the fifth-largest economy, at eight per cent yearly on a compounded annual growth basis, the country of 1.4 billion people will see its gross domestic product (GDP) jumping from $3.3 trillion at present to $30 trillion in 25 years on the back of a spate of path-breaking reforms and initiatives, including the flagship Atmanirbhar Bharat strategy, Make in India, and the Production Linked Incentive schemes rolled by Prime Minister Narendra Modi’s government.

A far cry from what India was 31 years ago let alone its humble state 75 years ago, the country is now on a growth trajectory that seems irreversible. In 1991, unveiling a spate of game-changing economic reforms in the wake of the nation’s gravest foreign exchange crisis, former Prime Minister and then Finance Minister Manmohan Singh, asserted that India had become a growth engine of the global economy. “I don’t minimise the difficulties that lie ahead on the long and arduous journey on which we have embarked. But as Victor Hugo once said, ‘no power on earth can stop an idea whose time has come.’ I suggest to this August house that the emergence of India as a major economic power in the world happens to be one such idea. Let the whole world hear it loud and clear. India is now wide awake. We shall prevail. We shall overcome,” Singh said. And it proved to be prophetic.

Today, India is inarguably the fastest growing major economy and the world’s fifth largest at $3.3 trillion, targeting to become a $5 trillion economy by 2026-27 and $10 trillion by 2033-34 at 10 per cent nominal growth while China has upstaged Japan several years ago to become the second largest. Few will doubt that the 21st century belongs to both India and China, and going forward, India will continue to reassert itself economically on the global stage.

While no other major economy has been expanding as fast as India lately, surpassing the pace of growth of both China and the US, the nation of 1.4 billion faces aggravating unemployment with 13 million people anticipated to enter the job market every year going forward. Economists debate whether India is adequately positioned to harness its demographic advantage, and doubt that in the absence of enough job creation, the much-vaunted demographic dividend would become a bane instead of a boon. Over the next decade, India will be the home state of 24.3 per cent of the incremental global workforce. Going forward, the growth drivers in its target of becoming a $30 trillion GDP by 2047 will be a consistent rise in domestic demand, increased international investment inflow, and the country’s ideal ecosystem for startups and unicorns, besides the macro economic trends of ‘China Plus One’, which refers to businesses reducing their dependence on China for production.

The powerful industries group, the Confederation of Indian Industry (CII), believes that the GDP can grow to $9 trillion by 2030 and $40 trillion by 2047 if its working-age population, which is expected to increase by over 100 million people in the next eight years, is productively employed. CII analysts observe that as part of the ongoing multi-decadal growth super-cycle, India is expected to add a trillion dollars to nominal GDP every few years despite the damaging effects of the Covid-19 pandemic, demonetisation and the IL&FS crisis that had shaved off Rs8.48 trillion in investor wealth crisis over the past few years.

The key challenge for the nation is to lift its per capita income significantly while creating millions of jobs. To achieve that, experts say India needs to grow at 8-10 per cent growth in the next 25 years while focusing on productivity boost. It has to increase the pace of reforms and re-orient the role of the government to deal with the challenges that the country might face in the next 25 years.

Additional job creation can be done on a sustained basis only with changes in its policy frameworks for education and workforce management. Closing the skill gaps of its qualified workforce will be critical, as India depends more on human capital than its peer countries that have a similar level of economic development. Skilling and reskilling require a coordinated response from the government, industry, and academia.

— issacjohn@khaleejtimes.com