As India marks its 75th Day of Independence, the one question some economists could raise is whether the nation will ever regain its ancient clout as a global economic superpower.
The second question is, when and how that will happen. More precisely, is Asia’s third largest economy primed, and on track to achieve that dream goal 25 years from now when it decks up for the landmark centenary celebrations as a free nation?
Today, as the turbo-charged nation of 1.39 billion people sets itself on a new growth track after navigating a pandemic-induced economic devastation, few doubt India’s ability to regain its position as the fifth-largest economy by 2024 and emerge as the third-largest by 2030 in dollar terms and remain in that position until 2035.
China, the neighbour with whom India shared a long-enduring glory as one of the top two economic superpowers until 300 years ago, is now set to overtake the US economy in 2028, five years earlier than in 2033 as previously forecast, according to the latest World Economic League Table 2021 published by the Centre for Economics and Business Research (CEBR).
Starting from 1 AD and for a long time after that, India and China were the world’s largest and second largest economies. During the Mughal era of 1600, the gross domestic product (GDP) of India was estimated at about 22 per cent of the world economy, the second largest in the world, behind only Ming China but larger than Europe. The Mughal Empire was producing about 25 per cent of the world’s industrial output up until the 18th century.
In 1700, China and India were still the largest economies, albeit some historians say China was slightly ahead. Both are estimated to have GDP of around $100 billion, purchasing power parity terms, with US dollar taken at its 2015 value.
A research by PWC shows that both nations are right on target to recreate that ancient glory. The research predicts that the world economy could more than double in size by 2050 due to continued technology-driven productivity improvements with emerging markets growing around twice as fast as advanced economies on average. As a result, six of the seven largest economies in the world are projected to be emerging economies in 2050 led by China (1st), India (2nd) and Indonesia (4th). The US could be down to third place in the global GDP rankings while the EU27’s share of world GDP could fall below 10 per cent by 2050.
If that happens, it will take 350 years (1700 to 2050) for China and India to lead the world in GDP terms again.
Over the past two years, India has been knocked off course due to the impact of the pandemic. Consequently, after overtaking the UK as the fifth largest economy in 2019, India was relegated to the sixth position in this year’s forecasts. By 2024, India will again surpass the UK as the fifth economic power,” the report said.
In 2020, the Indian economy ($2.829 trillion in 2019) was hit hard by one the strictest lockdowns in the world imposed to ward off the spread of the Covid-19. As the economic activity stalled, India’s GDP contracted by a record 23.9 per cent in the June quarter of 2020, which was among the sharpest declines among major emerging and G-20 economies. But the lifting of the lockdown since June and easing of curbs led to a sharp recovery and the contraction narrowed to 7.5 per cent in the September quarter.
The Reserve Bank of India now expects the economy to return to positive territory by the third quarter of the current fiscal year that ends in March. India is forecast to record robust growth in 2021-22 due to the low base and the pace of recovery, which had been sustained on the back of measures unleashed by the government and the central bank.
As a result of the crushing impact of the pandemic on all sectors of the economy, India will have to wait to achieve its target of emerging as a $5 trillion economy by 2024. Economists say it will take a few years before India’s economy returns to the 7-8 per cent growth trajectory.
India’s buoyant economic recovery in 2021 is estimated to be at 8.3 per cent by the World Bank while the federal government predicts a 10.5 per cent upswing. The International Monetary Fund forecasts a growth of 9.5 per cent. These recovery-year numbers, taken with the pandemic-driven drop in GDP last year of 7.3 per cent, yield an annual growth rate of about one per cent. Indeed, the World Bank says this is going to be the best recovery year for the global economy in 80 years, whereas India has a few years in the last 40 when it did better.
Since its independence in 1947, India has achieved spectacular progress in boosting growth, income levels and standards of living. The GDP increased from Rs2.939 trillion during 1950-51 to Rs56.33 trillion during 2011-12 (2004-05 constant prices). In 2018-19, India’s GDP was valued at an estimated Rs140.776 trillion (2011-12 constant prices).
The process of liberalisation that was started during the mid-1980s to make the Indian economy more open to trade and external flows gained pace during the 1990s. The objective was to improve the efficiency of the Indian economy through reduction in trade barriers such as import tariffs.
The paradigm shift happened when PV Narasimha Rao took over as the prime minister in 1991. He along with the then Finance Minister Manmohan Singh rolled out a spate of game-changing reforms and set into motion a new industrial policy that laid emphasis on liberalisation, privatisation and globalisation, leading to a higher GDP growth rate, a big surge in foreign direct investment and remarkable increase in the per capita income.
Years of economic liberalisation saw Indian economy taking giant strides, and the first decade of the 21st century witnessed the sweeping impact of the changing tide. Under Prime Minister Narendra Modi, another round of bold reforms and fast-paced developments catapulted the economy to a higher growth trajectory, notwithstanding the deep scars left by the demonitisation of 500 and 1,000-rupee notes in a drive “to break the grip of corruption and black money.”
The NDA government replaced the Planning Commission with NITI Aayog (NITI stands for National Institute for Transforming India) to usher in a new era of economic progress. After implementing ‘Make in India’, ‘Skill India’ and ‘Digital India’ mission in July 2017, Prime Minister Modi announced the implementation of the Goods & Services Tax, making India one of the few countries to have a tax law that unifies various Central and State tax laws, thereby facilitating inclusive growth of the nation.
The pace of innovation continued at a fast pace with major reforms such as the Insolvency and Bankruptcy Code, and Ease of Doing Business reforms, among many others, being introduced. All these measures promise to usher in a bold new era of unprecedented growth and all-round developments.
India@75 is the new milestone on which the country has set its sights, the year 2022 when it completes 75 years of Independence.
Today, India has developed a significant footprint in the global economy. The value of exports of goods and services stood at just around $0.1 billion during 1950-51 while merchandise exports were valued at $330 billion in 2018-19. In services exports, India has emerged as the top exporter of IT services.
The country has also come a long way in terms of improving its human development indicators. Literacy rates have increased significantly as the country made significant strides in terms of industrial development. The Industrial Policy of 1991 constituted a major economic reform and was introduced to reinvigorate the industrial sector. The policy dismantled the system of industrial licensing and opened the sector for greater private sector participation as well as foreign investment.
India’s manufacturing landscape also underwent tectonic changes. For instance, the automotive sector attracted global multinationals and built up a range of products of global quality standards. In pharmaceuticals, India is now a major producer and undertakes research to develop new drugs. Engineering and electrical machinery goods have evolved to global benchmarks as well.
In services, new sectors such as Information Technology and telecommunications have transformed the landscape, creating new opportunities such as e-commerce and startups. India’s IT skills are renowned the world over.