India – where are we headed?

The last few years have been disastrous for the Indian economy. The growth has stalled, and there are no signs of it going back to 8% levels. COVID–19 is still ravaging the world economy, and we don’t know how the growth will look like in the Corona aftermath. 

I thought about doing this prediction (I know it’s stupid, but it’s fun) while reading Restart: The last chance for the Indian economy by Mihir Sharma. It’s a tolerable book, although the author is obsessed with reviving the Indian manufacturing sector. I won't recommend it to anyone, but the author makes a pertinent point about the lack of economic reforms in India. He writes no government in India has been ever serious about economic reforms. I see eye to eye with his thoughts. One reason why the Indian industry remains uncompetitive even in 2020 is the inability of successive governments to liberalise the economy and create a reliable regulatory environment for strong sustainable growth. Indian economy remains in doldrums, controlled and regulated by numerous ministries and departments, and there are no signs of it changing in the future.

But before we go ahead, I would like to clarify why I have delved deep into socio-cultural issues in this article. I love writing about economics, but when I started this ordeal, I realised it will be unethical to not highlight the political and cultural causes behind our unsatisfactory economic performance. I know what I have written is controversial, and it is bound to offend a lot of people. But I bit the bullet and went ahead with it because I wanted to shed some light on the reasons that I believe are holding this country back. I didn't have anyone particular in mind, and my intention is not to hurt anyone's feelings. For those who choose to disagree with me will do well to remember Voltaire thoughts on liberty and freedom before jumping the gun and criticising me.

"I disapprove of what you say, but I will defend to the death your right to say it."

Mihir Sharma wrote the book in 2015, one year after Narendra Modi's victory march with the biggest mandate since 1984. Most Indians were not even born in 1984 and had little memory of India's socialistic past. Most of us including me had huge expectations from Mr Modi, but unfortunately, he failed to deliver on his economic promises. He has acted exactly like his predecessors and has shown no appetite for reforms. He has taken no concrete steps to open the economy and attract foreign investments. Instead, he has built a divisive, religious, nationalistic, and welfare state, similar to Recept Tayyip Erdogan's Turkey. This government is borrowing money we can’t afford to build a welfare state we don't need. The future looks dismal.

Brazil and not China

But despite all these headwinds, India will continue to grow moderately over the next few decades. The efforts and entrepreneurial energies of a minority of its population will ensure reasonable growth. However, most of us will wistfully talk about what India could have been rather than what it became in 2050. There are ominous signs that India would become another Brazil in a few decades – a lower-middle-income economy rife with inequality, corruption, poverty, and religion. But if it were to happen, it won't be as terrible as it appears now. After all, we are supposed to be the next China and not the next Brazil. But the roots of this malaise are rooted in our culture.

Why religion is a bane?

Most Indians belief in religion is strong and will remain so in the future. It never ceases to astound me whenever young educated Indians exhibit such a strong belief in God and religion. While the Western youth is moving towards atheism and new gender identities, its Indian counterpart is discovering God and mysticism. Most Indians believe in the supposed superiority of their culture over the West and remain tormented with historical injustices and colonisation, even though 95% were not even born when the British left India. Their extraordinary belief in a wider Western conspiracy about belittling India and West's unceasing attempts on destroying our superior culture bewilders me. Most of us want a government that gives us a Ram temple in Ayodhya over economic growth. Hence, it is just we will get the country we deserve rather than the one we want, and I have made my peace with it. The ancients were right when they said you reap what you sow.

The "self-proclaimed liberals" in this country are even worse. They hate Hindusim for no obvious reason and believe Islam is the best thing since sliced bread. They are corrupt, delusional, and inconsequential. They lack support from Hindu masses while most Muslims support them because they are Anti-Modi. Thankfully, this “intelligentsia” is confined to university campuses, media houses, and twitter, and I am glad this right-wing government is slashing public funding of these universities and institutions. It is not prudent to waste our limited taxpayers money on supporting this corrupt and worthless clique.

Drivers of the future growth

But coming back to the economic growth, the future looks bleak but not dreadful. India does have certain advantages. We have a massive domestic market, a large half-educated workforce, some natural resources, a few enormous conglomerates, and a lot of entrepreneurs. A large chunk of our economic growth will emanate from these conglomerates who will continue to prosper thanks to crony capitalism and a broken system. The silver lining is a lot of young Indians will take risks, become entrepreneurs and create good businesses despite operating in a system that hinders them at every level. These startups will be a big driver of our economic growth, and we should thank these young blood for dreaming and taking risks. India will remain an excellent place to start companies in sectors not controlled by the government because of its massive market and rising demand. Consumerism has smitten the country, and it will continue to shore up the economy for decades. 

We won’t produce a lot of stuff that we can export, but we will continue to create enormous content and services for the “ emerging middle class”. Global investors will continue to flock India, and global MNCs will keep on setting up factories to produce consumer goods for 1,4 Bn consumers.

The majority of our young men and women will enjoy their lives consuming free content on dirt-cheap internet, going to temples, and working in the informal economy.

The government will progressively increase subsidies and dole-outs to ensure food on the table for poor Indians, and everyone will be content forwarding junk on Whatsapp and raving about our 5,000-year-old Vedic culture. Thankfully, it won't lead to civil war and anarchy because most of us will make peace with our unfulfilled lives. We won’t even know about it because this mindless media consumption will keep us busy.

To borrow a quote from an intelligent lad I have the honour of knowing, most Indians will stay comfortable amidst their opinions than discover realities in the discomfort of ideas.

3% real growth in GDP per capita every year – US$ 5,100 in 2050.

The big question is where will India be in 2050? India's population growth is declining, and the trend is expected to continue. Most think tanks predict the population growth will average around one per cent over the next 30 years. If our real economic growth averages around 4% over the next 30 years, our annual GDP per capita growth will be 3%. We can ignore inflation and currency depreciation from this analysis because we are using current (2020) US$ to measure the future GDP. Our GDP growth rate, when measured in INR, will be higher, but it likely INR will continue on its downward trajectory against USD because of inflation and current account deficits. This will bring down the USD denominated GDP growth rate. Similarly, high or low inflation will impact our nominal GDP, but the real GDP won't change.

A 3% annual growth for 30 years will increase India's GDP per capita by 1.4 times the current value (US$ 2,100).

This will boost India's GDP per capita to $ 5,100 GDP (in current US$) in 2050. To give you some perspective, Brazil's and China's GDP per capita was $10,100 and $ 8,800 respectively in 2019.

The actual GDP per capita in 2050 will be higher because inflation will erode the value of USD. So the actual GDP per capita could be US$ 8,000 or US$ 9,000 in 2050, but that number would be equivalent to 5,100 in current US$. I am certain India's actual growth won't be exactly 3%, but this number (4% annual real GDP growth in current US$) is neither conservative nor outlandish for a 30-year prediction.

To cut a long story short, the income of an average Indian should increase by 1.4 times in the next 30 years. And to be honest, it doesn't look terrible considering our situation. Few nations have managed to achieve this kind of growth in human history. Hence, if we accomplish this, it will be nothing short of a miracle considering our infrastructure, mindset, and policies.