Painting a New India - Dream & Development 2047!

The goal of India to become a developed nation is inspiring and challenging. As India leaps towards its centenary of independence in 2047, the nation's aspiration to become a developed country is an ambitious and intricate endeavour that needs our support and understanding.

While the dream is feasible, its plausibility is contentious. Nonetheless, India has the potential to emerge as a superpower with an economy rivalling that of the United States.

This article delves into the pathways India might take, the hurdles it will encounter, and the global implications of its rise.

The Economic Rise: A Holistic Analysis

India is poised to enter a new era of economic growth and development. Prime Minister Narendra Modi has set an ambitious goal for India: to achieve developed country status by 2047, marking the centenary of its independence. This vision reflects the nation's potential and determination to transform itself globally.

India's economic landscape has dramatically transformed over the past 75 years. At the time of independence, agriculture was the backbone of the economy, contributing 56% of the GDP. Today, India stands as a predominantly service-oriented economy, with the services sector accounting for over 50% of the GDP, while agriculture's share has diminished to less than 20%.

With the seventh-highest final consumption expenditure globally, private and government consumption accounts for over 70% of the GDP. According to the World Economic Forum's 2019 report on the Future of Consumption, India is expected to add approximately 140 million middle-income and 21 million high-income households by 2030.

To further bolster infrastructure development without compromising fiscal health, the government has launched an asset monetisation scheme. This initiative aims to unlock the value of existing public assets, generating resources for future investments. By securitising future cash flows from infrastructure projects, India can undertake more extensive infrastructure initiatives while maintaining budgetary discipline, a move that is likely to appease sovereign rating agencies.

Projections for India in 2047 are promising. The country's per capita income could soar to USD 26,000, nearly 13 times the current level. This economic growth will be fueled by a youthful population, with the median age projected to be 31 in 2030, compared to 42 in China and 40 in the US.

India's economy has demonstrated remarkable resilience due to several factors. The growth of domestic institutional investors (DIIs) and the increasing confidence of foreign institutional investors (FIIs) have provided stability to financial markets. The digitalisation and formalisation of the economy have strengthened tax revenue resilience. Meanwhile, India set to become the third-largest consumer market by 2030 has ensured demand resilience, reinforcing India's strong medium- and long-term economic outlook.

By 2030, an estimated 90 million new households will be headed by millennials, who bring a distinct approach to consumption and service expectations. India's journey towards becoming a developed nation by 2047 is filled with challenges and opportunities. With a strategic vision, robust economic fundamentals, and a youthful, dynamic population, India is well-positioned to achieve its ambitious goals. The next quarter-century promises to be a transformative period for the world's largest democracy, paving the way for a prosperous and developed India.

Technological & Manufacturing Front

Despite this potential, the US would remain more technologically advanced with higher productivity. India's manufacturing sector is unlikely to rival China’s, as its industrial sector’s share of GDP is smaller and declining. Nevertheless, India’s vast population and burgeoning economy could still position it as a formidable superpower.

For India to sustain its growth, its economy must grow at least twice as fast as global output. It necessitates that its exports grow similarly to prevent the trade ratio from falling and avoid becoming a more closed economy.

However, India is currently shifting inward, prioritising domestic demand over export orientation, and increasing trade restrictions—a reversal of the past three decades' trend.

India's path to economic recovery hinges on embracing growth rather than stressing already strained balance sheets. Increasing household consumption alone cannot fuel this growth due to the rapid rise in household debt over recent years. Therefore, sustainable consumption growth would be contingent on rising incomes.

Dispelling Myths: India’s Market Size & Export Potential

Three misconceptions drive India’s inward turn:?

• The belief in its large domestic market
• Growth has been driven by domestic rather than export markets?

• The assumption is that global opportunities are dwindling due to deglobalisation

India still has significant export opportunities, particularly in labour-intensive sectors like clothing and footwear. To exploit these opportunities, India would require greater openness and global integration.?

In the aftermath of COVID-19, India's debt-to-GDP ratio is projected to surge from about 70% to approximately 85-90%, with deficits likely reaching double digits. This scenario severely restricts fiscal space for additional spending due to high deficits and indebtedness. Without significant growth, adverse debt dynamics will persist. Consequently, India cannot afford to forsake an export-oriented approach, given the geopolitical scenario. The country's untapped potential might lie in unskilled labour exports.

Let's understand this "untapped potential" and how India can achieve its "Lewis Turning Point."?

Research from the Ashoka Centre for Economic Policy highlights that India is missing out on $140 billion (around 5% of GDP) by not leveraging its competitive edge in low-skilled, labour-intensive, export-led manufacturing. Post-COVID, investor migration away from China will likely accelerate as businesses seek to mitigate supply chain risks. Now, a chance has emerged from geopolitical shifts, presenting India with a significant opportunity to seize.

Historical comparisons with China and Vietnam during their textile and clothing export booms reveal a reliance on imports. India's current import share is about 24.15 %, indicating a need for increased imports and openness to replicate their success. For instance, eliminating tariffs on all inputs, particularly the long-standing tariff on man-made yarn, is crucial because it is expected to rise by 75%. Additionally, signing free trade agreements with Europe, which currently imposes nearly 10-12% on Indian clothing exports, would level the playing field.?

In China, almost 90% of imported textiles and clothing are included in exported goods. Although China's reliance on imports has decreased, it has still been successful. The dependence on imported goods is even higher in the IT and electronics sectors, indicating that these industries will also need to become more open.

Lessons from China

India’s growth trajectory differs from China’s. China expanded into exports due to an insufficient domestic market for its goods. With its 'Atmanirbhar Bharat' initiative, India aims to bolster its economy and balance of payments.

As India considers Atmanirbharta, it might be essential to recognise two core benefits of export orientation:

• Foreign demand invariably exceeds domestic demand for any country.

• Second, there is a fundamental asymmetry: if domestic producers are competitive internationally, they will thrive domestically, benefiting both consumers and firms within the country.

Unlike China, which reduced its import dependence after achieving export success, India’s sectors, especially IT and electronics, still require greater openness.

The Importance of Global Integration

India’s share in global merchandise exports was a mere 2.2% in 2022, compared to China’s 17.6%. Its commercial services exports were only 4.4% of the world total, far below the US’s 12.8% and China’s 6%. Thus, maintaining and enhancing global trade relationships is vital.

India's primary challenges are internal and increasing geopolitical conflicts. It would be essential to prioritise stability, enhance education, uphold the rule of law, improve infrastructure, create a favourable investment climate, attract more investments, and speed up the transition to cleaner energy to ensure continuous and sustainable growth.

Conclusion

ViTWO concludes that the journey towards development is multifaceted, encompassing more than just economic metrics. It involves understanding and reforming the financial system, reviving investment, and expanding the employment net in every strata of India.

These efforts are essential not only for economic growth but also for providing a robust safety net. By capitalising on its unskilled labour export potential, embracing greater openness, and making necessary policy changes, India can turn current challenges into opportunities. This approach would not only rehabilitate COVID-19 economic hardships but also ensure sustainable economic growth in the long run.

India’s potential to shape the global economy is significant, and by leveraging its strengths, such as its influential diaspora and strategic international relationships, it can lead to global trade liberalisation and economic diversification. The goal of becoming a developed nation by 2047 is challenging but within reach if India navigates its internal and external challenges effectively.