Two key factors are in India’s favour at the moment. India is in a sweet spot with many global giants eager to exercise the China plus one strategy and look to India. Additionally, industry leaders have for long maintained that unless there is inclusive growth, there is no solution to poverty. It is a challenge where India seems to be making progress and winning.

Numbers matter, and all the more, if the outcome is to decide the placement in a global pecking order. To Prime Minister Narendra Modi, India’s ascent from the fifth to the third largest economy in the world is not just to be expected but is guaranteed. The arithmetic is already running in India’s favour. At over 6 per cent, it is growing faster than the two developed countries ahead at the moment – Germany and Japan, both trudging along at around 2 per cent. At some point, India is bound to bridge the distance and overtake them.

This is not withstanding the fact that China and few other countries are today seeing their populations age and workforces shrink or India, despite flailing global economy, seeing (in the January to March quarter of 2022-23) its current account deficit down to 0.2 per cent of GDP largely on account of a moderation in the trade gap and rising services exports. Or even the
growing strength of its capital market with the Indian stock market today the fourth biggest after US, China and Japan.

But then, taking just the pace of economic growth, it is not as if India is on a 6 per cent auto growth mode. Ensuring this pace is sustained, if not bettered, matters and hence what the government does becomes crucial. More fundamentally, why is this race for the biggest important and what difference can it make for the proverbial man on the street?

When Growth Supports Aid

Dr C Rangarajan, economist and former governor of the Reserve Bank of India (RBI) feels a move from being the fifth largest to the third largest economy will be an achievement and indicative of the country’s ability to demonstrate growth especially at a time when the general environment globally is not in favour of growth. He reminds that when the overall national income rises it will benefit the common man as well because the per capita income also increases. “I have always argued that growth supports aid through absorption of labour apart from ensuring greater resources in the hands of the government so that more social safety net programmes can be launched,” he says. But then, he also points out that if India is to get counted among the developed economies on a per capita income basis then India will need to maintain a tempo of 7 per cent GDP growth per annum consistently for two decades.

That sustained high growth and the resultant increase in per capita income, he feels, is crucial to make a fruitful difference for the man on the street. In a recent article in the Indian Express, Dr Rangarajan and D K Srivastava, chief policy advisor, EY India say: “while it is achievement that India is today the fifth largest economy, in per capita terms it is ranked (2022) 149 out of 194 countries and we have a long way to go.’’ They say so with good reason. For viewed from the yardstick of income per person, all the four big economies are still way ahead of India at the moment.

Shoring Up Incomes

It is this focus on raising the per capita income and the pace at which this is done is what really matters, says Naushad Forbes, the co-chairman of Forbes Marshall, a former president of the Confederation of Indian Industry (CII) and an author of an insightful book on India – “The Struggle And The Promise: Restoring India’s Potential.”

“While it is good to grow bigger,” Naushad Forbes feels, “what may really make a difference is when we make rapid progress in raising the per capita GDP” for that will ensure the average Indian gets a chance at better livelihood and towards leading a more comfortable and wealthier life. To hasten the pace on this, a good starting point to him is aiming to get to be where China is today. “Can we get there by 2047? Setting that as a minimum goal on per capita income, we could then work backwards on the required per annum growth needed for the next 25 years,” he says. A point that Dr Rangarajan seems to be making with that emphasis on a sustained 7 per cent growth target.

Two key pieces – education (primary, secondary and higher) and employment – will aid this process, says Forbes. The employment, he reminds, may not necessarily be generated by the government directly but triggered by the conditions created to facilitate this. One such step in that direction, he feels, could be just ensuring that the four labour codes that look at wages, industrial relations, occupational safety, working conditions apart from social security, which were all passed by the parliament but put on hold, get implemented. “These are so fundamental to our long-term growth trajectory,” he says.

Enlightened industry leaders and worshippers of the dismal science have both for long also maintained that unless there is inclusive growth, there is no solution to poverty. It is a challenge where India seems to be making progress and winning. The recent multidimensional poverty index put out by Niti Aayog says between 2015-16 and 2019-21, an estimated 135 million (13.5crore) people or close to 10 per cent of the population escaped poverty and the country witnessed a step decline in poverty headcount ratio from 24.85 per cent to 14.96 per cent. Though economists differ on the definitions arguing that this approach tends to look at poverty as a measure of deprivation as against the income concept used traditionally in the past.

The debate notwithstanding, the pitch for and focus on inclusive growth has an added imperative in times when technology is all pervasive and growth with efficiency, the new mantra. Typically, efficiency comes with replacing
human labour with machine therefore growth coupled with significant programmes for social security become crucial for those left out or lagging behind in the growth story.

Income & Inequality

Linked to the question of per capita income is also the issue of tackling income inequalities. Nachiket Mor, a former banker, expert on financial inclusion and a visiting scientist at the Banyan Academy of Leadership in Mental Health, has for long maintained that income inequality is a concern that needs to be addressed if the India growth story has to have a meaningful impact for all. He has for a long time said and also written that “while only a tiny proportion of Indians (about 8 per cent) make more than $10 a day (the global middle-class threshold), in absolute numbers, they make up about 100 million people and account for over 50 per cent of India’s GDP of over $3 trillion and with a per-capita income of $15,000 in nominal terms.” This alone presents itself as a large enough market that can function independently and benefit from all the luxury on offer without having to worry about the rest of India.

Those at the bottom-end of the income pyramid, he reminds, tend to be desperately look for any possible means to sustain themselves and willing to work for wages so low that in purchasing power terms, they end up helping propel those in the higher per capita income bracket to a lifestyle equivalent to that of people living in some of the wealthiest countries in the world, such as Sweden and Denmark, with $60,000 per capita incomes, with no real benefits accruing to them. But to make a difference for the really poor, he says, “their own engines of growth needs to be activated and aided by better healthcare, better education, access to financial services in the remotest districts, and the benefits of urbanisation made available to densely populated rural settlements.”

Economists often quote examples of how Japan, Korea and China grew at 10 per cent per annum in the past and something that India missed. But if in an integrated world where Indians are today quite capable in dealing with the technology that the world is now using and aspire for incomes comparable with what exists in the west, those at the bottom-end (whose wages get decided by the opportunity cost of their task – be it a sweeper or a watchman) also need an increasing chance at moving up and getting absorbed by an expanding industry.

Beyond Macroeconomic stability

This, say economists, gets us back to the role of the government. What will therefore be watched will be the ability to maintain macro and micro economic stability, progress on real investments, creation of an environment which is business friendly and includes correcting all sorts of regulations and procedures that Naushad Forbes referred to coupled with improved logistics to aid ease in movement of things in and out of the country in a seamless manner. A link up with global supply chains, some feel, also matters.

A highly regarded former bureaucrat, who did not wish to be named asks: For instance, can there be changes in the norms in relation to the Bilateral Investment Treaties (BIT) that stipulate that recourse to arbitration abroad for disputes arising out of a BIT is possible abroad only after the exhaustion of local remedies (which some argue could in some cases take years)? It is changes in norms such as these, he says, that will lead more global players to look to India for manufacturing.

At the moment, India is in a sweet spot with many global giants eager to exercise the China plus one strategy and look to India like Apple and others have done. Yes, some like the bureaucrat could argue that it is the assembly operations of Apple which is different from production operations.

This shift could happen too. If, as is expected, India gets fabs – chips and semiconductor making. What will therefore be watched is the ease with which those and other businesses are able to operate, the jobs they can create and the resultant fillip to income generation. The unfolding journey on this will matter not just for the policy makers but even for the man on the
street.

https://www.financialexpress.com/economy/how-can-indias-fifth-to-third-largest-economy-journey-matter-for-the-man-on-the-street/3192495/