Hope 2022: India’s Rise in $100 Trn Global GDP
India is poised at the cusp of a global rethink given the faultlines emerging in China. Capitalising on the opportunity demands a quantum change in how the political class practises politics.
By Shankkar Aiyar |Published: 02nd January 2022 06:51 AM |
It is not all gloom and doom up ahead. There is good news amidst headlines about the world wrestling with the humongous footprint of the Omicron wave as travellers are grounded, flights are cancelled, work from home is extended and cities are under curfew. The world economy is expected to be at a better place, on a higher ledge at the end of 2022.
In its 2022 report, the Centre for Economic and Business Research informs that better than expected economic growth (at 4.2 per cent) will propel world GDP to over $100 trillion, higher than it was pre-pandemic and ahead of the previous deadline of 2024.
The feel good factor for India is that it will overtake France in 2022 to occupy the position of the sixth-largest economy in the world.
The contrast, the despair triggered by the new wave and the hope about the economy, is riveting — even though not entirely inexplicable. Public sentiments are influenced by the view in the rearview mirror, largely the experiential. Economic forecasts are forward looking and estimate the response of what Adam Smith called ‘invisible hands’, and more contextually resilience, to crisis and change. Of course, much depends on how the world navigates the pandemic — and the next Black Swan event.
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The details of the CEBR report merit granular attention. The GDP of the United States at over $22 trillion is larger than the combined GDP of over 150 countries. Just four countries — US, China, Japan and Germany — account for over half of world GDP. That said, the centre of economic gravity is visibly shifting to Asia with China, Japan, India and Korea adding up to over $26 trillion in 2021.
The report forecasts that while China will overtake the US to top the table in 2030, India will overtake Germany by 2031 to be the third largest economy of the world with a GDP of over $6.8 trillion.
In a sense, this could be interpreted as a reversion to a historic mean. In his seminal research on who was where in the global economy, British economist Angus Maddison has estimated that incomes in west Europe in 1000 were below that in India and China. In the 1700s, India and China commanded major shares in global trade. This was before the wealth and resources of India (and that of China) was plundered by the colonial powers post the 18th century. By 1950, both India and China were penurious and disadvantaged in the global economy. The return of China and India to the top rankings, even if three centuries later, also signals a tectonic shift in geopolitics.
It is true that the rise and re-ranking of China and India was and is powered by demography.
Equally it is useful to note that demography by itself does not necessarily deliver the desired destiny — around 42 per cent of India’s workforce is deployed in agriculture and must subsist on a sixth of national income.
To appreciate the emerging challenge, consider the march of demography. India is expected to overtake China in population by around 2026. When it does so, India will have more people than China in about one-third the geographical area and its GDP at around $4.6 trillion will be roughly a sixth of China’s GDP at $24 trillion.
India’s biggest challenge is to shift its workforce to productive domains. Reconfiguring growth calls for sequencing and speed in reforms. The rise of China illustrates this. In 1990, China’s GDP was $360 billion and India was at $320 billion. China modernised agriculture followed by rapid opening up of its economy in the Deng Xiaoping era.
India was slow off the block. The much-praised ‘1991 liberalisation’ came in the wake of a crisis, and reforms have been in fits and starts. Economic growth demands the leveraging of the factors of productivity — land, labour, capital and now technology.
Attempts to liberate productivity have been shackled by parochial partisan politics at the Centre and the states. Leverage of technology is constrained by inadequacies in the regulatory landscape. In 2021, China’s GDP stands at $ 16.8 trillion while that of India is $2.95 trillion.
Change need not await another crisis. India is poised at the cusp of a global rethink and pivot given the faultlines emerging in China. As the world pivots to prop supply chain resilience, India can be the producer and the consumer which global economies are looking for.
It can showcase its visible techno prowess (and the emergence of unicorns) to position itself as the investment destination for the much vaunted ‘fourth industrial revolution’. Clearly, capitalising on the opportunity demands a quantum change in legislation and regulation.
It has been frequently argued that India’s demographic dividend is detained and hurt by a democracy discount. The bane is not democracy per se but the practitioners of politics.
The fact is the dynamics of politics allow India’s parties to oppose while in opposition that which they propose in power. India’s political class is invested in rent-politics and has forged a strong consensus for weak reforms.
Aspirational Indians await the dismantling of status quoism — for India to live up to the promise of its potential. The post-pandemic landscape of the economy calls for a reset in how the political class practise politics.
Shankkar Aiyar, political economy analyst, is author of ‘The Gated Republic –India’s Public Policy Failures and Private Solutions’, ‘Aadhaar: A Biometric History of India’s 12-Digit Revolution’; and ‘Accidental India’. You can email him at firstname.lastname@example.org and follow him on Twitter @ShankkarAiyar. His previous columns can be found here. This column was first published here.