Addressing the nation on August 15, 2022 – the 75th year of India’s independence – the Prime Minister laid down a vision for the next 25 years, to become a developed nation by 2047.
To transform this vision into reality, several key factors must be addressed and prioritised while focusing on strong macroeconomic fundamentals, structural reforms, demographic dividend, manpower skilling, technological advancements, sustainable practices and good governance.
To become a developed country by 2047, India’s per capita GDP needs to rise by 8.8 times from the current level.
India as a Developed Country : The World Bank classifies countries as low-income, lower-middle-income, upper-middle income and high-income countries based on per capita income (PCI). As per World Bank classification, a country with a per capita income of US$ 13,205 or more in 2022-23 is classified as a high-income country.
The International Monetary Fund (IMF) classifies countries into two major groups: advanced economies (AEs) and emerging market and developing economies (EMDEs) based on three criteria: (i) per capita gross domestic product (GDP); (ii) export diversification; and (iii) global financial integration.
- IMF : To achieve this target, the real GDP compound annual growth rate (CAGR) required for India should be 9.1 per cent during 2023-24 to 2047-48.
- World Bank : To achieve this target, the required real GDP CAGR for India works out to be 7.6 per cent during 2023-24 to 2047-48
Another feature that marked the growth path of these economies was the gradual transition from an agriculture-led to an industry and services-led economy with the share of the agriculture sector reducing to below 5 per cent of GDP.
Along with achieving high per capita income, the goal should be to accomplish all-round development ensuring quality of growth and sustainability in the use of natural resources.
Growth Accounting : The neoclassical growth theory postulates that economic growth is the result of three factors – labour, capital, and technology. The growth accounting exercise reveals that India’s growth is mainly driven by non-information and communications technology (non-ICT) capital. Despite India being a labour-abundant country, the contribution of both quantity and quality of labour to overall growth is diminutive.
- Accumulation of Capital to Upscale Production : Given the development requirements of the country, capital accumulation needs to be at a faster rate with focus on both domestic and external sources for capital formation. Considering that a significant portion of India’s household savings primarily consists of physical assets, gold and silver, there is a crucial need to efficiently mobilise and direct these resources towards investments.
- Skilling the Indian Labour Force to Reap the Demographic Dividend : Given India has vast human resources, investment in human capital is crucial to take advantage of the large working age population. A significant portion of the Indian labour force is employed in the unorganised sector (above 90 per cent of total employment) , and employability of the existing workforce is only around 50 per cent.
- Promoting Health and Education : The private sector should play a proactive role in promoting quality education and health system. General government expenditure on health and education in India at 1.8 per cent and 3.1 per cent of GDP.
- Enhancing Total Factor Productivity : TFP growth is also found to be a prime factor in a country’s upward transition from middle-income to high-income country group. To enhance productivity, faster diffusion of global frontier technologies to domestic firms through strengthened value chains is required along with reallocation of labour force from low to high-productive sectors.
- Research and development : Low investment in R&D, particularly by the private sector, is a key impediment to reaping benefits from potential productivity gains. Despite economic slowdown in the post-global financial crisis period, major economies increased their R&D expenditure, while it remained low and almost unchanged for India.
Steps taken By India for growth :
- Energy security : Currently, coal accounts for more than half of India’s primary energy consumption, second only to China among the major economies. To reduce its dependence on conventional sources, India has committed to meet 50 per cent of its energy requirement from renewable energy by 2030. Pushing for renewable energy, the government is proactively taking various policy measures to incentivise the production and usage of renewable energy.
- Tourism : India has a major advantage as a tourist destination in the form of its rich endowment of natural and cultural resources, robust air, ground and port infrastructure, and price competitiveness.
- Security to Export-import Supply Chain : Exposure to global supply chain disruptions is quickly transmitted to domestic supply chains, especially from those countries from where India sources a large part of its requirements of raw materials and intermediates. Thus, it becomes essential for India to work towards securing its supply chains. With a focus on the same, the National Logistics Policy (NLP) was launched in September 2022 to: (i) reduce logistics costs comparable to the global level by 2030 through the policies to improve efficiency and multimodal connectivity via Unified Logistics Interface Platform (ULIP) under PM Gati Shakti; and (ii) create data-driven decision support mechanism for an efficient logistics ecosystem with the use of AI and ML.
Roadmap to India’s Growth :
- While services sector will continue as the main driver of economic growth, India must also focus on widening its manufacturing base to meet the demand of large domestic market.
- It is important to enhance the efficiency of the domestic financial system to improve the allocation of resources to productive sectors. Investments in India have been primarily fuelled by domestic savings.
- The lack of credit history of borrowers and good collateral, combined with information asymmetry, exacerbates the challenge for lenders to lend. Technological innovations in the financial sector have improved the credit delivery mechanisms, and the scope for further innovation in banking and financial products and furthering differentiated banking needs to be explored.
- Along with improving the skill-set of the labour force, it is equally important to bring more working age population into the labour force. As of now, only one-fifth of women are part of the labour force, which is one of the lowest in the world. There is a need to increase the participation of women in the workforce by spreading awareness to influence social norms in favour of working women; incentivising institutes to maintain the diversity of students and employees; flexible working hours; women-friendly policies and facilities at workplaces, availability of work closer to the household; and increasing formalisation of jobs.
- Various initiatives taken by the government to promote economic development and improve ease of doing business for MSMEs are expected to bring better synergies between the organised manufacturing sector and MSMEs.
India could become a developed country by 2047 with an average annual real GDP growth of 7.6 per cent sustained over the next 25 years. The task, however, may not be easy, given the current level of capital stocks, infrastructure and skill sets of the people.
India needs to follow a multipronged approach for engaging the large pool of labour force productively and harnessing growth opportunities in knowledge-oriented sectors. While augmenting capital and empowering human resources could place India on the desired growth trajectory, technology will be a key player in this transformation.