India is on the march!
It became a 3.0 trillion economy this year (IMF World Economic Outlook, Oct 2019). It took us nearly 60 years after independence to reach the 1 trillion mark, only 12 years since then to take it to 3.0 trillion and only 5 years, from 2014-2019, to take it from 2.0 trillion to 3.0 trillion. Prime Minister of India has set a goal of achieving the 5.0 trillion mark by 2025 and we are all working diligently to achieve that goal.
India’s growth story is based on its fundamentals. While accelerating growth, we have also achieved macro-stability, inclusive and sustainable growth. We have achieved high growth maintaining social cohesion, democracy and rule of law.
I will discuss each of these in turn.
Inflation used to be a problem in the early stages of our development. It used to erode incomes, cause hardship to our citizens and even bring down the political governments. All that has changed. From near double digits, inflation has been brought down to the 4.0 percent level over the last five years. India’s fiscal and current account deficits which used to be 6.00 and 3.00 percent respectively a few years ago, have been brought down to half. With this internal and external macro-stability, India’s national currency, The Rupee, has become relatively stable and India has become a favourite destination for investment among the emerging markets.
Inclusion can be the biggest failing of rapid growth across the world. But India has managed it remarkably well! Income Inequality has been a problem in many advanced economies, but India has managed to pull millions out of poverty ever since growth accelerated following the liberalization of the 1990’s. According to the Oxford-UNDP Report on multi-dimensional poverty, India has lifted 271 million people out of poverty between 2006 and 2016.
Social Inequality in India has been addressed through affirmative action and improved opportunities for the disadvantaged groups who were systematically left behind by the travails of history.
Spatial Inequality has been dealt with by redistribution of financial resources through the Finance Commission set up once every five years and through the mechanism of centrally sponsored schemes and investment incentive for the backward areas.
India’s Constitutional democracy is exemplary. We have survived and prospered while several other nation states post the world war have fallen. Our Constitution guarantees fundamental rights to all our citizens with an independent Judiciary to enforce them. Together with growth and development India’s socio-political and institutional framework has promoted social cohesion and helped build a fair and equitable State that is run for, by and of the people!
Advantage India: India enjoys a demographic dividend. Its working age population is larger than its non-working age population and this dividend is expected to last till the middle of the 21st century. It is likely to propel growth for at least three decades to come. Serious attempts are being made through the Skill India Mission to skill nearly 400 million people and ensure the benefits of demographic dividend translate into growth and development for our economy. By 2030, India is projected to have a skilled labour surplus of over 200 million workers and would be a net supplier of skilled workforce for the entire world. They would also be English speaking, globally mobile and driver of growth for economies around the world.
Largest Market Base: India will soon have the largest market base (population), and with rising per capita incomes, will go on to be the largest market in the world. By 2030, one in two households is expected to be middle class. By then, India would also be an upper middle-income country as per the World Bank classification. This essentially means, by the middle of the 21st century, India would be the largest market on earth, a country which no power would be able to ignore, and whose economy would be closely linked to product markets around the world through global value chains and to the factor markets through investment capital and skilled workforce.
Foreign Investment: India has undertaken unprecedented structural reforms since the liberalization of the 1990’s. Several industries have been de-regulated, many state-owned enterprises privatised and government has opened its doors to Foreign Direct Investment. India today has one of the most liberal FDI regimes, with more than 90 percent of foreign investment flowing-in through the automatic route. Over the last five years, Government has undertaken deeper FDI reforms liberalizing defence, construction, single brand retail, contract manufacturing, aviation, financial services, mining etc. As a result of these initiatives, India achieved record FDI flows of US $286 billion between 2014-15 to 2018-19 making it the one of most attractive FDI destination across the world.
Tax Reforms: India has undertaken monumental tax reforms. Goods and Services Tax has done away with cascading, differential tax systems and brought a complex federal polity under one nation, one tax regime. It is now being simplified further to internalize efficiencies and to evolve a moderate and efficient tax system that creates an integrated market for the whole economy. Corporate tax reforms announced recently are equally historic. Corporate tax rates have been brought down from 30 to 22 percent and for new investments to only 15 percent making India one of the most competitive industrial locations across the world.
Infrastructure Investment: Logistics had been a long-standing bottleneck for businesses, which traditionally made the Indian economy less competitive. We have taken up the challenge in full earnest and would be undertaking a massive 1.4 trillion investment in infrastructure over the next five years. Five years ago, we used to build 12 km roads per day; today we build 30 km per day. We are modernizing our railways and have undertaken major upgradation of our ports and airports through the public private partnership route. You will see modern logistics improve efficiency of our economy and make India globally competitive as we arrive closer to the 5.0 trillion target.
Entrepreneurial Ecosystem: I will now turn to the entrepreneurial ecosystem. India has made the fastest progress in improving the ease of doing business. India’s ranking in the world bank’s ease of doing business report has improved from 142 in 2014 to 63 in 2019, a jump of 79 places in a short span of five years. India is the fastest growing digital economy and has the third largest Start-up ecosystem in the world. This combined with a large pool of skilled professionals will make India the technology incubator of the future world.
Sustainable Development: India is not just growing, but growing responsibly. Even at low per capita income, we did not hesitate to undertake the global climate challenge. We took upon ourselves an ambitious goal of increasing the share of renewable and non-fossil power in our energy mix. We are committed to cleaning up our environment and making our growth resource sustainable for both our citizens and the world.
Inherent in India’s Growth Story is a natural partnership with the United States. This partnership is evolving fast both in strategic and economic domains. Our defence procurement relationship has gone up from almost nil fifteen years ago to nearly 20 billion today. India is now a major defence partner of the United States, we have signed a number of foundation agreements and our militaries exercise regularly with each other.
Our bilateral trade has been growing 10 percent year-on-year basis and is expected to reach 160 billion in 2019. Trade has also become more balanced with US exports to India growing faster than Indian exports to United States. Our investment relationship is also bi-directional with 2000 US companies investing around 40 billion in India covering almost every sector of the modern economy. 200 Indian companies have also invested 18 billion dollars in US creating more than 1,00,000 jobs directly.
Our strategic energy partnership has also grown with India importing nearly 8 billion dollars of oil and gas this year. We have long term cooperation in health technology with US agencies such as National Institute of Health and a range of collaborative research projects focussed on understanding chronic and infectious diseases at basic molecular/ clinical level and development of new therapeutics and diagnostics to address health care related issues, including development of new vaccines and treatment of multi drug resistant tuberculosis.
India is already the fifth largest economy in nominal terms and third largest in purchasing power parity terms ((IMF, WEO Oct 2019). As India inches towards the 5.0 trillion target it will become the third largest economy is every possible way.
Let me conclude by saying that the Indian economic juggernaut is on the roll and conditions are right for it to be a global super-power of the 21st century!
