The Promise and Peril of India's Economic Ascendency
India's economy is on the rise, but its path to prosperity faces significant challenges that will shape the fate of 1.4 billion people and the global economy
The Story:
India’s economy has been the subject of significant attention and hype in recent years. The country’s growth rate has been robust, with the International Monetary Fund estimating that India’s economy grew 7.8% in the fiscal year ending March 31. This impressive growth has catapulted India from the world’s 10th-largest economy in 2014 to the fifth-largest today, behind only the United States, China, Germany, and Japan.
The IMF further projects that India will become the third-largest economy by 2027, surpassing China and the U.S. India’s economic progress has also been marked by a substantial reduction in poverty over the past two decades. Oxford economist Sabina Alkire estimates that 415 million people in India exited poverty between 2005 and 2021, and the United Nations Development Program’s Multidimensional Poverty Index shows the share of Indians living in poverty falling from 27.7% in 2015-16 to 16.4% in 2019-21. The World Bank is even more optimistic, stating that only 12.9% of India’s population was living on $2.15 or less per day in 2021, a stark contrast to the extreme deprivation India was once synonymous with.
The Modi government has overseen significant infrastructure development, including the construction of 34,000 miles of national highways since 2014 and the transformation of India’s ports, airports, and other critical infrastructure. Additionally, the proliferation of internet access, cellphones, and bank accounts has improved the government’s ability to deliver welfare payments to the neediest citizens. India’s service exports have also continued to boom, with the country’s share of global highly skilled services nearly doubling from around 3% in 2005 to 5.8% in 2022. Multinational corporations have taken note, with JPMorgan Chase employing around 60,000 people in India and companies like Apple, Berkshire Hathaway, and Tesla expressing keen interest in the Indian market.
The Modi government’s focus on infrastructure development and service exports is a step in the right direction, but more needs to be done to address the issue of unemployment and underemployment. Only about 100 million out of India’s 1 billion working-age population have formal jobs, with the rest stuck in casual work or joblessness. This highlights the need for a more comprehensive approach to economic development that addresses the challenges of job creation and skill development.
While India has made significant progress in reducing poverty, there is still room for improvement. The government’s efforts to improve infrastructure and deliver welfare payments have been positive, but more needs to be done to ensure that the benefits of economic growth are distributed more evenly across the population.
Moreover, the Modi government’s focus on ideology and Muslim-bashing has curtailed political opposition and free speech, which may be hindering investment and the necessary social changes to transform India’s economy.
The View:
While India’s economic progress is undoubtedly impressive, it is important to recognize that the country’s ascent is not without its challenges. Despite the hype and optimism surrounding India’s economic potential, its per capita GDP of $2,730 is only a little more than half of Indonesia’s and a mere fraction of the United States’ $85,370 or China’s $13,140. Indermit Gill, the World Bank’s chief economist, estimates that it could take 75 years for India’s per capita GDP to reach a quarter of the U.S. figure at the current growth rate. Furthermore, India’s decision to remain outside major trade blocs like the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership has made it harder for its companies to integrate into global supply chains, putting them at a disadvantage compared to nimbler Asian rivals like Vietnam, Malaysia, and Singapore.
Modi’s ambitious goal of transforming India into a developed economy by 2047, the country’s 100th anniversary of independence, remains a lofty and uncertain target. Modi’s government has had some success in implementing reforms and driving infrastructure development, but it has yet to fully address the country’s central economic challenge: moving tens of millions of subsistence farmers to more productive factory jobs. The jury is still out on whether India can sustain its current growth trajectory and avoid the “middle-income trap” that has ensnared many developing countries. As the country navigates the challenges of deglobalization and the demands of its strongman leadership, the fate of 1.4 billion people and the global economy will be deeply intertwined with India’s ability to unleash its full economic potential.
TLDR:
India's economy has been growing robustly, with the IMF estimating 7.8% growth in the last fiscal year.
India has risen to become the 5th largest economy in the world and is projected to become the 3rd largest by 2027.
Poverty has been dramatically reduced, with the World Bank estimating that only 12.9% of the population lived in extreme poverty in 2021.
India's per capita GDP remains low, at about 1/30th of the U.S. and 1/5 of China's, and it could take decades to catch up to countries like Indonesia.
India has made it harder for its companies to be part of global supply chains by remaining outside major trade blocs and has struggled to move millions of farmers to more productive factory jobs.
While Prime Minister Modi has overseen significant infrastructure development and improved the government's ability to deliver welfare, there are concerns about his authoritarian tendencies and the impact on India's democracy.
India's economic model must evolve to create mass employment, potentially through a larger IT sector, export industries, and an efficient domestic market, but this will require transforming education, agriculture, and enabling more migration.
India's economic rise is evident, but it faces significant challenges to becoming the "next China" and realizing its full potential.
Insights From:
India’s Economy Isn’t the New China (Yet) - Wall Street Journal