SANJAYOVACHA | The Growth Leap Needed To Reach ‘Viksit Bharat’ | Sanjaya Baru

Delivering the Fourth B.P.R. Vithal Memorial Lecture last week, at Hyderabad’s Centre for Economic and Social Studies (CESS), the former deputy chairman of the now-defunct Planning Commission, Montek Singh Ahluwalia, posed the challenge of attaining Viksit Bharat in stark terms. The average rate of growth of the Indian economy over the past quarter century, Mr Ahluwalia reminded us, has been around 6.5 per cent per annum. For India to be considered a developed economy by 2047, “Viksit” as the Narendra Modi government puts it, the annual average rate of national income growth would have to be 8.0 per cent over the next two decades.

The policy challenge is to take the growth trajectory upwards by one and a half percentage points. This is not as easy as it sounds. The 6.5 per cent average of the past quarter century is a product of over 8.0 per cent growth in some years (especially over the first term of the Manmohan Singh government) and 5.0 per cent in some other years, especially in the post-demonetisation and post-Covid lockdown years.

So, if the economy has to notch up an average of 8.0 per cent over the next two decades it would have to have growth spurts of at least 10.0 per cent in a few of those years to compensate for years in which growth may be less than 8.0 per cent. This is a humongous task. If the rest of India can grow as fast as states like Telangana and Tamil Nadu have in recent years, only then can India hope to be “Viksit” by 2047.

Immediately after the Covid-19 pandemic I had published a collection of essays by prominent economists titled Beyond Covid’s Shadow: Mapping India’s Economic Resurgence (Rupa Publications, 2021). In writing my own essay for this collection I asked my Twitter followers and well-known economists, some working in the Narendra Modi government, to give me their subjective forecast of how they thought the economy would perform in the period 2020-2030. My Twitter followers and the professional economists were both divided in their estimates. 29 per cent of my Twitter followers felt that the economy would grow only by four per cent (an excessively gloomy view), 16 per cent said five per cent and another 16 per cent said six per cent. An optimistic 39 per cent forecast a growth rate of seven per cent.

As for the professional economists, their forecasts ranged between a pessimistic 3.5 per cent and an optimistic 6.5 per cent. As I have already mentioned, my sample of economists included prominent members of the Modi government’s policy-making establishment. A couple of them forecast a 6.0 per cent growth rate and a couple said 6.5.

Five years after Covid-19, given the creditable pick-up in growth, it is now clear that an annual average rate of economic growth of 6.5 per cent is probably the long-term average for the economy. The “new normal”, as economists would say. Much of the post-Covid growth has so far been driven by public investment and government spending. Going forward, the private sector has to step up to the challenge. It is still not clear if the “animal spirits’ of private enterprise, unleashed in the 1990s and which drove the growth spurt of that decade, have once again been stimulated or not.

Remember the fact that in the period 1950 to 1980 the Indian economy grew at an annual average of 3.5 per cent. This number moved up to 5.5 per cent in 1980-2000. While the economy did grow at around 8.0 per cent in 2003-2020, the long-term average for the quarter century 2000-2025 is 6.5 per cent. The spurt in the period 1980-2000 came from a significant improvement in the performance of the services and manufacturing sectors.

Together they contributed to an increase in the share of foreign trade in national income and to a sharp rise in India’s share of world trade. This growth process was driven by an increase in both the savings and investment rates.

The momentum gained during the decade 1991-2001 sustained the 8.0 per cent growth rates of the first decade of the twenty-first century. It was this spurt that triggered worldwide interest in India’s rise. Most of the books written by international relations scholars with titles such as India Rising, India: The Emerging Giant, and so on were conceptualised and written in that period. Even longstanding India-sceptics like Singapore’s founder Lee Kuan Yew recognised that India was now on a new growth trajectory. Lee suggested that the Asian “jet plane” would rise in the 21st century powered by two engines -- China and India.

Yet, over the past two decades, after the trans-Atlantic financial crisis of 2008-09, the Chinese engine powered forward at a rapid pace while the Indian engine has chugged along in spurts. India’s slowdown has contributed to a re-examination of its global standing and status, especially in relation to China. To be able to regain the image of a rising power, the Indian economy must improve its pace of growth.

However, this is easier said than done. First, the global geo-economic environment has become less supportive compared to the first decade of the 21st century. Through the 1990s and till 2015 or so, India’s exports did very well and powered the growth engines. Both domestic and global demand for Indian goods and services have now slowed down.

Second, the so-called “animal spirits” of private enterprise that spurred the growth process after 1991 have remained markedly subdued in recent years despite the talk about improving the “ease of business” at home. In a belated recognition of this ground reality, the Union government has accelerated policy liberalisation. However, two pre-conditions have to be met for the private sector to respond. First, domestic demand has to perk up. Second, the “ease of business” has to be felt in day-to-day experience.

Above all, the country’s political leadership must give up the pretence that all is well and focus on a multi-pronged strategy to accelerate economic growth while improving income distribution, fiscal management and, as Prime Minister Narendra Modi promised in his Independence Day speech of 2024, the “ease of living”.

Sanjaya Baru is a writer and economist. His most recent book is Secession of the Successful: The Flight Out of New India