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INDIA’S GROWTH: MIRAGE OR MILESTONE?
INDIA’S GROWTH: MIRAGE OR MILESTONE?
Syllabus:
GS-3: Growth & Development
Focus:
India is reportedly poised to overtake Japan to become the world’s fourth-largest economy by nominal GDP, as per International Monetary Fund (IMF) projections. While this milestone garners national pride, concerns linger over the true economic competitiveness, per capita income of India, and sustainability of inclusive growth. The article emphasizes that ranking alone is not progress, as highlighted in the latest economic survey. The Indian economy faces challenges in balancing growth with stability, as reflected in key indicators such as inflation and the unemployment rate.
RANKINGS ILLUSION:
- Nominal GDP: India’s expected GDP of $4.187 trillion could soon surpass Japan’s $4.186 trillion, marking an apparent shift in global rankings. The nominal GDP formula takes into account current market prices without adjusting for inflation. Understanding the GDP meaning and types of GDP, including the distinction between nominal GDP and real GDP, is crucial for interpreting these figures.
- Per Capita Gap: Despite a high total GDP of India, India’s per capita income remains low at $2,880, compared to Japan’s $33,900, revealing inequality in income distribution. This stark difference in India per capita GDP highlights the challenges faced by the Indian economy, including the need to address the unemployment rate and promote inclusive growth.
- Symbolic Transition: The announcement of India overtaking Japan is symbolic, not a measure of economic well-being or living standards. The economic rank of India in terms of nominal GDP doesn’t necessarily reflect the overall health of the economy or the India economy in trillion dollars.
- Jumping Gun: NITI Aayog’s premature celebration highlighted political eagerness but ignored the structural issues in India’s economy, including inflation and the need for robust exports growth, as pointed out in the recent economic survey.
- Short-term Shifts: Exchange rate variations and trade fluctuations mean these rankings are volatile, not permanent indicators of dominance. The world GDP in trillion dollars is subject to constant change, affecting individual countries’ positions, including the nominal GDP of India.
HISTORICAL CONTEXT:
- 1991 Reforms: Manmohan Singh’s economic liberalisation in 1991 set the foundation for sustained growth, calling India’s rise an “idea whose time has come“.
- Colonial Decline: Angus Maddison’s study revealed how colonialism and industrial revolutions in the West led to India’s economic decline after 1700.
- Asian Revival: The vision of an “Asian century” emerged with China and India reclaiming historical space in the global economy.
- Slow Recovery: While India has made strides, the recovery has been slower and uneven, lacking the industrial intensity of China. The industrial sector in India still faces challenges in terms of competitiveness and productivity, affecting real GDP growth.
- Global Crises Impact: India’s trajectory has been shaped by external shocks like the 2008 financial crisis, altering comparative global positions and affecting exports and foreign exchange reserves.
INDIA VS. JAPAN:
- Different Profiles: Japan is a developed, aging economy, while India is a young, developing one with demographic potential.
- No Rivalry: India does not yet pose an economic or geopolitical challenge to Japan, unlike China, hence Japan’s muted response.
- Trading Status: Japan is a major trading power; India is not yet fully integrated into global value chains or trade dominance. India’s exports, including services exports, are still developing and need further boost to contribute significantly to the nominal GDP.
- Stable Relations: Strong diplomatic ties and economic cooperation between India and Japan have fostered mutual goodwill.
- Leadership Response: Unlike Japan’s response to China’s rise, which triggered Abenomics, India’s rise has not stirred competitive urgency in Japan.
CHINA’S CONTRAST:
- Rapid Rise: China overtook Japan in 2010 when its GDP was $5.47 trillion, driven by exports and manufacturing.
- Global Concern: China’s ascent triggered alarm in Japan due to its growing economic and military influence.
- Strategic Rival: China was seen as a strategic rival, prompting major shifts in Japan’s economic and security policies.
- Political Fallout: The economic challenge led to the return of Shinzo Abe, focusing on aggressive growth measures.
- Economic Model: China’s state-led capitalism and massive infrastructure investment contrasted with India’s mixed economy.
THE REAL MEASURES:
- Inclusive Growth: Economic rankings mean little without inclusive growth that improves quality of life and reduces poverty. The Indian economy must focus on reducing the unemployment rate and ensuring equitable distribution of growth benefits.
- Human Capital: Investment in health, education, and skills remains critical for making India’s growth sustainable and equitable.
- Structural Reforms: India must pursue land, labor, and legal reforms to improve ease of doing business and attract foreign direct investment (FDI).
- Income Distribution: Wide regional and income inequalities threaten social cohesion and hamper overall progress.
- Productivity Focus: Improving productivity, especially in agriculture and informal sectors, is key to long-term growth. The agriculture sector contributes significantly to India’s gross value added and requires modernization to boost real GDP growth.
LOOKING AHEAD:
- $5 Trillion Goal: Crossing the $5 trillion GDP threshold could cement India’s position and widen the gap with Japan and Germany. The India GDP growth rate 2024 and India GDP 2024 projections are crucial indicators for this goal.
- Sustainable Development: Growth must align with climate goals, energy transitions, and green innovation.
- Global Strategy: India needs a comprehensive foreign and trade policy to expand influence beyond rankings and improve its trade balance, focusing on both goods and services exports.
- Competitiveness Edge: Boosting infrastructure, innovation, and institutional efficiency is essential for global competitiveness.
- Avoiding Complacency: India must avoid celebratory complacency and instead focus on ground-level progress and citizen welfare.
Conclusion:
India’s potential to overtake Japan in nominal GDP is undeniably significant, but GDP rankings alone do not reflect true economic progress. The focus must remain on inclusive development, institutional reform, and building resilient human capital. Real success will come when economic milestones translate into better lives for all Indians.
As highlighted in the latest economic survey, the Indian economy faces challenges such as inflation, current account deficit, and the need for robust exports growth. While the GDP growth rate of India 2023-24 is projected to be strong, sustainable development requires balancing growth with inflation control through effective monetary policy and fiscal policy measures.
The manufacturing sector and services sector both need continued support to drive real GDP growth. Agriculture, which remains a significant contributor to gross value added, requires modernization and productivity enhancements. Ultimately, India’s economic policies must prioritize job creation, poverty alleviation, and equitable distribution of growth benefits across all segments of society.
By focusing on these fundamentals rather than just nominal GDP rankings, India can work towards becoming not just a larger economy, but a more prosperous and inclusive one. The journey from a developing economy to a developed one is long, but with the right policies and execution, India has the potential to achieve sustainable and inclusive growth in the coming decades. Monitoring key economic indicators such as consumer price inflation, capital expenditure, and gross domestic savings will be crucial for assessing progress and shaping the economic outlook.
Source: IE
