India, the world's largest democracy, wants to replicate a relatively authoritarian China's spectacular success in going from being one of the poorest countries in the world to an upper middle-income country, by the World Bank's definition, in just about a generation.
India's GDP has to grow 8% every year for the country to become a developed economy by 2047, World Bank's Anna Bjerde told CNBC-TV18 in a recent conversation. How can India get to an annual growth of 8%?
India, too, has lifted 400 million people out of poverty. Still, India's economic growth pace is nowhere close to the enviable annual average of 9% that China has clocked since President Deng Xiaoping initiated economic reforms in 1978. Eight hundred million people have emerged out of poverty in China since then.
India, too, is on a path to reformation, but the pace of reforms must be faster for better economic growth.
The International Monetary Fund (IMF) and Nomura, a global investment bank, expect India's gross domestic product (GDP) to grow 7% in 2024.
"If you want to aim for more, 7.5% to 8%, which, by the way, we need for the kind of jobs we need to create in the next decade, then I think the government needs to take on much harder reforms, land, labour, ease of doing business, (and) farm laws," Pranjul Bhandari, Chief India Economist at HSBC, said in a conversation with CNBC-TV18.
You can watch the whole interview with Bhandari here:
Some of the reforms recommended by Bhandari aren't new. Policymakers have also shown the will to take up some of these reforms but have often failed due to the lack of political capital or consensus.
Modi's tryst with a section of India's farmers is a good example of a reform that can be tough to push through even with an absolute majority in the Parliament.
A similar proposal to overhaul India's land acquisition laws had to be revoked in 2015, during Modi's first term as Prime Minister.
"So I don't think really getting these bills passed will happen very quickly. But we will get to know if the government is really pursuing it, if they are really starting the conversation, they are reaching out to stakeholders I think that is something that will be clear in the next 100 days, if the government is actually interested in these reforms in a two to three-year horizon," Bhandari added.
India watchers like Richard Rossow of the Centre for Strategic and International Studies (CSIS) have always had a laundry list of reforms they'd like to see in India.
Some of them, like the privatisation of Air India and increasing the limit for foreign direct investment in defence and insurance, have passed.
The tougher ones, like the following, remain on the CSIS wishlist:
Other wishlists will include incentives for new-age sectors like technology, space exploration, as well as more money for education and healthcare. "If you can have a incentive policy for semiconductors why not healthcare," Dr Arvind Lal, the billionaire chairman of the diagnostics chain, Dr Lal Pathlabs, said.
Foreign investors and other stakeholders in the Indian industry will send the incoming government a similar wishlist after the 2024 Lok Sabha election results on June 4.
A government-funded growth is not sustainable in the long run
The bulk of the economic growth in recent years has come from a boom in roads, bridges, metro rail networks, coastal roads, and much more by the Narendra Modi government.
According to Bloomberg Economics estimates India will spend ₹4.4 lakh crore ($534 billion) on building new infrastructure between 2024 and 2026. These investments are expected to help lift the country's GDP growth to 9% by 2030.
However, India will need more private investment and consumption to sustain the pace. The government can't be the only driver of economic growth. Not for too long.
Finance Minister Nirmala Sitharaman has repeatedly implored the country's capitalists to show their faith in India's economic potential by investing their money here.
At 30% of India's GDP, capital investments were at their highest in the last nine years at the end of March 2024, according to a recent report from Aditya Birla Sun Life Mutual Fund.
Clearly, India's best capital investments in nine years are not enough to achieve an 8% GDP growth rate. It needs more.
It'll be tough for India to replicate the Chinese miracle
It also needs a faster devolution of the gains down the social pyramid. As citizens of a democracy, Indians don't like to wait as long as the Chinese for the trickle-down effect.
Like Deng Xiaoping's China, a big part of Modi's India seems to have made peace with the fact that some people will get richer faster than others in the broader pursuit of growth.
However, Modi, or whoever the next Prime Minister of India is, doesn't have the luxury of being as authoritarian as China's President can be.
The ongoing election rhetoric in India has been filled with debates about the right way to redistribute wealth.
At this stage, the answer may not be as obvious as the need for an answer. Consumption growth in India has been slower than the rise in capex, particularly among those lower down on the social ladder.
In a democracy, political capital is spent faster, and the government will have to increase welfare expenditures and enable more employment opportunities.
To stay in power, the government must pursue economic growth and distribute the fruits simultaneously, and that's a daunting task.
As a known Modi critic Raghuram Rajan, the former governor of the Reserve Bank of India (RBI), explained in a recent interview with Bloomberg, "Going forward, India needs to focus on the quality of its infrastructure and make sure the investment doesn't just benefit the major industrial firms."
To replicate the Chinese miracle, India will have to grow faster than China and for a longer duration than 30 years.
It may be just as daunting to achieve Modi's goal of making India a developed economy worth $35 trillion in 2047. Nonetheless, it's a goal worth chasing for any one on the Prime Minister's seat on June 4. Especially, since 70% of the country's people believe it's possible.
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India's GDP has to grow 8% every year for the country to become a developed economy by 2047, World Bank's Anna Bjerde told CNBC-TV18 in a recent conversation. How can India get to an annual growth of 8%?
India, too, has lifted 400 million people out of poverty. Still, India's economic growth pace is nowhere close to the enviable annual average of 9% that China has clocked since President Deng Xiaoping initiated economic reforms in 1978. Eight hundred million people have emerged out of poverty in China since then.
India, too, is on a path to reformation, but the pace of reforms must be faster for better economic growth.
The International Monetary Fund (IMF) and Nomura, a global investment bank, expect India's gross domestic product (GDP) to grow 7% in 2024.
"If you want to aim for more, 7.5% to 8%, which, by the way, we need for the kind of jobs we need to create in the next decade, then I think the government needs to take on much harder reforms, land, labour, ease of doing business, (and) farm laws," Pranjul Bhandari, Chief India Economist at HSBC, said in a conversation with CNBC-TV18.
You can watch the whole interview with Bhandari here:
Some of the reforms recommended by Bhandari aren't new. Policymakers have also shown the will to take up some of these reforms but have often failed due to the lack of political capital or consensus.
Modi's tryst with a section of India's farmers is a good example of a reform that can be tough to push through even with an absolute majority in the Parliament.
A similar proposal to overhaul India's land acquisition laws had to be revoked in 2015, during Modi's first term as Prime Minister.
"So I don't think really getting these bills passed will happen very quickly. But we will get to know if the government is really pursuing it, if they are really starting the conversation, they are reaching out to stakeholders I think that is something that will be clear in the next 100 days, if the government is actually interested in these reforms in a two to three-year horizon," Bhandari added.
India watchers like Richard Rossow of the Centre for Strategic and International Studies (CSIS) have always had a laundry list of reforms they'd like to see in India.
Some of them, like the privatisation of Air India and increasing the limit for foreign direct investment in defence and insurance, have passed.
The tougher ones, like the following, remain on the CSIS wishlist:
- Simplify goods and services tax (GST),
- Bring electricity, petroleum products, real estate, and alcohol under the GST regime,
- Privatise more government banks and do away with mandatory loans for farmers, small businesses, and microfinance lenders,
- Allow more foreign direct investment in e-commerce, multi-brand retail
- Deregulate prices of natural gas, kerosene.
Other wishlists will include incentives for new-age sectors like technology, space exploration, as well as more money for education and healthcare. "If you can have a incentive policy for semiconductors why not healthcare," Dr Arvind Lal, the billionaire chairman of the diagnostics chain, Dr Lal Pathlabs, said.
Foreign investors and other stakeholders in the Indian industry will send the incoming government a similar wishlist after the 2024 Lok Sabha election results on June 4.
Faster reforms will attract more private capital from abroad and within India, leading to a growth rate faster than the recent rate of 6% to 7%.
A government-funded growth is not sustainable in the long run
The bulk of the economic growth in recent years has come from a boom in roads, bridges, metro rail networks, coastal roads, and much more by the Narendra Modi government.
According to Bloomberg Economics estimates India will spend ₹4.4 lakh crore ($534 billion) on building new infrastructure between 2024 and 2026. These investments are expected to help lift the country's GDP growth to 9% by 2030.
However, India will need more private investment and consumption to sustain the pace. The government can't be the only driver of economic growth. Not for too long.
Finance Minister Nirmala Sitharaman has repeatedly implored the country's capitalists to show their faith in India's economic potential by investing their money here.
At 30% of India's GDP, capital investments were at their highest in the last nine years at the end of March 2024, according to a recent report from Aditya Birla Sun Life Mutual Fund.
Clearly, India's best capital investments in nine years are not enough to achieve an 8% GDP growth rate. It needs more.
It'll be tough for India to replicate the Chinese miracle
It also needs a faster devolution of the gains down the social pyramid. As citizens of a democracy, Indians don't like to wait as long as the Chinese for the trickle-down effect.
Like Deng Xiaoping's China, a big part of Modi's India seems to have made peace with the fact that some people will get richer faster than others in the broader pursuit of growth.
However, Modi, or whoever the next Prime Minister of India is, doesn't have the luxury of being as authoritarian as China's President can be.
The ongoing election rhetoric in India has been filled with debates about the right way to redistribute wealth.
At this stage, the answer may not be as obvious as the need for an answer. Consumption growth in India has been slower than the rise in capex, particularly among those lower down on the social ladder.
In a democracy, political capital is spent faster, and the government will have to increase welfare expenditures and enable more employment opportunities.
To stay in power, the government must pursue economic growth and distribute the fruits simultaneously, and that's a daunting task.
As a known Modi critic Raghuram Rajan, the former governor of the Reserve Bank of India (RBI), explained in a recent interview with Bloomberg, "Going forward, India needs to focus on the quality of its infrastructure and make sure the investment doesn't just benefit the major industrial firms."
To replicate the Chinese miracle, India will have to grow faster than China and for a longer duration than 30 years.
It may be just as daunting to achieve Modi's goal of making India a developed economy worth $35 trillion in 2047. Nonetheless, it's a goal worth chasing for any one on the Prime Minister's seat on June 4. Especially, since 70% of the country's people believe it's possible.
ALSO READ:
Betting markets expect 310 seats for the BJP, says Raamdeo Agrawal
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